Description
It also highlights the IT outsourcing and key figures with respect to that. What are the risks involves in offshoring.
Topic: Global Outsourcing and Value Chains
Definitions
Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company
Offshoring: Moving a business process to another country.May or may not be outsourced
Insourcing: Hiring another company to come in and perform a business process (e.g. logistics).
• Concepts have experienced continuous development – From • pure Make or Buy decision to Service management • Level of • autonomy • High • • First ideas of • strategic
Process of Outsourcing…………….
Deciding to outsource Supplier proposals Supplier competition
Negotiations Contract finalization
Process of Outsourcing contd…………….
Transition
Transformation
Ongoing service delivery
Termination or renewal
Reasons for Outsourcing
Cost restructuring
Cost savings
Knowledge.
Improve quality
Contract
Operational expertise
Staffing issues
Capacity management
Catalyst for change
Reduce time to market
Commodification
Risk management
BPO
Business Process Outsourcing (BPO)?
• Outsourcing = primary value chain functions • BPO = secondary value chain functions
Examples of BPO
• Credit card processing • Payroll • HR/ benefits • Expense receipts (extreme specialization). • IT Support
From global outsourcing of product to global outsourcing of services
1980s and 1990s saw global outsourcing of manufacturing – particularly to China,Taiwan, SE Asia- San Antonio-Mexico
2000s saw global outsourcing of services take off with availability of fiber optic cable, cheap air travel, Internet and telecommunication.
Anything that did not require face to face contact could be outsourced
Except the firm’s core competence
8
Examples of Outsourced Services
Business Processes • Payroll • Tax • IT • HR • Purchasing • Sales • Customer Service Knowledge Processes • Market Research • Equity and Financial Research • Pharma-research including clinical trials • Data mining • Libraries and databases • Legal Services
9
Essentials of Outsourcing.
1. Align supply and demand
2. Mitigate risk, maximize resilience
3. Build lean global operations 4. Leverage state-of-the-art technology
Value Chain…a chain of activities
•Infrastructure: general mgmt, planning, finance, IS •HRM: recruiting, hiring, training, and development •Tech. Development: R&D •Procurement Inbound Operations Outbound Marketing logistics logistics & Sales
Service
Supply Chain
Supply Management
Supplier
Firm
Distributor
Marketing and Sales
Customer
12
Benefits of integrating value chain and outsourcing
Cost Advantage Risk Management
Strategic Focus Time to Market
Why Outsourcing involvement for Supply Management?
KPO activities are frequently those that are potentially highly “innovative” They involve assessment of internal requirements and supplier capabilities – activities for which supply management has years of experience KPO involves managing “tacit” knowledge in the global supply chain- the new frontier in the supply chain
14
Why Outsourcing by Supply Management
It’s a natural for the Supply Profession Just like NPD is a natural for Marketing Profession It’s new, unstructured, and can have a great impact on firm innovation and intellectual property When properly integrated, KPO can leverage your firms competitive ability-Without losing US jobs
15
Off-shore Outsourcing in Asia
INDIA MALAYASIA
CHINA
• Has essential resources and robust infrastruture • 3 out of 5 CMM level companies are in India • 200,000 IT grads per year • Strong Govt. support and world class infrastructure
• Programmes to expand labor pool and deepen technical skills
• Business transparency and infrastructure improving • Low cost alternative
80% of outsourcing business in India
INDIA AND OUTSOURCING
How did India become the outsourcing king (the history behind it).
Y2K overwhelming US software engineers, hire Indian workers to come to US (or to US companies) to fix code.
These engineers begin to hire local help conduct work…and the rest is history.
Dot-com bust follows, IT budgets slashed. Indian workers return to India, retain relationship with US companies.
2007 2006
GLOBAL LEADER
Growth of outsourcing in India
• Infosys “grown eightfold in five years.” • Moving from routine to skilled work • Lowering cost and improving quality
Why does US like to work with India?
• English language • Cultural similarities (both former British colonies). • Strong educational system • Lots (~1B) of low-cost workers.
FUTURE AHEAD
What will India’s continued outsourcing success depend on?
