Sourcing Lecture 3 Outsourcing

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This is lecture 3 of my lessons as lector at Hanze University with the explanation of outsourcing as a way of sourcing. It will also give details about building a sourcing business case and the change approach for outsourcing.

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Sourcing Lecture 3 Outsourcing

  1. 1. ITSM Specialization Sourcing 2012-2013 Prof. Frank WillemsLecture 4: Outsourcing
  2. 2. Agenda• Outsourcing as a solution• Define the scope of outsourcing• Experience with outsourcing• Building a business case• Change approach for outsourcing 2
  3. 3. Outsourcing 3
  4. 4. What is outsourcing?• Outsourcing is the decision taken by an organisation to contract or sell the organisation assets, people, process and/or activities to a third party supplier, which in exchange provides and manages assets and services for monetary returns over an agreed period of time.• Definable components of your business to be done by a third party, that you did yourselves before 4
  5. 5. Define the scope of outsourcing5
  6. 6. ISO/OSI framework for plotting scope Webportal and website …. Application C …. Application B …. Application D …. Application E …. Application F Office applications Generic applications Application AProces(functionality)ApplicationBasic link system(Middleware)Control andmonitoring(serverparc)Network transportand connectivity(netwcrk) Common basic infrastrucureAccess (network)
  7. 7. Define scope in terms of scenario’s and staffing scopeparts: Infrastructure and application component Staff Component Information Head of Division Management 1 FTE Functional Helpdesk Management 1 FTEProcess Operational 1 FTE management(functionality)Application DBAGegevens 1 FTE SystemBasic link system Scenario 3 management Application 1,06 FTE / 0,88 FTE(Middleware )Control & monitoring(Serverparc) Network SpecialistNetwork transport and (1 FTE)connectivity (netwcrk) Scenario 2 Netwerk- and Infrastructure Application Management Specialist hardwareAccess (network)) (1 FTE) Own company Hired7
  8. 8. Scope plotted on IT management model Management Directing Service Aligning Functional Management Information Management Organizing Operational Management DBA Application Management Implementing Network- and infrastructure management Scenario 3 Scenario 28
  9. 9. Always define 3-5 scenario’s• Scenario 0 : Current situation – Imaging current situation: for comparing the different scenarios• Scenario 1: professionalisation scenario – The implementation of the recommendations. None sourcing• Scenario 2: outsourcing of ICT services – The outsourcing of ICT facilities (desktop management, network management, infrastructure, server and hardware monitoring, hosting web sites)• Scenario 3: outsourcing of ICT services and application mgt – The outsourcing of ICT facilities (desktop management, network management, infrastructure, server and hardware monitoring, hosting web sites), data management and application management• Scenario 4 : Collaboration – In the ICT field (desktop management, network management, infrastructure, server and hardware monitoring, hosting web sites, data management and application management) collaborate with more of the same organizations 9
  10. 10. The scope is plotted on the Kraljic modelLarge added value What is the extent to which the product / service nd th 2 generation sourcing 4 generation sourcing Leverage Strategic adds value for the business Scenario 4 th 3 generation sourcing Scenario 3Less added value Routine Scenario 2 Application management Bottleneck Outsourcing Helpdesk & desktop mgt st nd 1 generation sourcing Infrastructure mgt 2 generation sourcing outsourcing Purchasing Risk Standard Is it a standard or a specialized product? Specialized 10
  11. 11. Some experiences with outsourcing11
  12. 12. Outsourcing experiences ingeneral Transition First experiences and deception Reality comes in Contracting SLA/$ discussions End user expectations Informal renegotiations start Intention to outsource 0 mths 6 mths 12 mths 36 mths 1
  13. 13. Expectation of the phases in therelationship Closing End of current contract Future 1 2 3 1. Transition (max 6 months) 2. Cost savings (efficiency improvements) 3. Improving effectiveness (innovation) • Future will be a seamless continuation of the relation 1
