Page 66 - DCAP307_PLANNING_AND_MANAGING_IT_INFRASTRUCTURE

Planning and Managing IT Infrastructure

Notes service providers to handle complete business processes such as accounting and finance, customer
services, human resources, and even research and development, in what is called Business
Process Outsourcing (BPO). They also outsource selective components of business processes
such as benefits management, claims processing, customer call centre services, and payroll
processing. Contracts often include an IT component to provide BPO.
Outsourcing can involve the sale of hardware, software, facilities, and equipment used in current
operations to the outsourcing service provider. The outsourcing provider then uses these assets
to impart services back to the client. Depending on the value of the assets involved, this sale may
result in a significant cash payment from the service provider to the customer or vice versa.

Example: Galaxy Nutritional Foods, Inc. is a producer and marketer of plant-based dairy
alternatives for the retail and food service markets. Galaxy decided to outsource the manufacture
of its food products to Schreiber Foods, and expects to achieve substantial and ongoing cost
reductions as a result. However, prior to the completion of the outsourcing, Galaxy had to
report a non-recurring charge of $7.9 million. This charge reflected the difference between the
carrying cost of production equipment on Galaxy’s books and the amount to be received from
Schreiber Foods upon sale of the equipment.
A more advanced stage of outsourcing involves evaluating all aspects of an organisation’s
business activities to take advantage of an outsourcer’s best practices, business contacts,
capabilities, experience, intellectual property, global infrastructure, or geographic presence by
tapping resources and providing capabilities anywhere around the globe. Outsourcing firms
that can provide these services are referred to as global service providers (GSP). They fill a
higher-level need than outsourcing firms that simply provide low-cost staff augmentation
services. GSPs provide high-value services such as performing certain core business processes
and enabling new revenue opportunities around the world. A core business process is one that
provides valuable customer benefits, is hard for competitors to imitate, and can be leveraged
widely across many products and markets. It takes the unique knowledge and skills of the
organisation’s workers to operate these processes effectively. Core processes typically have a
direct impact on the organisation’s customers, are major cost drivers, or are essential for providing
services.

Example: A core business process for Honda is the design of engines. Honda was able to
leverage this process to develop a wide range of quality products, including ATVs, automobiles,
lawn mowers, marine motors, motorcycles, personal watercraft, scooters, snow blowers, and
trucks.
As an example of a firm that has chosen outsourcing, consider Banco Pichincha. Ecuador’s largest
private bank has more than 1.5 million clients, a loan portfolio of more than $1.5 billion, and
more than 230 branches in Ecuador, Peru, Colombia, Panama, Spain, and the United States. The
bank signed a 5-year, $140 million outsourcing contract with Tata Consultancy Services to
redesign and develop the bank’s core banking solutions and provide BPO services for the bank’s
operations. Antonio Acosta, joint president of the bank, said, “We chose TCS as our strategic
partner on the strengths of its end-to-end technology capabilities, reputation in providing certainty
of results, deep domain expertise in banking, and committed scale of operations in this region.”

To provide the necessary business process services, TCS will set up a new company in Ecuador
with a staff of 500 people supported by TCS’s offshore BPO centre in Chile and global delivery
centres across the world. TCS will retain all Banco Pichincha’s staff that currently are working in
these processes and bring in their best human resources and practices worldwide to train TCS
employees in Ecuador.

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