Beyond The Obvious: Strategic Outsourcing As A Busines Developement Tool

“These (outsourcing) efforts were mainly one sided; information and requirements moved from client to vendor, who would then construct the product and/or service and deliver this back to the client. Information and knowledge would seldom flow back from vendor to client, as the client was assumed to be more knowledgeable than the vendor.”

Paraphrased from ‘The Outsourcing Handbook’

Modern day business has something in common with modern day tennis- this is an era of specialists. Business, nowadays, invariably requires excellence in every department that it operates. Regardless of the fact whether you are an automobile manufacturer or a software developer, you require top-notch customer service- run by people who are masters of the field. It doesn’t matter if you run a bank or a television channel, you need IT infrastructure that would cater to the needs of both internal and external customers.

And being the best in all the fields that your business relates to requires a lot of effort, resources and most importantly, intense domain expertise. No matter how big an organization is this will remain a hard combo to achieve.

I have seen many mangers show an attitude towards business where they stay calm and content being the best in their chosen markets, and let others be the best in theirs. I had always been very aggressive towards sustaining growth beyond what comes as granted. I believe that money has to be extracted and not just taken as it comes. And that is the way most modern managers would look into business.

And that can be achieved by making others do what they do best, for you.

This is what we call strategic outsourcing. Outsourcing certain functions within an organization to vendors who have the necessary experience in the respective domains.

A lion’s share of outsourcing decisions is taken keeping financial benefits in mind. For example in the CIO annual survey conducted amongst India’s top organizations by Network Magazine, it was found that nearly 54 per cent of outsourcing is done as part of cost cutting.

I can actually quote Larry Elder to substantiate this further. “Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment, and increases productivity and job creation.”

This is what is just obvious. But great organizations became great, since they had exceptional people who could see beyond what is obvious.

These outsourcing moves bring short-term profits for both the client and the vendor, but what about the improvements? How would you cater to the increasing demand in terms of quality and competition?

The answer lies in strategic outsourcing. Here, information flows to and fro. The vendor contributes not only by driving direct cost cutting for the client, but also by contributing change that is of strategic nature.

And those decisions need to be taken by the top management, as they would be the people being held responsible for the success or failure of such a decision. When you go against a high and aggressive financial benefit opportunity for embracing continuous improvement and long-term success, you have to be able to show the financial gains in the end. Everything is measured in terms of money.

The best strategy to ensure the success of such an outsourcing move is to consider it as a standalone business. Consider the transition as a planning process. Thanks to Jack Welch, we know that a clear mission statement is crucial for the success of an organization. So design an achievable mission statement for the outsourcing project separately. However, this should be complementing both the organizations mission statements, or at least, not contrary to any.

As the world gets more and more demanding, I could predict more and more top notch companies opting for vendors who offer strategic outsourcing over the ones who could entice only with the financial advantages.
As the former 13th United States Secretary of Housing and Urban Development (HUD) Alphonso Roy Jackson once said, “The other part of outsourcing is this: it simply says where the work can be done outside better than it can be done inside, we should do it.”

The other part seems to be the future.

So all the companies, who know only to chop costs, start recruiting business excellence people!

Acknowledgement…

Finally, I have become a certified six sigma green belt. Although certifications have never really interested me, this one really makes me happy. I wish to thank my parents for the much needed financial backing and my sister for a steady supply of morale. with equal importance, thanks to my boss and colleagues at Sutherland Global Services for fusing enough knowledge and tolerence onto me. Also, I express my gratitude to the notorious mosquitos of Cochin, for the sleepless nights I used to prepare myself for this challenge…

 And you, my girl, know it even if I am unable to find the right words…

 I hate when this blog becomes personal, but this is an exception.

The Holy Cow, The Pareto Principle And Some Numbers.

For thousands of years, the people in India have considered the cow to be the most sacred piece of creation that walks on the earth. And even now it pretty much is the same.

