Business Week Case in the News OUTSOURCING HEADS

Business. Week Case in the News OUTSOURCING HEADS TO THE OUTSKIRTS GROUP F MEMBERS Adrianne ROBERT MORRIS UNIVERSITY MGMT 3100 -A 1: Management Theory and Practice: FA 08 (147348) ESSENTIALS OF CONTEMPORARY MANAGEMENT Chapter Five: Decision Making, Learning, Creativity, and Entrepreneurship 1

What is the definition of outsourcing? GLOBAL BUSINESS PLANNING REFERENCE Essentials of Contemporary Management PAGES 17 AND 18 Outsourcing is contracting with another company, usually abroad, to have it perform an activity the organization previously performed itself. 2

What is the definition of outsourcing? Wikipedia http: //en. wikipedia. org/wiki/Outsourcing REFERENCE Essentials of Contemporary Management PAGES 390 -391 -392 HUMAN RESOURCE PLANNING Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. The decision to outsource is often made in the interest of lowering firm or making better use of time and energy costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of land, labor, capital, (information) technology and resources. Outsourcing became part of the business lexicon during the 1980 s. 3

PROCESSES OF OUTSOURCING REFERENCE Essentials of Contemporary Management DECISIONS FOR PAGES 17 AND 18 • • Deciding To Outsource Supplier Proposals Supplier Competition Negotiations Transition Transformation Ongoing Service Delivery Termination Or Renewal 4

ADVANTAGES OF OUTSOURCING REASONS FOR REFERENCE Essentials of Contemporary Management PAGES 390 • • • Cost Savings Cost Restructuring. Improve Quality Knowledge Contract Operational Expertise Staffing Issues Capacity Management Catalyst For Change Reduce Time To Market Commoditization Risk Management 5

DISADVANTAGES OF OUTSOURCING REASONS AGAINST AND CRITICISMS REFERENCE Essentials of Contemporary Management PAGES 390 • Public Opinion • Failure To Realize Business Value and Relationships • Language Skills • Social Responsibility • Quality Of Service • Staff Turnover • Company Knowledge • Qualifications Of Outsourcers • Work And Labor Issues • Economy • Security • Fraud and Accountability 6

OUTSOURCING AFFECTS ECONOMY UNITED STATES OF AMERICA ETHICS OF Work, Labor, & Economy REFERENCE Essentials of Contemporary Management PAGE 78 Labor Movements Productivity Standpoint Of Labor 7

COURSES OF ACTION EVALUATING OUTSOURCING ALTERNATIVES 1. LEGALITY ACTION IS LEGAL AND WILL NOT VIOLATE ANY DOMESTIC AND INTERNATIONAL LAWS OR GOVERNMENT REGULATIONS 2. ETHICALNESS ETHICAL AND WILL NOT UNNECESSARILY HARM ANY STAKEHOLDER GROUP AND HARM OTHERS – POTENTIAL EFFECTS 3. ECONOMIC FEASIBILITY ACCOMPLISH GIVEN ORGANIZATIONAL PERFORMANCE GOAL –COST-BENEFIT ANALYSIS 4. PRACTICALITY CAPABILITIES AND RESOURCES REQUIRED TO IMPLEMENT ALTERNATIVE; NOT THREATEN ATTAINMENT OF OTHER ORGANIZATIONAL PROJECTS OR GOALS REFERENCE: Essentials of Contemporary Management, Page 163 8

EXPECTED GROWTH OF OUTSOURCING • The growth of outsourcing was 38% in 2005. • Roughly 400, 000 people are employed in this industry. • Global BPO is estimated to be worth 120 -150 million dollars. • India has 5 -6% share of the total industry, approximately 63% of the off-shore component. REFERENCE: http: //en. wikipedia. org/wiki/Business_process_outsourci ng_in_India 9

ORGANIZATIONS USING OUTSOURCING • One half (50%) to two thirds (67%) of all Fortune 500 Companies are already outsourcing to India according to Forrester Research. • • • General Motors IBM AT&T HP Dell REFERENCE: Essentials of Contemporary Management, Page 18 10