• Supply of high quality graduates • Quality currently mixed • Improved infrastructure • Employee retention (call-center jobs stink). • 50% turnover vs. 70-80% in US/Britian
Faster, Cheaper, Better
“The Layer Cake” – 3 tiers of IT services How aggressive? Tailored technology services (e.g. Accenture, IBM)
How fast?
“The Middle” (e.g. ERP implementation)
Pure commodity services (e.g., data entry, call centers, software support, hardware assembly)
Worldwide IT services market
14 Size of market £ billion 12 10 8 6 4 2 0 2004 2005 2006 Year
Source: www.metagroup.com
2007
2008
Worldwide IT services market
Percentage share of market
Offshoring Other IT services
Source: www.evalueserve.com
IT offshoring industries around the world
IT Export Revenues (£ million)
4500 4000 3500 3000 2500 2000 1500 1000 500 0 Country
Source: www.evalueserve.com
Canada China Central and Eastern Europe India Ireland Israel Mexico, Malaysia, Latin America The Philippines Russia
Global delivery models
Service Responsibility Retained in-house Delivery Model
•Global IT departments •Acquisitions •Global organic growth •Shared services •Joint ventures •Alliances •Established multinational outsourcing companies •Established offshore service providers •Outsourcing companies specializing in offshore working •Emerging offshore companies
Source: Sparrow, A guide to global sourcing
Shared
Transferred to external service provider
Offshoring – the IT leaders’ perspective
• Background and context • What does offshoring deliver for your company? • The impact of offshoring on the wider UK economy • Developing tomorrow’s IT professionals
Offshoring – the IT leaders’ perspective
• Background and context • What does offshoring deliver for your company? • The impact of offshoring on the wider UK economy • Developing tomorrow’s IT professionals
Benefits of offshoring
Reduced costs Different balance between labour and infrastructure costs
Large pool of well-educated professionals
Quality management
Financial incentives offered by foreign governments
Follow the sun operations
Average annual programmer salaries
£35,000
UK
£30,000 £25,000 £20,000 £15,000 £10,000 £5,000
China India Ireland Malaysia Philippines Russia Singapore South Africa Vietnam
£0
Source: e-skills UK and Sparrow, A guide to global sourcing
Offshore IT resources
Comparison of export-focused IT professionals around the world with total UK IT workforce
900000 800000
Total UK employees Canada China Central and Eastern Europe India Ireland Israel Mexico, Malaysia and Latin America The Philippines Russia
700000
600000 500000 400000 300000 200000 100000
0
Source: e-skills UK and www.evalueserve.com
Offshore outsourcing: raising the quality management standard
• Traditional outsourcing
– By specialising in IT, outsourcing suppliers potentially offer better quality, world class services – Suppliers able to establish a track record and reputation for quality work – Extreme programming, agile methods and prototyping can be used to ensure systems fully meet business requirements
• Global outsourcing
– India has set a high benchmark for the new global outsourcing market – 75% of all companies world-wide that are accredited to CMM Level 5 are based in India – Can your company comply with high quality management standards? – System requirements must be fully and accurately documented for the offshore team
Offshoring risks
Cultural issues Risk to corporate reputation Higher overheads Geopolitical concerns Exchange rate fluctuation Unreliable power suppliers Security concerns Salary inflation Legal issues Loss of expertise Inadequate infrastructure Data protection issues
Poor IP protection
Offshoring risks and countermeasures
Geopolitical factors - choosing a supplier becomes more complex
• Risks
– Military conflict – Terrorism – Social unrest
• Countermeasures
– Spread operations over several locations – Contingency plans – Consider using a multinational service provider
Offshoring risks and countermeasures
Loss of expertise • Risks
– Unlike traditional outsourcing, staff do not transfer to the outsourcing service provider – Skills cannot be brought back in-house when outsourcing contract ends – Offshoring may detract new recruits
• Countermeasures
– Clarify future of in-house IT department – Identify all business-related expertise and consider retaining in-house – Contract management function
Offshoring risks and countermeasures
Putting your company’s reputation at risk • Risks
– – – –
– – – –
Customer problems are inflated by media reports Shareholder concerns Impact on brand loyalty Conflict with corporate values
Monitor customer feedback and complaints Act fast to prevent problems escalating Position offshoring in wider context of business strategy Incorporate in Corporate Social Responsibility plans and reports
• Countermeasures
What does offshoring deliver? - in summary
• Globalization is a natural consequence of the development of the worldwide IT industry • The potential cost savings from using offshore resources are compelling and cannot be ignored • We need to learn new lessons about deriving the best from outsourcing relationships • Greater savings are possible, but there is more risk too
Offshoring – the IT leaders’ perspective
• Background and context • What does offshoring deliver for your company? • The impact of offshoring on the wider UK economy • Developing tomorrow’s IT professionals
Offshoring is an example of globalization and economists agree that free trade is largely beneficial
“Free trade has had a powerful effect. Countries have become more open and have mainly benefited hugely from it. World trade growth has, over time, averaged two or three times the rate of growth of national output.”