In economics the Pareto index, named after the Italian economist and sociologist Vilfredo Pareto, is a measure of the breadth of income or wealth distribution. It is one of the parameters specifying a Pareto distribution and embodies the Pareto principle. As applied to income, the Pareto principle is sometimes stated in popular expositions by saying 20% of the population has 80% of the income. In fact, Pareto’s data on British income taxes in his Cours d’économie politique indicates that about 30% of the population had only about 70% of the income.<quoted from http://en.wikipedia.org/wiki/Pareto_index&gt;

But what do we have in common between this peaceful animal and this uncomfortable truth about the unequal distribution of income?

The commons are more uncomfortable. According to the World Bank estimate, in 2001, there were 2.7 billion people in the world who lived with an income of less than 2$ per day. And out of this, 1.1 billion, which is roughly equal to the entire population of India, lives with an income of less than 1$ a day.

And each one of the 130 million cows in Europe, receive a subsidy of 2.2$ per day on an average. An average European cow is richer than 2.7 billion people who does not have proper access to food, clean water, health care, school or the internet.

The cow is indeed holier than thou! But this time, not in India.

The unequal distribution of wealth and resources had been denying opportunities for billions of people all over the world, especially in Africa, South America and South Asia.

The people who live with an income of less than one dollar a day, they have to pay for their rent, electricity, school fees, clothing and transportation from the same one dollar that they have as income. On the other side, the cows, does not have to pay for any of these, and therefore the entire 2.2$ are spent on nutrition and healthcare.

The population of 2.7bn, which is roughly equal to twice as many people in China, who has an income of less than 2$ a day are seriously lacking in terms of nutrition, primary healthcare facilities and even access to safe drinking water.

This is in a world where we are spending 286 million dollars a day, just to ensure that the beef and dairy products which is exported from European union is superior in quality so that people in North America can eat it without getting concerned! Collectively, this amount reaches 4175600 million rupees an year, which is 44.79 times higher than the combined amount granted for education, health and broadcast for 2007-2008 in Union Budget of India. These statistics show a wider gap between the living standards of people in a country like India and say America or Japan.

The farm products from India or Colombia will never be able to compete with the products of EU or America, unless we find out a way to address this. The surplus products from the heavily subsidized European and American farms keep flooding the open markets of developing nations and in effect drive away the domestic products out of the market.

This is just one side of the story.

As per the Union Budget, India will be spending 15895 crores of rupees during 2007-2008 as interest payments, which is roughly 8% more than what we have spent for the previous year. If I quote the Ministry Of Finance Press Release, “At the end of September 2007, India’s external debt stock stood at US $ 190.5 billion (Rs.757,967 crore), increasing by an amount of US$ 9.9 billion (5.5 per cent) over the quarter (Table), of which around US$ 5 billion is explained by valuation change arising out of weakening US dollar against major international currencies and Indian Rupees.”

http://finmin.nic.in/press_room/2007/dec_details.htm#ExtDebt_Qsep07

Despite the billions of dollars that are being ‘granted’ to us, India still has the world’s largest number of poor people living in a single country. Of its nearly 1 billion inhabitants, an estimated 350-400 million are below the poverty line, 75% of them in the rural areas. 40% of our people still cannot read or write.

The question is how many billions of this collective debt has reached the people who live in extreme poverty. What is the amount of rupees granted to start schools and hospitals in villages ranging from Rajasthan to Nicobar Islands? What is the amount provided as loans to farmers ranging from Punjab to Palghat?

This huge burden of interest, which is getting bigger year by year, is strongly under-capitalizing the grants which could have been directed to eradicate poverty and to develop better living conditions. This could have been used to provide clean drinking water to people in Orissa and Andhra Pradesh.

This could have been used to help enabling 40 crores of people learn to read and write.

The past is past. It is high time to realize that the future lies in implementing the mechanism of micro planning and development.

How many of the Private/Multinational banking giants will be ready to provide low interest loans to the people in villages? This is out of question as such loans generate little or very less amount of short term profit.

The need is to strengthen financial institutions that will take on this task and to provide required subsidies to those. This will ensure that the collective debt that we have turns to micro debts and reach the people who are really in need.

10% of the amount that the nation spends to fuel its military per year is sufficient to provide subsidies worth 6666 rupees per year to 10% of its poorest farmers. They will be able to utilize this to buy a water pump, or to buy a cow which can give milk.

