IN-HOUSE MANAGEMENT VERSUS

MANAGEMENT OUTSOURCED
 WHAT IS OUTSOURCING?
Outsourcing is a practice utilized by various organizations to decrease costs by
exchanging parts of work to outside providers as opposed to finishing it inside.

Outsourcing is a compelling cost-sparing technique when utilized appropriately. It is now

and again more reasonable to buy a good from organizations with than it is to produce the
good internally.

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 CONCEPT OF OUTSOURCING

- allows one or more of a company’s value – chain activities or functions

to be performed by independent specialized companies

- that focus all their skills and knowledge on just one kind of activity

WHY DO ORGANIZATIONS OUTSOURCE ?

- in an attempt to better align their business process with the goal of

the organization
• through the long term transfer of the daily operations to an
external service provider.

- In order to increase organization’s revenues, reduce expenses and

earn profits in long term, outsourcing trend continues to grow
 Why is outsourcing gaining popularity ?
Outsourcing is gaining popularity among all types of organizations, both public
and private because :

Firstly, It allows an organization to have an entire function performed by a

provider specializing in that particular function, for instance, benefits
administration.

Secondly, the service provider specializes in the function, it can often do the
work more cost – effectively , freeing the business assets to be used for
purposes that produce income.

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 Types Of Outsourcing
• Conventional outsourcing: buy a service from an outside party
(Agent) who is beyond the managerial control/perimetre of the
client organization (Principal), on an ongoing basis for a
transaction fee
• Greenfield outsourcing: refers to the situation where an enterprise
hires an outsourcing vendor to provide a business function that the
enterprise has never previously managed internally.
• Tactical outsourcing: situations where you need help for only a few
months or quarters
• Strategic outsourcing: strategy works best for long-term projects
where goals and requirements are well-defined.
• Transformational outsourcing: Service carried out by the provider
involves the radical redesign of ways of the implementation
of outsourced tasks resulting in major improvements in the
company's processes
Process of Outsourcing
 RECENT TRENDS

AI and automation:
Integrating artificial intelligence and automation technologies into
outsourcing processes to streamline tasks and reduce manual
intervention.
Cloud outsourcing:
Increased reliance on cloud infrastructure to facilitate remote work
and global collaboration.
Cybersecurity focus:
Prioritizing data security and implementing robust cybersecurity
protocols when outsourcing services.
Nearshore outsourcing:
Partnering with providers in geographically closer regions to
improve communication, cultural compatibility, and ease of travel. 8
Robotic Process Automation (RPA):
Utilizing software robots to automate repetitive tasks and processes,
enhancing efficiency.
Data analytics and insights:
Using data analytics to make informed business decisions and gain valuable
insights.
Knowledge Process Outsourcing (KPO):
Outsourcing complex knowledge-based tasks like analysis, research, and
consultancy.
Global workforce collaboration:
Accessing a global talent pool by leveraging remote work capabilities.
Talent management:
Focusing on attracting and retaining high-quality talent through outsourcing
partnerships.
 Reasons for Outsourcing

• Lower wages
• Ocusing on core business
• Regulatory cost
• To improve service outcomes
• Sharing risk with a partner company
• Effeciency
CHALLENGES TO OUTSOURCING
Organizations To Focus On Their Core Capabilities

• Boost revenue • HR focus on strategy

• Cut expenses • Improved service delivery
• Profitability increases • Reduce expense related
• Retaining of staff to staff
• Avoid technological cost. • Allow focus on core
• Vendor technology business
access. • Additional services
• Lack of in- house talent / • Better access to expertise
expertise • Enhanced compliance
• Cut costs
 RISKS

• Lack of security of customer and proprietary company information as well as

loss of control of work quality and the personnel .

• Organizations may face the loss of operational knowledge and negative public
opinion for reduction in the local work- force.

Other risks include :

• Less personal i.e. , face to face interactions are minimal.

• In-house talent is lost
• Relationship management can become ineffective with the service provider
• Morale of the employee tends to decrease
• Corporate culture faces negative impact
• This may lead to increase in the costs

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 ISSUES IN OUTSOURCING

• Ability of the service provider to deliver quality of

products or services.
• Protection and security of organizations internal data in
hands of the service provider.
• Risk profile of the outsourced service provider.
• Maintenance of honesty , transparency in service providers
dealings.
• Service providers compliance with legal regulations.
• Reliability in getting delivery of services and products on
time.
 WHAT IS "COST-BENEFIT" ANALYSIS?

• Decision-making technique that involves explicitly considering the position

outcomes (benefits) as well as the negative outcomes (costs) of different decision
alternatives.

• It is used to make decisions more consistently, systematically and correctly.

• It collects all available information about the costs of an HRM proposal , identifies
benefits such as cost savings and reduced turnover , and projects whether the
proposal will be cost- effective.

• The objective is to ascertain the soundness of any investment opportunity and

provide a basis for making comparisons with other such proposals.

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 COST BENEFIT ANALYSIS

Step 1 : Accurately, define the business process that the organization would like to
outsource.

• It begins with clear definition of the analysis will accomplish.

• A clear understanding of the process to be outsourced will help the company to ensure
that the services proposed by BPO provider matches the business outcome
expectations .

For example ,” the purpose of this analysis is to find out the cost – effective method of
administrating the employee benefit program “

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Step 2 : Calculate the in- house costs that could be avoided by outsourcing.

• To analyze what it currently costs the organization to have the function completed.

For example : if a function is currently performed by an employee , you would provide

the direct costs ( salary , benefits , taxes and so on ) and the indirect costs ( office space ,
insurance and so on ) .And then record the total current costs.

Step 3 : Calculate the total costs of outsourcing.

• The starting point is the BPO provider’s bid price.

For example : organizations may have costs for administering the outsourcing engagement
, such as processing change orders and monitoring and evaluating the provider’s
performance.

Step 4 : Subtract the costs of outsourcing from in –house costs to determine savings .
• When the analysis is complete, the results is a quantifiable recommendation for the
action that is in the best long term interest of the organization.

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Example : A single-year cost analysis
Costs of an in-house business process

Cost Categories Costs Costs Avoided by Outsourcing

[Link]/Wages/Benefits 3 crore 2.5 crore

2. Furniture/Equipment 1 crore 1 crore

3. Supplies 2 crore 1.5 crore
4. Software 2 lakh 1 lakh
[Link]/Communications 15 lakh 10 lakh

6. Facility Rent/Lease 1 crore 75 lakh

TOTAL 7 crore 17 lakh 5 crore 85 lakh

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 Costs of outsourcing
Cost Categories Costs
1. Vendor’s Bid Price 2.5 crore
[Link] Administration 20 lakh
3. Transition Costs
- Accrued vacation benefits 10 lakh
- Accrued vacation benefits 15 lakh
- Penalties for early lease termination 7 lakh
4. Revenue from Sale of Unused 7 lakh
Assets
Total 2.5 crore 59 lakh

In-house costs avoided by outsourcing - Total costs of outsourcing = Cost

savings of outsourcing
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• When considering outsourcing the company must weigh the benefits and losses/ risk
and put a value on your current in house program from an internal customer service
perspective as well as competitive advantage it presents.

• Cost – benefit analysis is just a tool to create a framework for making outsourcing
decision.

• Doing a cost – benefit analysis enables decision makers to account for the full
spectrum of budgetary issues that comprise any outsourcing project.

• Using both quantitative and qualitative measures, the analysis helps to prove, or
disprove, most effectively that an outsourcing project supports corporate goals and
outcomes.

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