Seven Stages of Outsourcing Process

The first stage in outsourcing is planning initiative. As with any significant new initiative planning activities, including project management issues are important. Typically, cross functional terms are formed to study & implement outsourcing initiatives so team member & leader selection come into play. The project team assesses the risks & the resources information & management skills needed to mitigate those risks. Tem objectives deliverables & timetables should be set & management buy in must be achieved. After the planning initiatives, next step is strategic implications.

Strategic Implications: Outsourcing can be a powerful tool. To harness its power, however includes asking fundamental questions regarding outsourcing's relevance to organizations:

• Vision of future
• Current & future structures
• Current & future competencies
• Current & future costs
• Current & future performance
• Current & future competitive advantages

By exploring the answers to these questions the project team is better able to understand how outsourcing can fit within the organization's strategy.

Analyzing Cost & Performance is the next stage. The offshore outsourcing project team conducts activity-based analyses in order to understand the costs of the activities that might be outsourced & those that are staying. To this are added the cost of investment capital & the estimates costs of poor performance. Further having gathered activity based costs for existing activities the team makes reasonable projections of future costs of these activities. It estimates which costs do not disappear with outsourcing & what new costs will be incurred as a result of outsourcing.

The next stage is Selecting Providers. The project team lists the criteria for a qualified provider based on the reasons to outsource. Potential providers are identified & preliminary investigations are made to determine their qualifications & confirm their interest in transaction. Their qualifications are then compared to the criteria & a decision is made on whether they should be invited to purpose. RFPs are prepared & delivered to the targeted provider's list. Further discussions are held by senior management & finally a prime candidate is selected & negotiations can be planned.

The negotiations begin with a term sheet, which is used to convert the RFP & resulting proposal into an informal contract summary. To do this the parties negotiate the terms & reach the final agreement on the major issues. The term sheet leads to the detailed negotiations, which enables the lawyers to draft the contract document.

When the deal is done, it is time to begin the transition of resources. The human resources issues are carefully addresses & with sensitivity. The other factors of production such as equipment, facilities, software, & third parties agreement may then be transferred to the provider.

The last stage of outsourcing is relationship management. To build the relationship effectively, the relationship manager & the organization should be active in monitoring & evaluating the performance. If this doesn’t occur, the provider's performance is likely to suffer

History of Offshore Software Outsourcing

Outsourcing is a term discovered by the information systems trade press in late 1980s.It was coined to describe the growing trend of large companies transferring their information systems to providers. Offshore outsourcing & software development took a pace due to the competition among the various companies. Earlier manufacturers in automobile industry have made component parts that were unique but when they became commodities the manufacturing units started outsourcing components to the offshore outsourcing services providers. In recent years, companies have been actively outsourcing information systems & technology, telecommunications, Management services & more. The list goes on. But it has proved more beneficial for IT & ITES sectors.

Outsourcing is the act of transferring some of the organization's recurring internal activities & decision rights to outside providers, as set forth in contract. As a matter of practice, not only are the activities transferred but the factors of production & decision rights often are too.

Outsourcing has proved beneficial for both the service providers& buyers as it is a way for an organization to increase its effective capacity without investing capital in facilities, machines & training. It may also be thought of a way to enhance the organization’s competitive edge in the areas of cost, time, quality & flexibility by selecting the best sources & by developing long lasting relationship with selected suppliers.

India has become the largest destination for offshore outsourcing. This is due to the reason that India has well talented professionals who are also ready to work at low prices. All the BPOs, KPOs are doing exceptionally well in this. The reason behind this is the active actions taken by the legislature upon the breach of policies. Indian law of court provides the foreign country with an advantage of choosing the law of court. India is going to make a remarkable mark in the history if continues to work with the same pace in IT, finance, accounting & other sectors.

Outsourcing to India & Legal Aspects

Outsourcing has brought a revolution in the field of IT sector. Today every company is thinking of going for offshore outsourcing. If yours company is the one then following tips will help you before or while entering in it:

1. Contracts can change so ensure companies defines a clear detailed set of rules for changing the contract during it life.

2. It is important to include lawyers in earlier stages of outsourcing. The relationship's structure & the fundamental terms that affect the parties' contractual rights are often settled early & not during the formal contract negotiations. This will help the organization to have a victorious contact.

3. Companies must be clear from the stage of planning initiation that the contracts can be terminated or extended as per the performance delivered to avoid disputes.

4. If the countries are not the same take the help of the local council before drafting or signing any contract. The local knowledge will prove extremely valuable.