MANAGERIAL DECISION MAKING Whether or not OUTSOURCING is the preferable choice? The process by which managers respond to opportunities and threats by analyzing options and making determinations about specific organizational goals and course of action. REFERENCE: Essentials of Contemporary Management, Page 153 11

MANAGERIAL DECISION MAKING PROGRAMMED Routine, virtually automatic decision making that follows established rules or guidelines virtually automatic process. — u performed numerous times in the past —long established u developed rules or guidelines u need not make new judgments repeatedly about what should be done –routine in nature u day-to-day running of an organization REFERENCE: Essentials of Contemporary Management, Page 154 -55 12

MANAGERIAL DECISION MAKING NONPROGRAMMED Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats—not at all certain that a course of action will lead to a desired outcome or not really clear about achievement results. u uncertain event u nonroutine decisions u unusual or novel opportunities and threats u no ready made decision rules –rules do not exist u managers lack the information required to develop rules to cover it u investing in a new kind of technology u develop a new kind of product u launch a new promotional campaign u enter a new market u expand internationally u start a new business REFERENCE: Essentials of Contemporary Management, Page 154 -55 13

MANAGERIAL DECISION MAKING -- NONPROGRAMMED INTUITION AND REASONED JUDGEMENT INTUITION Feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering, and result in on-the-spot decisions. REASONED JUDGEMENT A decision that takes time and effort to make and results from careful information gathering, generation of alternatives, and evaluation of alternatives. EXERCISING ONE’S JUDGEMENT is a more rational process than GOING WITH ONE’S INTUITION. u Both are often flawed and can result in poor decision making efforts that cause the most problems and are inherently challenging. u The likelihood of error is great and the risks are higher. u Can result in effective or ineffective decision making. u Avoid overconfidence—failure to evaluate and rethink the wisdom of the decisions one makes and to learn from mistakes. REFERENCE: Essentials of Contemporary Management, Page 155 14

Gram. IT // Outsourcing Company u INDIA Andhra Pradesh State Village of Ethakota u TYPE OF BUSINESS 16 month old non-profit organization u MISSION seeking to transplant India’s tech services boom to some of the country’s 600, 000 villages to transform rural economy u FUNDED BY Byrraju Foundation u MEANING OF NAME GRAM IS THE Sanskrit word for “village” u GOALS & FUTURE INITIATIVES Set up new business process outsourcing units in seven (7) villages and employ approximately 700 villagers. REFERENCE: Essentials of Contemporary Management, Page 177 -78 15

Satyam Computer Services, Ltd. Organizational Structure TOP PERSONNEL Ramalinga Raju Chairman of Tech Services Provider and Founder of the Byrraju Foundation EXPECTED REVENUE OF 1 BILLION THIS FISCAL YEAR MASTER’S DEGREE FROM OHIO UNIVERSITY ESTIMATED WORTH OF 670 MILLION DOLLARS Sury Gadiraju Vice-President for Technical Development E-Support Operation REFERENCE: Essentials of Contemporary Management, Page 177 -78 16

Satyam Computer Services, Ltd. Organizational EMPLOYEES BUSINESS WEEK STORY AND U. S. DEPARTMENT OF STATE REALITY REPORTS • • • Employees have at least a 3 -year college degree 5% annual turnover Earn $800 per year --many trapped in debt bondage Speak little more than basic English Vulnerable group of foreign labor Low-caste laborers Social discrimination and lack of employment opportunities Cycle of generational exploitation Caste-based slavery that cripples the development of communities –villages Exploitation of minors REFERENCE: Essentials of Contemporary Management, Page 177 -78 http: //www. state. gov/ 17

BPO // Business Process Outsourcing PERSONAL COMPUTERS CONNECTED TO THE INTERNET VIA A LONG-DISTANCE RADIO LINE 18

Satyam Computer Services, Ltd. Organization Goals & Accomplishments • • Moving service jobs to rural areas Providing work for unemployed Unemployment in three (3) villages had decreased Employees are unconcerned with salary Employees are more concerned about staying in their own village Turnover is low in these villages compared to India’s bigger cities Slowing migration to crowded cities REFERENCE: Essentials of Contemporary Management, Page 177 -78 19