  14. 14. Reality of the phases in therelationship Closing End of current contract 1 2 Future 3 1. Transition 2. Cost savings 3. Improving effectiveness • Future will be based on the success of effective use of IT 1
  15. 15. So….• Outsourcing is not always a good solution• Outsourcing should be managed very professional (directing organization at least at CMMi acq level 2)• Supplier don’t measure the expectations• Make a clear business caseThink before you decide: is outsourcinga good solution? 15
  16. 16. Build the business case for outsourcing and fill the calculation model16
  17. 17. Questions for buildingbusiness case1. What are the possible scenarios in the outsourcing of ICT function?2. What are the arguments to make choices from one of these scenarios?3. What are the financial implications of outscourcing?4. What are the organizational and human consequences of outsourcing?5. What are the risks and countermeasures of outsourcing? 17
  18. 18. Example of a approach inbuilding business caseActivities conducted in the period August and September:1. Several discussions with stakeholders and ICT portfolio within customer organisation2. Various observations made on the spot and existing situation in images3. Calculation completed and validated with stakeholders within customer organisation4. Demarcation for sourcing area and scenarios developed5. Concept Report completed 18
  19. 19. Research, current situation, scenario 0Financial:• Staffingcosts € 555.140• Other automation costs € 149.744• ICT infrastructure costs € 139.055• Application costs € 777.124 Total € 1.621.063Staffing (in FTE’s):Direct Indirect• Operations manager 0,89 Information manager 1,00• Systemmanager 3,00 Functional management 4,50• Helpdesk 2,00 19
  20. 20. Research, current situation,scenario 0Qualitative• ICT management and operational processes only implemented by means of tooling (TopDesk) and on CMMi Services level 2• ICT infrastructure is relatively modern, especially the servers and remote connections are state-of-the-art, active network components, cabling and workstations questions in the medium term to focus• There is relatively much hired and there is still limited own occupation for ICT department; high degree of vulnerability• By outsourcing much attention should be spent on professionalisation of direction in the field of contract, demand and supplier management, capacity planning and quality control 20
  21. 21. Research, current situation,scenario 0Quality of IT Service managent activities in terms of CMMi for Services SG1 SG2 SG3 GG2 GG3Requirements Management (REQ level 2) PS PS PS NSConfiguration Management (CON level 2) PS PS PS NS NSIncident and Request Management (IRM level 2) S PS PS NSMeasurement and Analysis (MA level 2) NS NS NS NSProcess and Product Quality Assurance (PPQA level 2) S PS PS PSProject Planning (PP level 2) PS NS NS NS NSProject Monitoring and Control (PMC level 2) PS PS S PSSupplier Agreement Management (SAM level 2) PS NS PS PSOrganizational Process Focus (OPF) PS PS NS NS NSOrganizational Process Definition (OPD) PS PS NS NSOrganizational Training (OT) PS PS PS NS 21
  22. 22. Research, current situation, scenario 0• The calculation is not yet take into account the initial costs. These include migration and transition costs – Migration Cost: one-time costs that must be made to transfer from the current situation of management to the situation with outsourcing, these costs can probably be negotiated or recovered by TCO reduction (scale benefits outsourcing) – Transition costs: These costs consist of disintegration (current overhead which no longer cover) and friction costs (vacancy housing and replacing staff). With friction expenditure must be taken into account, these are not yet quantified 22
  23. 23. Principles of calculation• Period 2008-2013• The appearance of costs and depreciation are based on a calendar year• Scenarios are developed separately from each other• Financial source file that is used for the calculations are total ICT budget and personnel• Costs are based on a frozen situation. It is assumed that in the coming years, no details are made that affect the operating costs of ICT• Depreciation hardware are linear and the maturity is 3 years * Depreciation software are linear and the duration is 2 Year * *= based on assumptions 23