5. Information transfers across borders can be tricky in some companies, so ensure you are aware of the legal position regarding outsourcing of your sensitive data.

6. Where the chosen Law is Indian Law and if Indian Jurisdiction is to be applied on any foreign country, ensure that the foreign country has a similar law as per Section 44A of the Indian Civil Procedure Code.

Offshore outsourcing to India is getting pace day by day. India has become the destination for outsourcing .Companies has to follow some legal rules while selecting India as its destination

1. When contracts are handled between two countries then the law of only one country is not sufficient to handle the whole contract. At that point of time, the rules of Private International Law comes into play. The best way solution for the two parties is to choose a particular law for the contract. This law is called the "Proper Law of the Contract".

2. According to law court of India, it’s not compulsory that India will always have the contract & jurisdiction. It’s the intention of the two parties which will decide which country will have the contract & which foreign court will handle the jurisdiction.

Different Forms of Outsourcing in IT World

IT outsourcing began to evolve in early 1960's, largely in response to cost saving opportunities. In 1963, EDS signed an agreement with Blue Cross of Pennsylvania for handling its data processing services. This was the first time a large business had turned its entire data processing department to a third party. Following the trends, Kodak also outsourced its mainframes, telecommunications & software development & maintenance services to IBM. More companies are now joining in hands to outsource its business. Most of the deals formed earlier were single vendor total outsourcing contracts but as outsourcing went on global level different types of outsourcing arrangements have emerged like BPO, application service providers(ASP), KPO.

Business Process Outsourcing has become a strategic business choice that can be leveraged for competitive advantage. It enables client to focus on their primary business operations & to achieve a combination of lower costs, improved productivity & flexible staffing options. IBM BPO services include human resources & customer relationship management. There is also business application outsourcing which helps companies to control software development costs keeping up with the latest market changes. To benefit businesses, companies hire consultancies for their software development applications. IBM hires Salix Resources for the same purpose.

After seeing the profits that are earned through BPOs, companies have now started outsourcing knowledge as well. KPO is now emerging as the biggest opportunity in the coming years & has brought a revolution in all fields. Hewitt Associates is the best example in this regard. KPOs provide with the best infrastructure facilities, staff & latest technologies as well. Cost saving through KPOs is enormous. The future of KPO is encouraging for all the people of all fields .Let it be business or employment. KPO will provide massive employment to the talented professionals in the coming years. India will be the largest KPO sector by 2010 followed by China, Russia & others as reported by NASSCOM. Studies reveal that KPO will not be limited to IT or ITES sector only but in the coming years prove its mark in Business Research and Analytics, Legal Processes Outsourcing, web application development, Consultancy, accounting etc

Trends in Offshore Outsoucing 2007

Outsourcing is a rapidly growing phenomenon among primarily US and European companies to offshore work to third party vendors at highly reduced costs. The intention is to take benefit of the lower wages & costs in countries like China, India, Philippines & Russia. Offshore outsourcing ranges from contract manufacturing, IT, Software Development, Manpower Training, etc. The choice of a nation for offshoring depends on factors like language & education of the local work force, transportation systems. For Example countries like India & china, are educating high numbers of skilled engineers & scientists from their universities -thus enabling these nations to attract massive engineering, research & development contracts.

Today in the IT world, offshoring has proved a boon not only for the job seekers but the also for the many offshore outsourcing companies. As companies strive for ever more extreme competitive advantage in today's economy, more companies in developed countries are looking for wider markets to expand their business & the same trend can be followed in 2007.As the world's largest software industry, US continues to outsource its software development globally .It has become the largest software outsourcing client in the world. Outsourcing software development has become a prominent business practice

According to the news release the Business Process Outsourcing (BPO) sector in India has seen a down fall in its business in first quarter of 2007.The number of contracts signed in 2007 are less as compared to that of the first quarter of 2002 .The trend is more likely to be inclined towards Knowledge Process outsourcing (KPO) now as companies have started graduating from BPO towards KPO Hewitt Associates is the best example in this regard. Although it’s a US based company it growing its roots in India as well very quickly o take advantage of the developing KPO scenario.

In 2007, companies will look for enhancing the security and confidentiality of data. Services like outsourced payroll management, accounts management, client information management like credit card processing, insurance claim processing etc. need to be handle with tight security by capable outsourcing service providers. This will help in achieving better client satisfaction.

Being fluent in English doesn’t take the business around the globe. For better results, fluency in other languages & technologies is going to play a vital role in offshore outsourcing to obtain more profits. Outsourcing from non English speaking nations like Germany, Mexico, etc. has huge untapped potential.

