Definition:
"Total Outsourcing" occurs when a firm converts an internal service into an externally managed product. Total outsourcing started in the manufacturing world, where an entire manufacturing location (a factory) would be outsourcing, either selling off a factory or having it rebuilt by the outsouring partner in another location.
In BPO or KPO work, this is usually done when the firm initiating the outsourcing project does not wish to be involved in the ongoing management of the function, and instead converts it into a service that must meet key metrics and is then paid an agreed to rate.
For example, the total outsourcing of an IT group; instead of running a group to install computers (setting hiring qualifications, personnel reviews, training, etc.) you will pay an outside group a flat fee for every PC that is installed.
Total outsourcing relies on a few key metrics to determine if the full fee is paid, or if penalties are levied. The interaction between metrics and penalties is used to manage the contract. The assumption is that the client has no input or interaction with the operation of the service. When something goes wrong, and penalties need to be applied, the vendor is fully responsible.
While total outsourcing may make sense in a manufacturing environment, where an entire work function needs to remain in physical proximity, it has not proven to work well for BPO and KPO. One large scale academic study of outsourced IT work calculated that the long-term success rate total outsourcing was as low as 10%.
Total outsourcing can also create legal issues when applied to BPO and KPO.
Clients who wish to retain greater control over the operation and management decisions, may use total outsourcing as their model, but blend in elements from their old management operations. Doing this may create co-employment issues, and legal risks. By creating a situation where two different firms are directly managing the staff, both firms may be considered by the law to be the employers, and equally responsible for providing benefits (and termination pay).
When the client stakeholders direct the program as if it is still run internally, but the governance program is managed as if the program is an external service, the program can be both ineffective and contentious.
See also: "Co-Employment", and "Outsourcing Partnership."
"Total Outsourcing" occurs when a firm converts an internal service into an externally managed product. Total outsourcing started in the manufacturing world, where an entire manufacturing location (a factory) would be outsourcing, either selling off a factory or having it rebuilt by the outsouring partner in another location.
In BPO or KPO work, this is usually done when the firm initiating the outsourcing project does not wish to be involved in the ongoing management of the function, and instead converts it into a service that must meet key metrics and is then paid an agreed to rate.
For example, the total outsourcing of an IT group; instead of running a group to install computers (setting hiring qualifications, personnel reviews, training, etc.) you will pay an outside group a flat fee for every PC that is installed.
Total outsourcing relies on a few key metrics to determine if the full fee is paid, or if penalties are levied. The interaction between metrics and penalties is used to manage the contract. The assumption is that the client has no input or interaction with the operation of the service. When something goes wrong, and penalties need to be applied, the vendor is fully responsible.
While total outsourcing may make sense in a manufacturing environment, where an entire work function needs to remain in physical proximity, it has not proven to work well for BPO and KPO. One large scale academic study of outsourced IT work calculated that the long-term success rate total outsourcing was as low as 10%.
Total outsourcing can also create legal issues when applied to BPO and KPO.
Clients who wish to retain greater control over the operation and management decisions, may use total outsourcing as their model, but blend in elements from their old management operations. Doing this may create co-employment issues, and legal risks. By creating a situation where two different firms are directly managing the staff, both firms may be considered by the law to be the employers, and equally responsible for providing benefits (and termination pay).
When the client stakeholders direct the program as if it is still run internally, but the governance program is managed as if the program is an external service, the program can be both ineffective and contentious.
See also: "Co-Employment", and "Outsourcing Partnership."
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