MODULE 2
Fundamentals of Outsourcing
Learning Objectives
At the end of this module, students are expected to:
• Name and define the types of outsourcing
• Enumerate and differentiate the different outsourcing strategies
• State the common types of activities and tasks being outsourced
Course Overview
• The 2 types of outsourcing
• Outsourcing as a business strategy
• Outsourced activities/processes
• Core vs non-core processes
Putting things into context
• No man is an island
The Two Types of Outsourcing
Third Party: Shared Service Center:
• Owned by a service provider, a • Wholly-owned by the mother
local entity or part of a global group company
• Providing services to clients of the • Providing services entirely to
service provider affiliates and subsidiaries or more
rarely to clients of the mother
company
Strategies for Outsourcing
Multisourcing
Crowdsourcing
Onshoring
Nearshoring
Offshoring
Multisourcing
• Multiple vendors for client’s outsourced project
The obvious benefit or advantage to multisourcing is that the buyer or the
client can leverage the best possible: technical expertise, support infrastructure,
system or product support from the host of service providers that they engage
through separate contracts
One disadvantage that can arise is the minute possibility of incompatibilities
of technologies intended to work together. Then again this is easily overcome
with project planning, testing, training, and, quality assurance .
Crowdsourcing
• Crowdsourcing is the practice of obtaining needed services, ideas, or content
by soliciting contributions from a large group of people, and especially from
an online community, rather than from traditional employees or suppliers.
Onshoring
Onshore Outsourcing simply means that the vendor or service provider is based in
the same country as the client company.
Advantages:
• Allows immediate response
• Local contractors have the same market knowledge, culture, language,
communication style
Disadvantages
• Risk of inadequately selected, trained, supervised staff
Nearshoring
The transfer of business to a nearby country, often sharing the same border
Advantages:
• Compatibility of schedules
• Significant labor cost arbitrage
Disadvantages:
• Additional coordination costs
• Transfer pricing, tax margin requirements
Offshoring
• Vendor and client in different countries
Advantages:
• Fast ramp at reasonable cost
• Opportunity to expand into new areas cost effectively
Disadvantages:
• Data privacy confidentiality issues
• Lack of right business acumen/right market knowledge in offshore location
• Cultural difference leading to delays and miscues
What to outsource – 2 types
Core Activities – Tasks – Processes:
• Primary process or product of the business
• Tasks that deliver the final product, the unique value proposition of the
company
• Essential, defining activities of an organization
Non-Core Activities – Tasks – Processes:
• Support activities, processes and functions
What NOT to outsource
Core activities such as:
• Design
• Product development
• Process
Support function/Services that can be
outsourced
• Accounting
• Administrative tasks
• Cafeterias
• Security
• Janitorial Services
• Trucking/Shipping
• Construction
• Marketing services
Routine activities or activities that can be
automated at larger centers:
• Small banks outsourcing check processing to larger banks, riding on ATM
base of multi-bank network
• Small vendors using [Link] as data center, marketing and payment
processing platform
• Banks using common/multi-bank core banking services of large technology
providers
Task 2
Group Activity:
Putting it all together
Each group will be assigned one of the
following businesses:
• Restaurant
• Salon
• Clothing
• Printing Shop
• Boutique
• Flower shop
Group Activity:
In your respective teams, create your business concept and supply the following
information:
• Name of your business
• Products and services with prices
• Tagline of your business
• Marketing Strategy
• Operating Process
• What functions (products or services) will your business be outsourcing?
Note: this will be presented in the class