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Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
Getting Good And Staying Good At (Out)Sourcing
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Getting Good And Staying Good At (Out)Sourcing

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There is an increasing and continuing trend of organisations moving from in-house solution delivery to sourcing solutions externally. Organisations are divesting themselves of what they see as …

There is an increasing and continuing trend of organisations moving from in-house solution delivery to sourcing solutions externally. Organisations are divesting themselves of what they see as non-core functions. This is intended to improve operational efficiencies by using external suppliers’ perceived abilities to provide cost-effective, fit-for-purpose solutions quickly using the right technology. The responsibility and accountability for solution delivery and operation stills lies with the acquiring organisation. An organisation’s outsourcing zone of opportunity represents a challenge for both suppliers and for the acquisition function. Learn lessons from the experience of others to define exactly what you want of your outsourcing arrangement.

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  • 1. Getting Good And Staying Good At (Out)Sourcing Alan McSweeney
  • 2. Increasing Trend In Outsourcing Non-Core Functions • Increasing and continuing trend of organisations moving from in-house solution delivery to sourcing solutions externally • Intended to improve operational efficiencies by using external suppliers’ perceived abilities to provide costeffective, fit-for-purpose solutions quickly using the right technology • Responsibility and accountability for solution delivery and operation stills lies with the acquiring organisation November 24, 2013 2
  • 3. Acquisition Trends • Greater level of acquisition • Greater acquisition of services with lengthier service relationships • “Under the Cover” acquisition/outsourcing in the form of cloud/XaaS − Cloud leading to ad hoc proliferation of outsourced services as business functions bypass what is perceived as slow, expensive IT November 24, 2013 3
  • 4. Divestment Of Non-Core Functions • • Non Core Function Organisations divesting themselves of what they see as non-core functions Application of Coase’s Law on the Nature of the Firm − A firm will tend to expand until the cost of organising an extra transaction within the firm become equal to the costs of carrying out the same transaction on the open market − When it is cheaper to buy the service externally it will generally be bought externally November 24, 2013 Non Core Function Non Core Function Core Organisation Functions Non Core Function Non Core Function Non Core Function Non Core Function Non Core Function 4
  • 5. Divestment Of Non-Core Functions Non Core Function • Non Core Function Non Core Function Shrinking Core Non Core Function Non Core Function Shrinking core competency focus as organisations move from in-house solution delivery to sourcing solutions externally Non Core Function Non Core Function Non Core Function November 24, 2013 5
  • 6. (Out)Sourcing Zone Of Opportunity • • • • Outsourcing zone of opportunity represents a challenge for both suppliers and for the acquisition function What is the size of the outsourcing zone? How do you identify your outsourcing zone and then take appropriate action? Fundamental question as to the nature of the organisation November 24, 2013 Non Core Function Non Core Function Non Core Function Non Core Function Non Core Function Non Core Function Non Core Function Non Core Function 6
  • 7. (Out)Sourcing/Acqusition • Greater acquisition of solutions from external suppliers rather than in-house • Aimed at improving operational cost-effectiveness and efficiency • External suppliers seen as being able to provide solution more quickly, at lower cost and using suitable technology • Acquiring organisation still needs to retain accountability for solution November 24, 2013 7
  • 8. Questions For Acquisition Function • • • • • • • • • • What value, if any, is outsourcing creating? What are the measures for evaluating outsourcing success and value and are they being achieved? Who owns and manages the outsourcing relationship(s)? How well are the efforts being managed? What are the risks and are they being managed effectively? What other new outsourcing opportunities should we pursue? How are lessons learned from outsourcing experiences applied elsewhere? How do we decide what other services to outsource? Does the approach to outsourcing help maximise value while minimising risk? Are standard methodologies and approaches used to manage outsourcing selection and implementation? November 24, 2013 8