David Smith, Free lunch
“When it comes to economic theory, free trade wins hands down. Trade promotes growth, lowers prices and gives consumers more choice. Clearly protectionist concerns about inequality and the environment should not be dismissed, but building tariff walls around countries is arguably not the answer.”
Jenny Scott, Living economy
Offshoring: plugging the labour shortfall
Offshoring – the IT leaders’ perspective
• Background and context • What does offshoring deliver for your company? • The impact of offshoring on the wider UK economy • Developing tomorrow’s IT professionals
Developing tomorrow’s IT professionals
Old attitudes
• Premium salaries are the norm • Soft skills are an optional extra for those interested in management • IT careers are for those who love technology • IT is separate from ‘the business’ • Sometimes business people move into IT but they don’t really understand technology
New attitudes
• Salaries closer to rates for other professional roles • All IT professionals expect to develop interpersonal and technical skills • IT careers are for those who love to find out how technology can help others • IT is seen as a fully integrated part of the business • IT people regularly move into and out of other business functions gaining a rounded experience
Developing tomorrow’s IT professionals - the challenges
• Changing attitudes • Recruiting new staff alongside offshoring initiatives • The image of IT as a career • The future for IT contractors
Offshoring – the future
• There is no going back – the globalized IT service industry is here to stay • IT service sourcing will continue to evolve • Globalization, automation and developments such as computing-ondemand will all influence the size and structure of the future IT workforce
doc_788904156.pptx
It also highlights the IT outsourcing and key figures with respect to that. What are the risks involves in offshoring.
Topic: Global Outsourcing and Value Chains
Definitions
Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company
Offshoring: Moving a business process to another country.May or may not be outsourced
Insourcing: Hiring another company to come in and perform a business process (e.g. logistics).
• Concepts have experienced continuous development – From • pure Make or Buy decision to Service management • Level of • autonomy • High • • First ideas of • strategic
Process of Outsourcing…………….
Deciding to outsource Supplier proposals Supplier competition
Negotiations Contract finalization
Process of Outsourcing contd…………….
Transition
Transformation
Ongoing service delivery
Termination or renewal
Reasons for Outsourcing
Cost restructuring
Cost savings
Knowledge.
Improve quality
Contract
Operational expertise
Staffing issues
Capacity management
Catalyst for change
Reduce time to market
Commodification
Risk management
BPO
Business Process Outsourcing (BPO)?
• Outsourcing = primary value chain functions • BPO = secondary value chain functions
Examples of BPO
• Credit card processing • Payroll • HR/ benefits • Expense receipts (extreme specialization). • IT Support
From global outsourcing of product to global outsourcing of services
1980s and 1990s saw global outsourcing of manufacturing – particularly to China,Taiwan, SE Asia- San Antonio-Mexico
2000s saw global outsourcing of services take off with availability of fiber optic cable, cheap air travel, Internet and telecommunication.
Anything that did not require face to face contact could be outsourced
Except the firm’s core competence
8
Examples of Outsourced Services
Business Processes • Payroll • Tax • IT • HR • Purchasing • Sales • Customer Service Knowledge Processes • Market Research • Equity and Financial Research • Pharma-research including clinical trials • Data mining • Libraries and databases • Legal Services
9
Essentials of Outsourcing.