RISK AND UNCERTAINTY RISK The degree of probability that the possible outcomes of a particular course of action will occur. UNCERTAINTY The probabilities of alternative outcomes cannot be determined and future outcomes are unknown. AMBIGUOUS INFORMATION The meaning is not clear—can be interpreted in multiple and conflicting ways. TIME CONSTRAINT & COSTS Neither the time or the money to search for all possible alternative solutions and evaluate all the potential consequences. REFERENCE: Essentials of Contemporary Management, Page 158 -160 20

INTERNATIONAL STANDARDS • SERVICE • SCALE OF OPERATIONS • SKEPTICISM ABOUT ABILITIES AND QUALITY • COMPLIANCE WITH LAWS AND TRADE/LABOR REGULATIONS • CUSTOMS AND VALUES • CONFLICTS OF INTEREST • OBLIGATIONS, VIOLATIONS, AND ACCOUNTABILITY REFERENCE: Essentials of Contemporary Management, Page 158 -59 21

QUESTION #1 FOR DISCUSSION “OUTSOURCING HEADS TO THE OUTSKIRTS” 1. Was Gram. IT’s decision to operate outsourcing activities in Indian villages a programmed or nonprogrammed decision? 22

QUESTION #2 FOR DISCUSSION “OUTSOURCING HEADS TO THE OUTSKIRTS” 2. To what extent were risk and uncertainty involved in this decision? 23

QUESTION #3 FOR DISCUSSION “OUTSOURCING HEADS TO THE OUTSKIRTS” 3. What criteria did decision makers at Gram. IT likely utilize in making this decision? 24

QUESTION #4 FOR DISCUSSION “OUTSOURCING HEADS TO THE OUTSKIRTS” 4. Was Satyam’s decision to sign on with Gram. IT a programmed or nonprogrammed decision, to what extent were risk and uncertainty involved in this decision, and what criteria did decision makers at Satyam like utilize in making this decision? 25

CARTOON SECTION “OUTSOURCING BUSINESS HUMOR” REFERENCE http: //images. search. yahoo. com/search/images? _adv_prop=image&fr=vzportal&va=outsourcing+jobs+cartoon&sz=all 26

CARTOON SECTION “OUTSOURCING POLITICAL HUMOR” White House Issues Revised Jobs Forecast for 2004 WASHINGTON (IWR News Parody) — President Bush Wednesday issued a correction to White House prediction that the economy will add 2. 6 million jobs this year. "What we forgot to mention when we said that 2. 6 million jobs would be created, was that these jobs would be created overseas due to outsourcing, " said a permanently surprised President Bush. REFERENCE http: //internetweekly. org/iwr/parody_archive_outsourcing. html 27

CARTOON SECTION “OUTSOURCING POLITICAL HUMOR” Monkey Pants Wants to Outsource Your Job Overseas Inspiration: Bush Endorses U. S. Jobs Moving Overseas REFERENCE http: //images. search. yahoo. com/search/images? _adv_prop= image&fr=vzportal&va=outsourcing+jobs+cartoon&sz=all 28

CARTOON SECTION “OUTSOURCING HOLIDAY HUMOR” REFERENCE http: //www. cylive. com/content/1104/Outs ourcing_Blues 29

REFERENCES ESSENTIALS OF CONTEMPORARY MANAGEMENT THIRD EDITION –Chapter 5 Decision Making, Learning, Creativity, and Entrepreneurship Gareth R. Jones; Jennifer M. George Mc. Graw-Hill Irwin Business Process Outsourcing In India From Wikipedia http: //en. wikipedia. org/wiki/Business_process_outsourcing_in _India Outsourcing From Wikipedia http: //en. wikipedia. org/wiki/Outsourcing U. S. Department of State http: //www. state. gov/ Internationally-Recognized Core Labor Standards in India —Report for World Trade Organization General Council Review of the Trade Policies of India International Confederation of Free Trade Unions (ICFU Website) http: //www. icftu. org/ 30