  • 9. Avoiding The Outsourcing Value Lost Outsourcing Potential Value Lost value can be 30%-60% of originally expected Lost Outsourcing Potential Value Outsourcing Value Achieved Lost value due to unachieved planned, savings, inadequate performance, rework and additional costs and inefficiencies Costs more than expected, delivers less than expected November 24, 2013 9
  • 10. What Are The Real Costs Of Outsourcing? • How realistic are the costs and benefits of outsourcing? • How much is the desire to outsource leading to inaccurate estimates, either deliberate or just wishful thinking? • How much is the desire to outsource at any cost causing strategic misrepresentation - deliberate distortion of actual costs? November 24, 2013 10
  • 11. Errors In Costing • Cost estimates are rarely accurate − What we know about most projects is that they either or both overrun on costs and deliver less than expected − Cost overruns are generally caused by a mix of errors in the initial cost estimates and deliberate distortions in order to cause the decision to be made November 24, 2013 11
  • 12. Procurement ≠ Acquisition • Acquisition is not just about having a separate procurement function that manages supplier selection/ tendering with narrow and singular focus on cost • Procurement focus leads to a disconnect between selection and subsequent delivery • Effective acquisition means taking a much wider focus than just a financial arrangement November 24, 2013 12
  • 13. All Too Often Procurement Throws A Solution Over The Wall To Delivery Procurement November 24, 2013 Delivery 13
  • 14. Beware Of The Externalities Of Procurement-Lead Acquisition and Outsourcing • Externalities are costs that procurement-lead initiatives give rise to but which are paid for elsewhere • Apparent cost-savings from procurement’s viewpoint lead to costs during implementation and operation November 24, 2013 14
  • 15. It Is Not All About The Money • Successful outsourcing is not about getting the lowest price at all costs • It is about getting the lowest price for a sustainable solution under a reasonable contract from a skilled and experienced service provider • An outsourcing arrangement is not a once-off economic business deal that automatically implements itself after the parties sign the contract • It is an continuous commercial relationship with long-term economic and strategic consequences and impacts for both the supplier and the outsourcing organisation that depends on the choices the parties make and their subsequent behaviour • An unwise choice can have serious and enduring negative consequences November 24, 2013 15
  • 16. Outsourcing Transaction Costs • There are (hidden/overlooked) costs associated with sourcing a service externally − − − − − − − − − − − − • Selecting the wrong supplier Costs of writing contract Costs of enforcing contract Having a poor service contract that results in hidden cost and/or reduced service Overlooking personnel issues Loosing control over the outsourced activity Management, quality assurance and supervision overhead Implementation and termination costs Loss of flexibility Loss of integration between applications and data Data extraction costs Security framework implementation Effective transition to outsourcing requires full knowledge of costs – current and future November 24, 2013 16
  • 17. Getting Costs and Benefits Right Is Very Important • Small error in costs will accumulate and become substantial over the life of the contract November 24, 2013 17
  • 18. A Small Error Over Time Becomes A Big Error • Difference between what was expected and the actual costs can exceed the entire original cost where costs are poorly estimated and controlled November 24, 2013 18
  • 19. Outsourcing Death Spiral Incomplete SLAs/OLAs No Service Catalog Insufficient Management And Oversight No Defined Future Operating Model Or Architecture No Defined Outsourcing Strategy No Governance Model Unarticulated Expectations Constant Renegotiations Development Of Parallel IT Services Oversimplification Of Outsourcing Process Insufficient Understanding Of Current State Of Services Being Outsourced November 24, 2013 Unanticipated And Large OutOf-Scope Services Breakdown Of Relationship Incomplete Contract Backsourcing/ Insourcing/ Circumvention of Arrangement Invalid Assumptions Lengthy Negotiations High Management Resources And Costs Over-Dependence On Service Provider As Strategic Partner Underestimated And Unquantified Resource Commitment Naive And Simplistic Expectations 19