1. Align supply and demand
2. Mitigate risk, maximize resilience
3. Build lean global operations 4. Leverage state-of-the-art technology
Value Chain…a chain of activities
•Infrastructure: general mgmt, planning, finance, IS •HRM: recruiting, hiring, training, and development •Tech. Development: R&D •Procurement Inbound Operations Outbound Marketing logistics logistics & Sales
Service
Supply Chain
Supply Management
Supplier
Firm
Distributor
Marketing and Sales
Customer
12
Benefits of integrating value chain and outsourcing
Cost Advantage Risk Management
Strategic Focus Time to Market
Why Outsourcing involvement for Supply Management?
KPO activities are frequently those that are potentially highly “innovative” They involve assessment of internal requirements and supplier capabilities – activities for which supply management has years of experience KPO involves managing “tacit” knowledge in the global supply chain- the new frontier in the supply chain
14
Why Outsourcing by Supply Management
It’s a natural for the Supply Profession Just like NPD is a natural for Marketing Profession It’s new, unstructured, and can have a great impact on firm innovation and intellectual property When properly integrated, KPO can leverage your firms competitive ability-Without losing US jobs
15
Off-shore Outsourcing in Asia
INDIA MALAYASIA
CHINA
• Has essential resources and robust infrastruture • 3 out of 5 CMM level companies are in India • 200,000 IT grads per year • Strong Govt. support and world class infrastructure
• Programmes to expand labor pool and deepen technical skills
• Business transparency and infrastructure improving • Low cost alternative
80% of outsourcing business in India
INDIA AND OUTSOURCING
How did India become the outsourcing king (the history behind it).
Y2K overwhelming US software engineers, hire Indian workers to come to US (or to US companies) to fix code.
These engineers begin to hire local help conduct work…and the rest is history.
Dot-com bust follows, IT budgets slashed. Indian workers return to India, retain relationship with US companies.
2007 2006
GLOBAL LEADER
Growth of outsourcing in India
• Infosys “grown eightfold in five years.” • Moving from routine to skilled work • Lowering cost and improving quality
Why does US like to work with India?
• English language • Cultural similarities (both former British colonies). • Strong educational system • Lots (~1B) of low-cost workers.
FUTURE AHEAD
What will India’s continued outsourcing success depend on?
• Supply of high quality graduates • Quality currently mixed • Improved infrastructure • Employee retention (call-center jobs stink). • 50% turnover vs. 70-80% in US/Britian
Faster, Cheaper, Better
“The Layer Cake” – 3 tiers of IT services How aggressive? Tailored technology services (e.g. Accenture, IBM)
How fast?
“The Middle” (e.g. ERP implementation)
Pure commodity services (e.g., data entry, call centers, software support, hardware assembly)
Worldwide IT services market
14 Size of market £ billion 12 10 8 6 4 2 0 2004 2005 2006 Year
Source: www.metagroup.com
2007
2008
Worldwide IT services market
Percentage share of market
Offshoring Other IT services
Source: www.evalueserve.com
IT offshoring industries around the world
IT Export Revenues (£ million)
4500 4000 3500 3000 2500 2000 1500 1000 500 0 Country
Source: www.evalueserve.com
Canada China Central and Eastern Europe India Ireland Israel Mexico, Malaysia, Latin America The Philippines Russia
Global delivery models
Service Responsibility Retained in-house Delivery Model
•Global IT departments •Acquisitions •Global organic growth •Shared services •Joint ventures •Alliances •Established multinational outsourcing companies •Established offshore service providers •Outsourcing companies specializing in offshore working •Emerging offshore companies
Source: Sparrow, A guide to global sourcing
Shared
Transferred to external service provider
Offshoring – the IT leaders’ perspective
• Background and context • What does offshoring deliver for your company? • The impact of offshoring on the wider UK economy • Developing tomorrow’s IT professionals
Offshoring – the IT leaders’ perspective
• Background and context • What does offshoring deliver for your company? • The impact of offshoring on the wider UK economy • Developing tomorrow’s IT professionals
Benefits of offshoring
Reduced costs Different balance between labour and infrastructure costs
Large pool of well-educated professionals
Quality management
Financial incentives offered by foreign governments
Follow the sun operations
Average annual programmer salaries
£35,000
UK
£30,000 £25,000 £20,000 £15,000 £10,000 £5,000
China India Ireland Malaysia Philippines Russia Singapore South Africa Vietnam
£0
Source: e-skills UK and Sparrow, A guide to global sourcing
Offshore IT resources
Comparison of export-focused IT professionals around the world with total UK IT workforce
900000 800000
Total UK employees Canada China Central and Eastern Europe India Ireland Israel Mexico, Malaysia and Latin America The Philippines Russia