9 mistakes to avoid while deciding to outsource

1. Improper selection of Outsourcing partner: Negotiating an outsourcing contract involves a significant investment of time from beginning to end. At the stage of selecting the service provider it is sensible to enter the process with an aim of helping each vendor to put forward the best, most relevant offer possible which is within their capability. The vendor will put forward the best possible offer if he sees opportunity for future revenue growth. You can negotiate better deal if the vendor is impressed with the potential of your operations. It is pertinent that vendor is taken in confidence with your vision about the outsourcing assignment and where the deal will head in future.

2. Not monitoring the execution of the Outsourced deal:

Selecting the right service provider doesn’t mean that the company put the entire burden on them. They shouldn’t overlook the work load & try to involve with your IT support provider. When you stop being involved with your IT support provider, requirements not clearly explained and problems are more likely to arise. You must involve in the regular meetings, setting goals & expectations otherwise it may lead to the sufferings in business .Regular meetings are important when you have multiple technology vendors

3. Ambiguous Scope of work: The linchpin of the outsourcing contract is a description of the nature of the work being outsourced, often referred to as the "scope of work”. The project scope must be well defined & understood at both the ends. The service provider must understand the business model. A service provider who sees the bigger picture of the business is always a better choice.

4. Conflicts among parties: Sometimes, there are conflicts between the two parties on certain work issues. If the dispute cannot be resolved through joint problem solving & negotiation, then they must involve a third party. It is more about correcting and preventing mistakes within shortest possible time and moving ahead rather than holding on to an issue. Be open to resolving conflicts.

5. Miscalculation of Costs: Unfortunately, most companies capture costs on a cost element basis (such as salaries, benefits, rent & depreciation) as opposed to activity basis. The outsourcing team must conduct activity based analyses in order to understand the cost of activities. Further, having gathered these costs; the team should make reasonable projections of future costs for these activities. These costs must be added to the provider's pricing. Maximizing these activities will yield more profits & help in making buying & selling decision.

6. Not following the Outsourcing agreement: The concepts in an outsourcing agreement are hard to follow exactly, they generally require a transparency. It is not unusual to come across situations where a concept is well defined in the terms of rules & regulations, but they require a lot of management to complete it .The parties should never make any verbal statements which can bring bad name to their work & status .The solution to this is to ensure that your lawyers talk to the service delivery people

7. Poor Planning in an unplanned manner will surely be a disaster. Proper responsibility and authority should be delegated to the concerned parties to manage the structure. Proper terms need to be drafted to ensure smooth flow of specifications in case of Offshore Software outsourcing. Simultaneously, proper feedback and reporting routines need to be set up.

8. Thinking Outsourcing as the only solution: Most organizations consider IT outsourcing as the only solution because they don’t want to waste their time in non core activities. While outsourcing can indeed ease some operational sore spots, this should not be the main reason for employing the strategy.

9. Not listening to the markets: Companies should never forget that market changes can alter the relative value that outsourcing can offer completely. It is advisable that the management should keep itself updated with the latest market trends so that they do not have to suffer any loss.

Selecting Outsourcing Partner

The Outsourcing partner selection & identification process has a life cycle of its own, beginning with scouting the Internet, Company databases and personal contacts to identify potential partners. The partner identification & selection phase of the BPO & IT sector life cycle demands a meticulous approach. There are undoubtedly qualitative factors in selection of partner, but the process can also be conducted systematically & with rigor. Software Development Companies that pioneer BPO have well documented approaches for identifying & selecting outsourcing partners.

Choosing the right offshore partner to outsource all the jobs to is not easy. It is not possible that one single company will satisfy all our needs. When looking to outsource routine jobs one should be careful in identifying the basic issues in outsourcing. We must not forget to evaluate the offshore outsourcing company for its goals, achievements and capability. When selecting the software development outsourcing partner, one must cross check it’s existing client base, the service level, the management and most importantly the infrastructure and scalability. Get an idea of the projects that the company has handled before & its success rate in those projects. One should give due consideration to a company with highly trained work force, low costs & proven procedures and policies.

Today, every company is assuring to provide the best offshore outsourcing services but only few are capable to cope up with the changing trends in the market & survive. So, it’s very important to evaluate the company in each & every sphere of work. It’s not always the brand that works. The workforce, Management and the zeal to deliver along with proper policies and procedures are a must to get the best out of an Offshore Outsourcing deal.