  • 20. Pitfalls Of Outsourcing • • • • • • • • • • Lack of management commitment to getting outsourcing right Limited or no knowledge of outsourcing methodologies and approaches Lack of an outsourcing communications plan Failure to recognise the business risks of outsourcing No using external sources of knowledge and experience Not allocating effective and skilled internal resources Rushing through the initiative to get the outsourcing arrangement in place at any cost Not understand what it takes to make the supplier productive Poor relationship management with supplier and within the organisation Not communicating the operation of the outsourcing relationship to the organisation November 24, 2013 20
  • 21. Myth Of Outsourcing “Strategic Partnership” • Don’t do business with friends • Don’t become overly friendly with those you do business with • Outsourcing is a business relationship that will come to an end • Keep a strong business focus at all times
  • 22. Making An Explicit Decision On Where You Want To Be On The Outsourcing Spectrum I it plex m d Co n pe a co ed S s crea n Efficiency/ Utility y ng urci so Out of Business Enhancement t men e rang Ar Transformational Make Me Money Make It Better Make It Cheaper Primary focuses on cost control and cost reduction, with the aim of maintaining consistency in service delivery November 24, 2013 Concerned with organisational productivity and with improving performance leading to achievement of organisational goals Characterised by a greater partnership between the service provider and the organisation that is focused on innovation and new business, changing the way in which the organisation operates and uses technology 22
  • 23. Making An Explicit Decision On Where You Want To Be On The Outsourcing Spectrum I it plex m d Co n pe a co ed S s crea n Efficiency/ Utility y ng urci so Out of Business Enhancement t men e rang Ar Transformational Make Me Money Make It Better Make It Cheaper Focus on Buying November 24, 2013 Focus on Tactical Sourcing with Some Organisational Restructuring Focus on Strategic Sourcing With Substantial Organisational Change 23
  • 24. Change In Relative Importance Of OutSourcing Objectives Over Time Gain Access To Talent and Capabilities Drive Organisational Culture Change Improve Compliance Capabilities Improve Process Efficiency Align Support Function with Strategy You Evolve Over Time Into Looking At Achieve This Transform Processes Gain Access to New Technologies Support and Enable Growth Increase Service Flexibility and Scalability Reduce Costs -20 November 24, 2013 -10 0 10 20 You Start Looking to 30 Achieve 40 This 50 60 70 80 90 100 24
  • 25. Outsourcing Effectiveness At Achieving Business Benefits Very Effective Somewhat Effective Not Effective Reduce Operating Costs Meeting Regulatory Requirements Standardising Processes Supporting More Effective Organisation-Wide Operations Gaining Access to Capable Talent Forcing Change Into Business Operations Transforming Processes Gaining Access to New Technologies Gaining Access to Analytical Capabilities Providing Innovation 0% November 24, 2013 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 25
  • 26. Outsourcing Effectiveness At Achieving Business Benefits • What is initially important is not what becomes important • Learn lessons from the experience of others to define exactly what you want of your outsourcing arrangement November 24, 2013 26
  • 27. Important Supplier Selection Factors Mission Critical Important But Not Critical Somewhat Important Not Important Financial Stability Track Record Of Standard Operational Services Delivery Delivery Talent That Add Values Beyond Standard Operations Knowledge of Specific Industry Processes Ability to Support Change Management and Governance Needs Culture of Supplier's Delivery Organisation Ability ty Transform and Reengineer Existing Processes Global Delivery Scale and Flexibility Ability to Provide Innovation Ability to Support Business Outcomes Rather Than FTE Pricing Ability to Provide Analytical Insight Ability to Promote Gainsharing Initiatives Brand November 24, 2013 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 27
  • 28. Important Supplier Selection Factors • Use these factors to evaluate suppliers and look for proven competence and referenceable delivery November 24, 2013 28
