What is outsourcing?
What are its risks and rewards?
If I outsource, what form of outsourcing
should I use?
What is the information utility concept about?
“act of moving some of a firm’s internal activities
and decision responsibilities to outside providers.”
“procuring of services or products from an outside
supplier or manufacturer in order to cut costs.”
“the delegation of administrative, engineering,
research, development, or technical support
processes to a third-party vendor in a lower-cost
Offshoring is looked at as a version of outsourcing
that procures services or goods from suppliers or
manufacturers outside of the country.
Interchangeability of Buzz Terms
Offshore Outsourcing/ Offshoring
BPO: Business Process Outsourcing
ODC: Offshore Development Center
GDC: Global Development Center
The Greenspan View
PRO Outsourcing and
Job Protection = Path
Protection Would Lead
to Job Losses
Why Outsource/ Offshore?
Main Factor: “Huge” Cost
Access to Skills and Capabilities Beyond the
“Wake Up Call” or “Motivational Impact”
Improved Operational Visibility
Access to Instant Capacity
Improved Service/ Decrease Time To Market
Cost Savings Breakdown
WOW! Huge Cost Reductions!
Offshoring is the Way To Go…
Not So Fast ….
There are Some
Risks Involved With
The Major Risks In Offshoring
Privacy and Security
Diminishing Technical Returns
Increased / Hidden Costs
Loss of Expertise (Mainly IT)
Impact On Your Employees
Impact on Your Customers
Failure of Outsource Provider 13
Additional Offshoring Risks
Political Stability Risks
What Makes Your Business A “HOT”
Candidate for Offshoring?
Top 3 Candidate Processes
Processes are Labor Intensive
Processes are Scale and Efficiency Driven
Processes Allow Remote Execution
What is New in Outsourcing?
More extensive applications and processes are
High-paying/high-skill jobs are being
outsourced (e.g., programmers)
Systems integration and management
Help desk operations
Reasons to Consider Outsourcing
Need to reduce cost Access to technology
Reduce capital Manage periodic
investment service demands
Staffing constraints Facilitate
Desire to enhance organizational change
service Generate revenue
Response to customer Keep up with the
Outsourcing Journal, April 2002
Interest in outsourcing based on:
Improving core business results…….……….. 39%
Cost savings………………….………….…… 36%
Upgrade current service levels………………... 9%
Inability to staff appropriately…………...….... 7%
Implementation of large scale initiatives……... 5%
Avoiding needed investment……………….… 4%
Misuse of information
Loss of control
Poor service tarnishes name
Institutional brand name dilution
Vendor goes out of business
How to Address the Fears
Develop a goal statement/identify a desired
Why do you think outsourcing will benefit
What are your expectations for outsourcing?
What is the state of your current service?
Who is affected by this service? How do they
currently evaluate the service?
Steps to Address the Fears
1. Develop a goal statement/identify a
To establish an on-line, integrated, real time
information system that provides customer
access 24/7 and permits customers to process
any administrative transactions via web based
Steps to Address the Fears - 2
2. Why do you think outsourcing will benefit
Outsourcing will benefit the institution by
providing a customer-friendly environment for
accessing accounts, processing administrative
transactions, and providing state-of-the-art
technology at a lower cost.
Steps to Address the Fears - 3
3. What are your expectations for outsourcing?
•More favorable customer satisfaction ratings after the
system has been implemented for 1 year
•Improved security for administrative transactions
•Decrease in number of errors to research
•An “audit trail” of all transactions
•Automatic scheduled backups with ease of
Steps to Address the Fears - 4
4. What is the state of your current service?
•Is the service delivered in a timely manner?
•Is service of the desired quality?
•Are service expectations being met?
•Are new features desired?
•Is staffing a problem?
Steps to Address the Fears - 5
5. Who is affected by this service? How do
they currently evaluate the service?
•Staff and administrators
•Boards, Legislators, and Regulating Bodies
Basis for Evaluating Outsourcing
Request list of current users
Request list of cancelled/former users
Contact references and verify vendor
performance in critical areas
Basis for Evaluating Outsourcing
Vendors - 2
Quality of Service
Speed and convenience of delivery
Accuracy and completeness
Standards of professional practice
Error rate/need of repeat service
Response to user-identified problems
Quality of vendor communication
Basis for Evaluating Outsourcing
Vendors - 3
Cost of Service
Include all institutional costs
Determine whether cost shifts occur
Identify hidden costs
Vendor support costs
Drawbacks of Outsourcing
Cultural barriers (organizational and national)
Legal differences (across regions)
Communications and infrastructure
Time and distance costs
The Outsourcing Contract
Outsourcing is a legal arrangement
Outsource providers are typically more skilled
in crafting contracts
Get help! – law firms and consultants
Managing the Contract
Ensure it spells out:
Roles and responsibilities
Losing control of the outsource provider
Replacing skilled with unskilled users
Losing knowledgeable people
Failure of the supplier to provide
Output at acceptable quality
Outsourcing Oversight Areas
Finance and budget. Operational service
Delivery of agreed upon levels, including
product within financial availability and delivery
constraints of work products
Customer satisfaction. Skills provided by
Both satisfaction by your outsourcer, with
own people and by your particular emphasis on
clients who depend on monitoring vendor
the output. personnel change
The quality of the The ability to deliver on-
product delivered. time
Forms of Outsourcing
Service providers (xSP)
To avoid making significant IT investments if the firm is
a startup or strapped for capital
To scale up an application during a growth phase or
after a merger or acquisition
To deploy a new application (such as CRM) rapidly
To obtain IT capability rapidly when available personnel
skills in an area are scarce
To gain an IT core competency.
To gain access to access to a high-end application that
if yours is a mid-sized or small firm and you can’t
afford buying it on your own. 36
Enterprise Offer high end applications that may have some
customization for such applications as ERP,
CRM, or supply chain management. Usually
includes availability guarantee.
Business ASPs that target mid-size and even small firms
to provide simple, standard applications.
Specialist Focus on a particular application
Vertical Focus on an industry such as banking
Will the supplier:
Provide the agreed levels of service
Meet the required security conditions
Precautions for Review
In examining a vendor be sure to:
Review vendor’s financial statement
Retain possession of your data
Obtain rights to any proprietary system so that
you are not permanently dependent on the
Outsourcing is big, controversial, potentially
rewarding, and potentially risky
Consider all the aspects before taking the