  24. 24. Calculation results 0 s c e n a rio s c e n a rio 1 s c e n a rio 2 s c e n a rio 3 s c e n a rio 4G em id d eld e jaarkosten (2 0 0 8 -2 0 1 3 ) A p p licaties 2 3 8 .3 2 3 2 3 8 .3 2 3 2 3 8 .3 2 3 2 3 8 .3 2 3 1 5 6 .5 5 8 A fsch rijvin gen 3 1 .4 3 1 7 5 .0 5 9 2 4 .2 5 6 2 4 .2 5 6 3 1 .4 3 1 P ro jecten 1 .4 2 6 1 .4 2 6 1 .4 2 6 1 .4 2 6 1 .4 2 6 L ease - 5 9 .0 5 4 5 3 .7 4 5 5 3 .7 4 5 5 9 .0 5 4 C o m m u n icatie 2 1 7 .1 0 8 1 5 6 .0 6 5 1 5 6 .0 6 5 1 5 6 .0 6 5 1 9 6 .2 3 3 M o b iel w erken - 4 2 .7 2 0 4 2 .7 2 0 4 2 .7 2 0 4 2 .7 2 0 P erso n eel 2 8 0 .1 0 3 2 8 0 .1 0 3 2 8 0 .6 8 8 2 2 8 .2 3 4 2 2 8 .5 2 1 In h u u r 2 8 1 .6 8 1 2 8 1 .6 8 1 1 8 7 .7 2 4 4 5 6 .7 1 5 1 8 4 .1 5 7 U itw ijk - 2 3 .8 3 2 5 .2 5 0 5 .2 5 0 - O verige ko sten 6 0 .4 2 6 5 5 .7 4 4 5 2 .3 7 5 5 2 .3 7 5 5 2 .3 9 6G em id d eld e jaarkosten (in cl in d ex atie) 1 .1 1 0 .4 9 9 1 .2 1 4 .0 0 8 1 .0 4 2 .5 7 3 1 .2 5 9 .1 1 0 9 5 2 .4 9 7P er w erkp lek 2 .3 9 8 2 .6 2 2 2 .2 5 2 2 .7 1 9 2 .0 5 7P er m ed ew erker 1 .2 8 2 1 .4 0 2 1 .2 0 4 1 .4 5 4 1 .1 0 0P roc. b esp arin g tov 0 scen ario 0 ,0 % -1 1 ,3 % 3 ,2 % -1 4 ,7 % 5 ,8 %T eru g verd ien tijd in jaren - >6 4 >6 4In zet p erson eel h o o fd IC T 1 ,0 0 1 ,0 0 1 ,0 1 ,0 1 ,0 IC T sp ecialist (serviced esk) 1 ,0 0 2 ,0 0 1 ,0 2 ,0 1 ,0 gegeven sb eh eerd er 1 ,0 0 1 ,0 0 1 ,0 - 0 ,5 ap p licatieb eh eerd er 1 ,0 3 1 ,0 0 1 ,0 - 0 ,5 systeem b eh eer 2 ,2 2 2 ,2 2 - - 1 ,0T otaal fte 6 ,2 5 7 ,2 2 4 ,0 3 ,0 4 ,0 24
  25. 25. Prepare for decision making25
  26. 26. Practical tip 1: Create a Crisis PlanThis will deliver a lot of information for decision-making and thebusiness case:• Clarity about the essential functions of the organization• Understanding the dependencies of the organization• Understanding risks, opportunity and the countermeasures• Translation of vital ICT components in the essential functions properly (and equal documented)• Clarity about responsibilities and behavior in emergencies (and who really has to say)• And what matters and visibility of the professionalism at this moment 26
  27. 27. Practical tip 2: Develop a Pro forma SLA and Terms of Reference• On the basis of the crisis plan it is clear what ICT services are important and which less• With users it will be clear what requirements they set for services• Services are classified in importance for business and market transparency for completion of appropriate cooperation• The quality of the services need to be checked, for example with CMMi• The Program of Requirements and the SMART requirements will be visible and gives guidance in the selection process 27
  28. 28. Investigate the Change Colour of thestakeholders• What is the dominant colour of the stakeholders and the decision makers• What is your personal colour• What intervention should be made to convince the stakeholders and the decision makers 28
  29. 29. Draw up your conclusionsExample• Outsourcing of ICT is necessary, the security of ICT services is under such pressure that continue current situation is not justified. There are also innovations that have major implications for the way ICT should be organized• By transfer of staff (up to two FTE), we expect complicating factors in the procurement and matching of profiles with the market (future supplier)• Withinthe organisation the future direction of the outsourcing professional organization and the need for the commission spatial information shoul be organized more professional 29
  30. 30. Draw up your advice Example Choice for scenario 2, saving between 10-20% (compared with scenario 2), but: • Standardizing on applications • Standardizing on workstations, which allow remote management • Servers outdoor placed at supplier • Bring people tendering in accordance with social status • No surrender current contracts • Professionalization of supplier management and demand side • In the long term scenario 4 is possible, especially for innovations 30
  31. 31. Start the outsourcing change approach31
