Sunday, August 17, 2008

Part 1: Outsourcing


We had a talk by a top-level manager from TCS who shared with us a few insights about the IT industry and how Indian Managers fail to fit into the global context. Some of the insights were really useful and I thought of sharing them with you (and also reinforcing those ideas into my own head).

These ideas will be divided into several parts. The first part is as mentioned in the title – Outsourcing.

What is Outsourcing?

Outsourcing is simply shifting the location of certain activities of your business, so as to gain competitive advantage over your fellow competitors in terms of price reduction. It helps the company reduce costs and improve its financial performance.

Outsourcing (or more commonly known in India as BPO “Business Process Outsourcing”) is not just the usual call-center jobs that we normally associate it with. Call-centers form one part of the BPO industry. Anything and everything can be outsourced – from teaching to tax-calculation.

Outsourcing is not just done by foreign companies – it can be done by any company in the world. For example, Indian companies can outsource tax-calculations and other menial jobs to South-East Asian countries like Vietnam and Philippines to save costs.

What processes can be outsourced?

Theoretically, the company can outsource any process it wants. But some processes are core to the company and there may be a certain amount of risk in outsourcing such processes. We can divide the processes of a company into four types. They are:

a) Core Processes: Core Processes are those that provide a competitive advantage to the company. For example, the patented manufacturing processes for a pharmaceutical drug

b) Contextual Process: These processes are necessary for the functioning of a company, but are not the main source of competitive advantage for the company. For example, manufacturing process of Maruti 800

c) Critical Mission Process: Such process is very critical to the company. If there are variations in its execution, then it will severely affect the revenues of the company as such. For example, innovation process at 3M

d) Non-Critical Mission Process: Such a process is not too critical to the company and small variations in its execution are acceptable as such. For example, the customer-service operations of many companies, that do not rely on prompt-service.

The processes can be represented in the matrix form as given below, also giving the details about whether to outsource or not.

So it is not just the cost benefits, but the process importance must also be taken into account before a decision is taken to outsource it.

Implications of outsourcing:

This is something can be discussed and debated at length. But I will not go into the details, because the debate is endless. According to me, it is necessary for the world at large, because

a) It helps the developing and under-developed countries gain easy access to jobs that are good paying (by their country standards) and enables development of the country

b) It helps the company cut down costs and makes it more competitive

c) It was responsible for the sudden IT surge and job-boom in India and is still responsible for the millions of jobs that are created every year in our own country

The speaker was once at a conference in England, where the main speaker, an Englishman, told the audience that after a few decades, the only people that would remain in England would be pub-workers, hairdressers and cab-drivers, because the rest of the jobs would have been outsourced to India!! He was mentioning how reverse colonization was taking place, where India was now taking away the livelihood of the people in England. It was also mentioned once in the Financial Times that the English Christmas was a “Christmas in London: Made in China and executed in India”. How – that is for you to think it out (Answer provided in the comments section)

I hope this was informative in some way. Do leave your feedback on this in the comments section.

Next post will be on “What do global clients feel about Indian managers?”


Varun Reddy Sevva said...

The goods ordered were being made in China as they were cheaper and the ordering was done though phone-calls, which were diverted to call centers in India i.e. the execution was dont by India... Talk about Globalization!

abhishek said...

hey its really insightfull go on