Top guns reduce outsourcing - The Road Ahead , Are we prepared ?

[manishp]

Top guns reduce outsourcing, says study Hidden costs, added complexity have prompted 25 percent of participants to reduce outsourcing activities among large corporates, states a Deloitte study. Wednesday, April 20, 2005

NEW DELHI: Hidden costs, added complexity have prompted 25 percent of participants to reduce outsourcing activities, according to a new study released by Deloitte Consulting LLP. Many of the world's largest organizations that were quick to participate in IT and BPO are bringing operations back in-house and exploring alternatives.

"There are fundamental differences between product outsourcing and the outsourcing of service functions, differences that were overlooked but have now come to the fore," said a senior strategy principal at Deloitte Ken Landis.

The study, "Calling a Change in the Outsourcing Market," reveals that 70 percent of participants have had significant negative experiences with outsourcing projects and are now exercising greater caution in approaching outsourcing. One in four participants have brought functions back in-house after realizing that they could be addressed more successfully and/or at a lower cost internally, while 44 percent did not see cost savings materializing as a result of outsourcing.

Moreover, 57 percent of participants absorbed costs for services they believed were included in the contracts with vendors. Nearly half of the participants in the study identified hidden costs as the most common problem when managing outsourcing projects.

According to the study, participants originally engaged in outsourcing activities for a variety of reasons: cost savings, ease of execution, flexibility, and lack of in-house capability. However, instead of simplifying operations, many companies have found that outsourcing activities can introduce unexpected complexity, add cost and friction into the value chain, and require more senior management attention and deeper management skills than anticipated.

"In the near term, outsourcing will become less appealing for large companies because it is not delivering the value as promised, and its appeal as a cost-savings strategy will also diminish as the economy recovers from recession and companies look for differentiated solutions to support their growth," said Landis.

source -
http://www.ciol.com/content/news/BPO...=5_20246_Apr25

Though this might not be a short term threat, but how do we go on from here....?

~

[shalinshroff]

maja naheen aaya. ie behind their concept of hidden costs. I dont know how "more senior management attention" can escalate costs so much so as to prompt the companies to do a rethink on the outsourcing of servises..

Anyway, i am no expert to pass judgements. But feel that there are many such fly-by-night reports which come everyday.

What i feel is that the BPO industry basically faces two problems:

1)Data security.. A legislation is in the offing.Also the firms have to be more careful while recruiting people.
2)Booming economy leading to an increase in wages which tends to offset our cost advantage. Also, limited skilled manpower and competition from other service sector industries like hotel and banking for the same. Therefore, we need to project ourselves as more of a skilled service hub rather than a cheaper alternative.

shalin..

[anuragrp]

if u were 2 believe rakeshji of wipro spectramind, he says thats its d exactly opposite of d title of d thread, like what my friend shalin suggested..

i was there 4 pi of wipro spectramind recruitments of this western region..
and i believed him...

[manishp]

Agree with you there.. Though the BPOs did try to have some order in their ranks vis a vis curbing attrition through those one year must have stints for their employees.... and now as shalin pointed out the legislation on the data security.

Not sure about recruiting the right people... as the recruitments themselves are these day outsourced to the agencies.

But more lately.. on the IT front .. there has been a tendency by the big outsourcing players to reduce their risks via multiple vendors options and sticking to what they have defined as the Tier 1 vendors. So thats multiple vendors within Tier 1 players...Thats a distinction which has come, going by the quality of delivery by various vendors in the market... and is an indication that a lot of players still need get their act together....

~

[anuragrp]

Originally Posted by manishp

Agree with you there.. Though the BPOs did try to have some order in their ranks vis a vis curbing attrition through those one year must have stints for their employees.... and now as shalin pointed out the legislation on the data security.

Not sure about recruiting the right people... as the recruitments themselves are these day outsourced to the agencies.

But more lately.. on the IT front .. there has been a tendency by the big outsourcing players to reduce their risks via multiple vendors options and sticking to what they have defined as the Tier 1 vendors. So thats multiple vendors within Tier 1 players...Thats a distinction which has come, going by the quality of delivery by various vendors in the market... and is an indication that a lot of players still need get their act together....

~

right!!
one more thing i remember rakesh sharma quoting, that all d smaller players wil merge with d bigger players like wipro and eserve and al that...
much like what u have indicated. though not in direct words, my friend...

[manishp]

Reg, the cost of management and attention based... i guess i can think of a scenario.. call it a case study...

U have 4 prjs under a stream .... lets say stream A and there are projects 1 , 2, 3, and 4 interacting with each other as they fall under a functionally derived stream. U have guys heading those projects and a guy heading the stream. Now the top gun has decided to outsource the enitre stream... but if he gives it on say one vendor.. then he has the risk of jeopardizing the quality of service as there mite be intra project arrangements / compromises between lets say prj 1 and prj 3 that they would do an implementation in a particular way as in any case they belong to the same vendor.

So the top gun wud need to ensure sufficient checks and monitors to ensure that such agreements are not detrimental to either prj / stream . Implies adding of cost of monitors and checks upon the existing costs of vendor.

or alternatively.. the top gun may decide to outsource each prj to a different vendor... which implies again adding each vendor specific costs and then the costs of ensuring that the guy heading the stream has enough information to care of each prj needs. Add to that the costs of ensuring the quality consistent at the stream level.....

Now option two would be beneficial .. as it breeds a competitive spirit among the vendors but has the added cost of maintaining separate vendors....on the other hand option one would be useful in terms of ease of management but has the risks and thereby the costs of ensuring the quality....

What would the call be in this case for the Top Gun ( TGs )....?

Just pouring some situation which i have seen faced by one of the TGs....

~