Friday, October 22, 2010

Outsourcing – An innovative approach to right sizing

For managers of olden days, each organization or company is a wholesome – wholesome in a sense that each and every function of business right from the induction of manpower to purchase of raw material and all other managerial and productive functions are to be performed by segments within the same organization. And that is what we have been doing since time immemorial. Well this could continue, but smart managers find the system cumbersome, straining both mental faculties and scarce financial situation.

So they have come up with an innovative approach – outsourcing. That is contracting out a business function(s), previously performed within, to an external source professional in that particular field. For example induction of manpower or selection of raw material. Now instead of having a dedicated segment within to carryout recruitment, selection and induction, one simply spells out the requirement to the selected firm dealing in manpower provision and sit back till the requisite manpower as per laid down criteria arrives. Simple isn’t it?

The process of outsourcing is not that simple either. While laying-off own professionals doing the same job, now a competent outsource is to be selected and dealt with. The process of outsourcing is a four staged operation: (1) develop the organization's philosophy about outsourcing s; (2) evaluation and selection of appropriate outsourcing projects and potential locations for the work to be done and service providers; (3) contracting that would include legal documentation, pricing and service level agreement (SLA) terms; and (4) working relationship between the management of the organization requiring outsourcing and outsourcing service providers.

Well it has its pros and cons. One really has to weight these before opting for outsourcing. Even governments may come in as outsourcing may result in downsizing f outfits rather than right sizing. For an optimist, outsourcing seems the best option for following reasons:-
  • Business Focus Approach. Obviously, by delegating the authority of many managerial and other functions to an external source/service provider, the management and the company can better focus on the core business issues rather than wasting time unnecessarily on aspects that can be best handled by professionals.
  • Cost Effective. Outsourcing is definitely cost effective as there is no more need of a dedicated HR department, specially for small/medium scale companies / outfits as the same function of hiring people can be performed externally. Likewise, selection/short listing of hardware/raw material can be left to outsource outfits rather than maintaining an in house segment to worry about it. The savings so incurred by doing away with surplus staff can be best utilized on other aspects like quality assurance and quality management.
  • Effective risk management is ensured since the risk of provision of services would now lie flat and square on the shoulders of the services providing outsource company.
  • Enhancement of capacity for innovation. Being professionals, the outsourcing companies can supplement the otherwise limited capacity of an organization for innovating ways and means to boost production, rather than focusing on issues of mundane level.
  • Improved quality of human and material intake, as from now on such aspects will be handled by professional who will chose the best to remain competitive themselves in the business of outsourcing.

Every concept has its cons as well as outsourcing generally revolves around manpower selection and induction. Due to availability of cheaper manpower from poor countries, the outsourcing service providers look for better and cheaper options. This is done at the cost of indigenous labour /work force which get neglected to outsourcing of manpower from other countries. The outsourcing of manpower is also called off shoring or offshore outsourcing. But businessmen would encourage any means that reduce their salary bank and improves their profits and assets. This fear by local labour is genuine and that is why I said before that the governments may to intervene if outsourcing of manpower from outside hurts own people and leads to poverty/unemployment.

Language and accent is one of the biggest drawbacks if outsourcing of manpower from countries where a different language is spoken is resorted to. It makes the job of managers difficult to understand the foreign labour/workers and put across their view point clearly. This sometimes leads to misunderstandings, creates mistrust and even spoiling of an outfit’s working environment.

AS for outsourcing, Pakistan is among some of the most favoured countries, especially in the fields of provision of manpower, skilled, semi skilled and raw labour, IT professionals, doctors, engineers and many other professionals. As per A.T. Kearney Global Services Location Index of the most attractive outsourcing destinations in the world. Pakistan ranked at number 20 in 2009. Pakistan progressed from 30th in 2007 to 20th in 2009. Pakistan has a large English-speaking population and a huge community of émigrés with experience in technology. Thus, there are plenty of companies in the Middle East, for instance, that outsource work to Pakistan. Being a cheap outsourcing source, many companies and is one reason that places like Pakistan score so highly.

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Photo Courtesy: Internet Marketing


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