  32. 32. An Change approach for Sourcing Intervention-oriented communication about plan and implementation Support by Change help desk Change analysis + Culture scan Aligning structure and processes Characteristics of products, pro- Organizing control and and prepairing sourcing cesses & structure Clients, Change idea Culture change and competence development Governance & suppliers Characteristics Characteristics Contracting and realizing sourcing of interaction of employees Learning to collaborate …. Measuring Measuring progress progress Inter- Inter- Reconsider- Reconsider- ventions ventions ing Ing and (re) And (re) goals goals planning planning Change goals Kick off Plateau 1 Plateau 2 DD MM YYYY Assessment by Change board Consultation with Sounding board group Client … CIO 32
  33. 33. Mix organizing and change Design and organizing Cahange and Develop Change components Systems and Structure and Governance and culture technology processes Rationalisation, Culture scan and Functions/competences systems, harmonizing specifying functions, Culture scan/ change management governance, and analysis and organizing processes competences control Architecture and Aligning strategy plan, Developing collaboration/ process control and supplier managers and building implementation selection cases Stable services Organizing structure, Mobility and training of portfolio securing processes, staff members, showing Knowledge guarantee starting sourcing and results and achieving appointing staff goals 33
  34. 34. Milestones of the Sourcing changeapproach Strategy Design and Making plans Contracting Transition and Optimization decision making collaboration Management Control Service Aligning Define strategy Define strategy Bepalen strategie and management facilities and ICT service information supply and control Change Arranging Design and Design and Ontwerpen en components Desired Context implementation management implementation facilities and information supply and plannen ICTis This part service usually qualified for oursourcing In enneahedron situation control Operating Use and Management and Beheren en exploitation use facilities exploiteren ICT management services Possible forms of collaborationReason Agreements Governance model Declaration of Organization plans collaboration Current situation Chosen final situation Yellowprint phase Blueprint phase Redprint phase Greenprint phase View Actors Sponsors, advisors and Mgt., control and Sponsors, mgt., Mgt., control and Supply, mgt., Sponsors, advisors mgt. advisors supply, control and supply, control and mgt. advisors collaboration team Communication Change plan Steering Protocol Newsletter Migration plan Service report Strategy paper committee Study group Employee User board User board Sounding board Social plan participation Account mgt. Change board Closing document Collaboration letter Results Sourcing choice Program of Contract Migratie Continuous Change strategy Sourcing design requirements, Deal sheet Overdracht Assets orientation Sourcing strategy Governance choice Organization plan Standards Services ingericht towards change Approach and Decision Formation plan SLA, DAP Securing and grip on costs planning Governance Employment knowledge model agreement Game simulation Game simulation
  35. 35. Example of detailed outsourcing approachStart 30 june September October November/December JanuaryEU Tenderlaw period minimal 37 days Minimal 40 days a.s.a.p. Stage I Stage II Stage III Stage IV Stage V Stage VI Sign up candidates Awarding Publication Invitation or Selection Procurement award Publication• Drafting and • Application by • Questionnaire •Sending RFP •RFP submission •Final awardpublication August 6 submission by PVE by bidders (minus disclosureplaces for Selection candidates (minus Submit 40 Days) File Agreementspublication. Document send 37 Days) questions RFQ Review and ProceduresTender Electronic Submit assessment Letter of (21 Days) (DAP)Daily questions References Information Provisional Focus Financial candidates Tender award to award (deadline Arrangements Letter of applicants (21 15 days) (DFA) Information dgen) OR involvement Products and Drafting in provisional Services Catalog Consultation due assessment doc award advice (PDC) Drafting transparency (term SLAs tuning qualificationdoc drafting PVE appointment) DAP, DFA, PDCDrafting selection Drafting PVE Drafting terms of and SLA usuallydocument reference. Filing after signing 35
  36. 36. 24-12-2012

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