OutsourcingJoseph Meyers

Ted Holmgren

Tyler Smith

Casey Mueller

Brian Updike

In-sourcing – to keep within a corporation tasks and projects that were previously outsourced

Outsourcing – to purchase (goods) or subcontract (services) from an outside company.

Off-shoring - registered, located, conducted, or operated in a foreign country Definitions from dictionary.com

Intro video

Nike Manufacturing Facilities

Video – Innovation

OutsourceWorld London

Replace the transitory business concept of offshoring with the longer term reality of globalization. (www.dr.richard-sykes.com) Dr Richard Sykes is Chairman of the Outsourcing & Offshore

Group of Intellect, the UK trade association for the IT, Telecoms and Electronics industries.

Mike McElwee is ICT Director at English Heritage and has a keen interest in performance management and benchmarking. Taking outsourcing from improving operational effectiveness

toward strategy

The outsourcing ‘model’

S.C.R.A.P. Scope Contract Relationships Audience People

Scope

Consider OutsourcingRoutine MeasurableGeneric Temporary

Overloads

Keep insourcedStrategyContract

management Difficult to measureVFM skills base Your own specialist

knowledge

Outsourcing & India

“The game here really isn’t about saving costs but to speed innovation and generate growth for the company.” IT outsourcing- 70% cost savings?

Average Salaries of Programmers

0

10000

20000

30000

40000

50000

60000

70000

80000

India Ireland US

HighLow

At-risk White Collar Workers

New industries outsourced: “Plenty of Americans know of India’s inexpensive software writers and have figured out that the nice clerk who booked their air ticket is in Delhi. But these are just superficial signs of India’s capabilities. Quietly, but with breathtaking speed, India and its millions of world-class engineering, business, and medical graduates are becoming enmeshed in America’s New Economy…

More IT engineers in Bangladore (150,000) than in Silicon Valley (120,000)

At-risk White Collar Workers (Cont’d)

U.S. software engineers- jobless rate has more than doubled to 4.6% in 3 years 6.7% for electrical engineers, 7.7% for network

administrators Accountants

20,000 returns in 2006 ($500/mo CPA’s) 200,000 projected next year

Positive View

India’s brainpower will fill a huge gap in skilled labor as baby boomers retireBy 2020, 47% of India’s population will be

between 15 and 59; 35% currently

“Just like China drove down costs in manufacturing and Wal-Mart in retail, India wil drive down costs in services.”

India’s Perspective

India’s IT boom hasn’t affected the majority IT service workers account for less than 1%

of workforce 300 million Indians subsist on less than $1

a day 1/3 of India’s 1 billion citizens are illiterate,

60% of homes having electricity

India’s Perspective (cont’d)

Younger generation seeks to deliver nation from povertyVideo clip

Government has confidence to tackle many social problems- highways, airports, deregulation of utilities

So far we have talked about

Steel

Sugar

Oil

Nike

70% of our GDP is service and 65% of jobs are in service

What is changing to make services tradable?

1. Key technological advances in international communication have changed how we transfer information.

2. Information has been codified, such that computers make it easier for less skilled individuals to perform tasks.

3. Consumers are becoming accustomed to doing business without interacting directly with a person.

What services can be traded?

Traditionally, the services industry was considered to be non-tradable.

The objective is to identify activities that are traded domestically as potentially tradable internationally.

Gini indexes

Industry ExamplesLow Gini (non-tradable)

Elementary Schools

Waste Management

Hospitals

Automotive Repair

Restaurants

High Gini (tradable) Management,

Scientific, and Technical Consulting Services

Securities and Financial Investment

Data Processing Services

From Stains on the White Collar

… the majority of jobs forecast to be lost pay less than the US average wage. These are not the software engineers from Silicon Valley. On the other hand, almost 10 million people work in high-paying business, financial, architecture, engineering, computer, and mathematical occupations projected to account for 30 percent of total job losses until 2015--and these occupations did account for 30 percent of the actual job loss from 2000 to 2002!

Projections for Job Offshoring

Bangalore Calling

Plants that are part of a U.S.-parent multinational company have 11 percent higher labor productivity than those that are only domestic, and this higher productivity supports a 7–15 percent wage premium (blue- and white-collar, respectively).

It is also the case that U.S. plants that are owned by a foreign parent are more likely to grow faster, employ more people, use advanced manufacturing technologies, and have 13–19 percent higher wages compared to domestic-only plants.

Which jobs do we outsource?

Where do we draw the line?

Can many of the jobs being outsourced be domestically outsourced?

Why Call Centers?

Lower costs

Greater speed

Greater accuracy

Call Centers--Alternative Approaches

Market3000 call center workers in India in 2000115,000 in 2005 (cfo.com)

“Homesourcing”

Domestic outsourcing

“Homesourcing”

Call center located in the Salt Lake Area

Stay-at-home mothers

Fueled by:Reach of personal

computer and a modemHigh cost to commute

What About the Wage Factor?

JetBlue CEO David Neeleman “We will never outsource to India. The quality we can

get here is far superior…[Employers] are more willing to outsource to India than to their own homes, and I can’t understand that. Somehow they think that people need to be sitting in front of them or some boss they have designated. The productivity we get here more than makes up for the India [wage] factor.”

Workers were 30% more productive Less attrition

Domestic Outsourcing

Steven Bigari

Drive-Thru service in Missouri, Minnesota, Massachussets

Order-taker in Colorado

ResultsBased on a study conducted by Booze Allen Hamilton

McDonaldsCut average time to take an order by 30

seconds 1 min 5 sec vs. 2 min 36 sec average across

McDonalds

Cut overall labor costs by 1% despite paying call center workers

Mistakes reduced to 2% from 4%

A few Facts

Unemployment is at 4.7% Service Industry added 62,000 jobs from August to

September Average time unemployed –

18.4 weeks in 2005 19.6 weeks in 2004

The IT industry created 76,300 jobs in the US between March 2001 and March 2004

The US outsourced 402,800 IT jobs oversees during that same period.

Video

Destroying our Village

Does Outsourcing Hurt America?

White Collar Workers may not have other jobs to train for.

New jobs created are subject to outsourcing as well creating a never-ending spiral of job creation in the US and exportation to other countries.

Outsourcing leads to a fake “jobless recovery.”

“It is a matter of survival for these firms… it would be virtually impossible to start a new IT or software company in silicon valley without offshore outsourcing”

(outsourcing – USA Today December 2004)

“Jobs are not created by the good intentions of legislators; they are created by companies free to be competitive in a

world economy”

– Keving Schmiesing

What should we do?

Protect borders with an advanced High Tech fire-wall. (ie. Illegal immigration)

Support education programs that build management and entrepreneurial aptitude in students.

Encourage strategic rather than cost cutting outsourcing.