  • 29. Strategic And Operational Skills Of High Performing Acquisition-Oriented Organisation Governance Service Delivery Business Vision Architecture Internal IT Function Management External IT Function Business Alignment Informed Product and Service Acquisition Business System Thinking Architecture Planning and Design Contract Management Effective Contract Enablement and Acceleration Vendor Development Relationship Building and Maintenance End-to-End Systems and Technology View November 24, 2013 29
  • 30. Strategic And Operational Skills Of High Performing Acquisition-Oriented Organisation • • • • • • Define the systems, information and processes needed to deliver on business requirements and optimally acquire and operate them Define and manage the architecture blueprint for the evolving platform that hosts operational systems and processes Manage external supply and acquisition Manage sourcing strategy Understand the external services market and develop and maintain the skills to select, engage and manage internal and external IT resources and services Identify the potential added value from IT service suppliers November 24, 2013 30
  • 31. Areas Of Importance For Outsourcing Organisations During Outsourcing Implementation and Operation Outsourcing Strategy Management Governance Management Relationship Management Value Management Organisational Change Management Outsourcing Planning People Management Service Provider Evaluation Knowledge Management Outsourcing Agreements Technology Management Service Transfer Service Transfer Sourced Services Management Analysis Initiation Implementation November 24, 2013 Threat Management Ongoing Outsourcing Completion Completion 31
  • 32. Skills To Look For In Outsourcing Service Providers During Outsourcing Implementation and Operation Knowledge Management Threat Management People Management Service Delivery Service Design and Deployment Service Transfer Initiation November 24, 2013 Contracting Implementation Performance Management Relationship Management Technology Management Ongoing Service Transfer Completion 32
  • 33. Strategic And Operational Skills Of High Performing Acquisition-Oriented Organisation Business IT Supplier Ecosystem IT Needs To Focus Appropriate Services on Appropriate Suppliers IT Mediates Between the Business and the Supplier Ecosystem, Acting as a Lens Focussing Business Needs on Appropriate Suppliers November 24, 2013 33
  • 34. Lack Of Focus During Key Outsourcing Stages Leads To Loss Of Value November 24, 2013 Re fre sh y De li v ce rv i Se M De c isi on in Pr in cip le An a Se a le rke ct t R lyse io e n an sea r d De ch c Ne isio n go tia Se t rv ice ion De s ig Tr an n sit io n Loss Of Interest During Key Implementation and Operational Stages Value Gap Cause by “Fire and Forget” Approach to Outsourcing er Level of Focus, Attention and Interest 34
  • 35. Outsourcing Is Not Just For Christmas … • … It is for a good chunk of your (business) life • An overemphasis on the act of outsourcing rather than on the long-term nature of the business relationship that will follow will lead to trouble • The selection process and the tender are not ends in themselves: they are means to an end November 24, 2013 35
  • 36. Outsourcing And Due Diligence • Perform due diligence as part of negotiation/service design/transition stages: − − − − − − − − − − − • Discover and become familiar with organisation culture and Build trust management style Confirm any assumptions Verify costs and business case Identify additional risks not already documented Validate the transition plan Validate the infrastructure Validate the operational approach Identify any additional opportunities Ensure no transaction-breaking reasons Consider taking an M&A approach to implementing outsourcing
  • 37. Lots of Scope To Get Acquisition Wrong • Inadequate management • Unarticulated end-user needs • Insufficiently defined requirements • Poor supplier selection • Defective contract definition • Deficient underlying technology selection November 24, 2013 37
  • 38. Outsourcing Relationship Management Officer (ORMO) • • • • • • • Develop and manage outsourcing strategy Oversees outsourcing projects and manage portfolio of outsourcing arrangements Continuously appraise the portfolio of outsourcing initiatives to calculate their business value, avoid redundancies in effort, manage risks and develop and report metrics Conduct feasibility analyses for outsourcing initiatives across the organisation Ensure that there is consistency in outsourcing objectives and business objectives Conduct reviews/assessments/lessons learned and manage knowledgebase Ensure compliance with standard outsourcing methodology and process to maintain a standard operational framework