700000
600000 500000 400000 300000 200000 100000
0
Source: e-skills UK and www.evalueserve.com
Offshore outsourcing: raising the quality management standard
• Traditional outsourcing
– By specialising in IT, outsourcing suppliers potentially offer better quality, world class services – Suppliers able to establish a track record and reputation for quality work – Extreme programming, agile methods and prototyping can be used to ensure systems fully meet business requirements
• Global outsourcing
– India has set a high benchmark for the new global outsourcing market – 75% of all companies world-wide that are accredited to CMM Level 5 are based in India – Can your company comply with high quality management standards? – System requirements must be fully and accurately documented for the offshore team
Offshoring risks
Cultural issues Risk to corporate reputation Higher overheads Geopolitical concerns Exchange rate fluctuation Unreliable power suppliers Security concerns Salary inflation Legal issues Loss of expertise Inadequate infrastructure Data protection issues
Poor IP protection
Offshoring risks and countermeasures
Geopolitical factors - choosing a supplier becomes more complex
• Risks
– Military conflict – Terrorism – Social unrest
• Countermeasures
– Spread operations over several locations – Contingency plans – Consider using a multinational service provider
Offshoring risks and countermeasures
Loss of expertise • Risks
– Unlike traditional outsourcing, staff do not transfer to the outsourcing service provider – Skills cannot be brought back in-house when outsourcing contract ends – Offshoring may detract new recruits
• Countermeasures
– Clarify future of in-house IT department – Identify all business-related expertise and consider retaining in-house – Contract management function
Offshoring risks and countermeasures
Putting your company’s reputation at risk • Risks
– – – –
– – – –
Customer problems are inflated by media reports Shareholder concerns Impact on brand loyalty Conflict with corporate values
Monitor customer feedback and complaints Act fast to prevent problems escalating Position offshoring in wider context of business strategy Incorporate in Corporate Social Responsibility plans and reports
• Countermeasures
What does offshoring deliver? - in summary
• Globalization is a natural consequence of the development of the worldwide IT industry • The potential cost savings from using offshore resources are compelling and cannot be ignored • We need to learn new lessons about deriving the best from outsourcing relationships • Greater savings are possible, but there is more risk too
Offshoring – the IT leaders’ perspective
• Background and context • What does offshoring deliver for your company? • The impact of offshoring on the wider UK economy • Developing tomorrow’s IT professionals
Offshoring is an example of globalization and economists agree that free trade is largely beneficial
“Free trade has had a powerful effect. Countries have become more open and have mainly benefited hugely from it. World trade growth has, over time, averaged two or three times the rate of growth of national output.”
David Smith, Free lunch
“When it comes to economic theory, free trade wins hands down. Trade promotes growth, lowers prices and gives consumers more choice. Clearly protectionist concerns about inequality and the environment should not be dismissed, but building tariff walls around countries is arguably not the answer.”
Jenny Scott, Living economy
Offshoring: plugging the labour shortfall
Offshoring – the IT leaders’ perspective
• Background and context • What does offshoring deliver for your company? • The impact of offshoring on the wider UK economy • Developing tomorrow’s IT professionals
Developing tomorrow’s IT professionals
Old attitudes
• Premium salaries are the norm • Soft skills are an optional extra for those interested in management • IT careers are for those who love technology • IT is separate from ‘the business’ • Sometimes business people move into IT but they don’t really understand technology
New attitudes
• Salaries closer to rates for other professional roles • All IT professionals expect to develop interpersonal and technical skills • IT careers are for those who love to find out how technology can help others • IT is seen as a fully integrated part of the business • IT people regularly move into and out of other business functions gaining a rounded experience
Developing tomorrow’s IT professionals - the challenges
• Changing attitudes • Recruiting new staff alongside offshoring initiatives • The image of IT as a career • The future for IT contractors
Offshoring – the future
• There is no going back – the globalized IT service industry is here to stay • IT service sourcing will continue to evolve • Globalization, automation and developments such as computing-ondemand will all influence the size and structure of the future IT workforce
doc_788904156.pptx