And this can only be achieved if the government opens its eye to the need of implementing micro credits with long term repayment schedules.

It is equally important to identify, which are the right institutions to do this also.

Unless and until we learn to globalize care and concern, there is no point in embracing the policies of free and open trade.

And a foot note:

The international trade in beef for 2000 was over $30 billion and represented only 23 percent of world beef production (Clay 2004). Targeting the unexplored market of around $90 billion, the European and American cows will definitely continue to receive subsidies in the future. It is time for the third world countries, which have already opened the gates, to be prepared.

Lest, we will have to take pride in the fact that the richest man in the world lives in India, hiding the fact that 40 crore people in the same country cannot read that in the newspaper!

Also, since North America houses only 15% of the world’s overall population but 85% percentage of the world’s internet users, it is 5.66. times probable that a North American reads this, rather than anyone else in the world!

Crazy World…

“You know the world is going crazy when the best rapper is a white guy, the best golfer is a black guy,the tallest guy in the NBA is Chinese, the Swiss hold the America’s Cup, France is accusing the U.S. of arrogance, Germany doesn’t want to go to war, and the three most powerful men in America are named Bush, Dick, and Colon. –Comedian Chris Rock

And we analysts, try to bring order within chaos!!!

Cheers that we met,

Anij Janardhanan

Wasted Oppurtunities And Avoidable Risk Analysis

Introduction

Opportunity:

An opportunity can be defined as a situation where the probability of occurrence of a desired incident is very high. The probability levels are decided after studying the requirements and environmental variables.

Or we can say that Opportunities are external conditions that are helpful to achieving the objective.

Risk:

Risk is a concept that denotes a potential negative impact to an asset or some characteristic of value that may arise from some present process or future event. In everyday usage, risk is often used synonymously with the probability of a known loss. Paradoxically, a probable loss can be uncertain and relative in an individual event while having a certainty in the aggregate of multiple events (see risk vs. uncertainty below).

Risk is the possibility of an event occurring that will have an impact on the achievement of objectives. Risk is measured in terms of impact and likelihood.

There are many more and less precise definitions of risk; they depend on specific applications and situational contexts. It can be assessed qualitatively or quantitatively.

Qualitatively, risk is considered proportional to the expected losses which can be caused by an event and to the probability of this event. The harsher the loss and the more likely the event, the greater the overall risk.

Frequently in the subject matter literature, risk is defined in pseudo-formal forms where the components of the definition are vague and ill-defined, for example, risk is considered as an indicator of threat, or depends on threats, vulnerability, impact and uncertainty.

In engineering, the quantitative engineering definition of risk is:

Risk = Probability of an accident X losses per accident.

Wasted Opportunities Analysis:

Wasted opportunity analysis is singularly aimed at finding out How can we Exploit each Opportunity?

This process includes certain steps.

➢    Defining the objectives.
➢    Identifying the opportunities.
➢    Measuring wasted opportunities.
➢    Root Cause Analysis of Wasted Opportunities.
➢    Deriving guidelines to avoid wastage of opportunities in the future.

Avoidable Risk Analysis:

Avoidable risk analysis is more complicated than wasted opportunity analysis as it includes a broader spectrum of variables.

The steps include,

➢    Defining/redefining risk parameters.
➢    Analysis to find out why a certain parameter is a risk.
➢    Identifying the opportunities to avoid risks.
➢    Identifying uncontrollable variables driving risk forces.
➢    Identifying long term controllable variables driving risk forces.
➢    Identifying short term controllable variables driving risk forces.
➢    Deriving immediate and internal action plans to check short term controllable forces.
➢    Suggesting fundamental and internal/external process redesign guidelines to check long term controllable risk forces.

Wasted Opportunities and Avoidable Risk Analysis:

The WOAR analysis is an ongoing process, which concentrates on different levels of same risks and opportunities, or on completely different opportunities and risks.

WO and AR analysis are conducted separately and the outcomes are combined to obtain a common set of guidelines to increase the percentage of successful achievement of the objective.

Cheers that we met,

Anij Janardhanan

Hello world!

Well, I am working on some articles right now. ou will see more posts soon…

 Cheers that we met,

Anij Janardhanan