  • 39. Capabilities Of A High Performing Acquisition Function • Acquisition Project Capabilities − Capabilities and associated practices relating to activities concerned with to establishing, executing, and ensuring the transition of an acquisition project • Acquisition Organisational Capabilities − Consists of cross-project capabilities related to defining, planning, deploying, implementing, monitoring, controlling, appraising, measuring and improving processes • Acquisition Support Capabilities − Capabilities that help implement generic practices and assist processes and work products described in more than one other process areas • Acquisition High Skilled Capabilities − Capabilities for quality and process performance, monitoring variation in processes, evaluating the impacts of proposed process changes, and systematically deploying processes across the organisation November 24, 2013 39
  • 40. Specific Acquisition Capabilities And Their Relationships Acquisition Project Capabilities Solicitation and Supplier Agreement Development (SSAD) Acquisition Requirements Development (ARD) Requirements Management (REQM) Project Planning (PP) Acquisition Organisational Capabilities Acquisition Technical Management (ATM) Agreement Management (AM) Project Monitoring and Control (PMC) Organisational Process Definition (OPD) Risk Management (RSKM) Organisational Process Focus (OPF) Acquisition Verification (AVER) Acquisition Validation (AVAL) Integrated Project Management (IPM) Organisational Training (OT) Acquisition High Skilled Capabilities Quantitative Project Management (QPM) Organisational Performance Management (OPM) Organisational Process Performance (OPP) Causal Analysis and Resolution (CAR) Configuration Management (CM) Process and Product Quality Assurance (PPQA) Measurement and Analysis (MA) Decision Analysis and Resolution (DAR) Acquisition Support Capabilities November 24, 2013 40
  • 41. Key Acquisition Capabilities • • • • • • • • • • • Agreement Management Acquisition Requirements Development Configuration Management Measurement and Analysis Project Monitoring and Control Project Planning Process and Product Quality Assurance Requirements Management Solicitation and Supplier Agreement Development Acquisition Technical Management Acquisition Validation November 24, 2013 • • • • • • • • • • • Acquisition Verification Decision Analysis and Resolution Integrated Project Management Organisational Process Definition Organisational Process Focus Organisational Training Risk Management Organisational Process Performance Quantitative Project Management Causal Analysis and Resolution Organisational Performance Management 41
  • 42. Acquiring Acquisition Capabilities – Focus on Skills That Add Value Acquisition Skills and Capabilities Initial Sets Improving Skilled and Experienced Very Capable Acquisition Requirements Development (ARD) Acquisition Technical Management (ATM) Organisational Process Performance (OPP) Organisational Performance Management (OPM) Agreement Management (AM) Acquisition Validation (AVAL) Quantitative Project Management (QPM) Causal Analysis and Resolution (CAR) Project Monitoring and Control (PMC) Acquisition Verification (AVER) Project Planning (PP) Organisational Process Definition (OPD) Requirements Management (REQM) Solicitation and Supplier Agreement Development (SSAD) Organisational Process Focus (OPF) Organisational Training (OT) Configuration Management (CM) Integrated Project Management (IPM) Measurement and Analysis (MA) Risk Management (RSKM) Process and Product Quality Assurance (PPQA) Decision Analysis and Resolution (DAR) November 24, 2013 42
  • 43. Summary • • • • • • • • • • • • • Understand the size of the outsourcing zone Identify your outsourcing zone and then take appropriate action Beware of proliferation of “Under the Cover” acquisition/outsourcing in the form of cloud/XaaS as business functions bypass what is perceived as slow, expensive IT Get costs right by being realistic Procurement ≠ Acquisition Successful outsourcing is not about getting the lowest price at all costs Avoid the outsourcing death spiral Making an explicit decision on where you want to be on the outsourcing spectrum Develop an approach to outsourcing due diligence Learn lessons from the experience of others to define exactly what you want of your outsourcing arrangement Avoid lack of focus during key outsourcing stages Understand and develop the capabilities of a high performing acquisition function Appoint a Outsourcing Relationship Management Officer (ORMO) November 24, 2013 43
  • 44. More Information Alan McSweeney http://ie.linkedin.com/in/alanmcsweeney November 24, 2013 44

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