Multisourcing the new global trend

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Multisourcing the new global trend

  1. 1. Changing the Outsourcing Game Multisourcing: The New Global Trend Eric Harris Ram Garg
  2. 2. The New Global Trend: Multisourcing Multisourcing is the disciplined provisioning and blending of business and IT services from the optimal set of internal and external providers in the pursuit of business goals. Gartner
  3. 3. Strategic Smart Sourcing Sourcing Getting Work Outsourcing Done In-sourcing - Local - Nearshore - Offshore Multisourcing
  4. 4. In-house vs. Outsource • Is it a core, revenue-generating function of the business? • What does it cost? Fixed vs. Variable cost. • Do I currently have the capability/expertise to do it effectively and efficiently in-house? • Availability of resources ? • How long to build capability? • Right-sizing, scalability, flexibility important?
  5. 5. • Does Your Company Leverage outsource partners? – Yes – No • Has it worked well consistently? – Yes – No
  6. 6. Why Outsource? • Cut Costs • Cost Restructuring, Operating Leverage • Staffing and/or Capacity Issues • Operational Expertise • Desire to focus on core Revenue-generating functions • Flexibility (Flex and Contract) • Reduce time to market • Etc.
  7. 7. The Business Context of Outsourcing • ‘The issue is that if you don’t do it, you won’t survive’ – Daniel Marovitz, COO for Technology, Deutsche Bank • ‘Some financial institutions realized that they were becoming technology entities as well as banks, which is not always desirable.’ • ‘IT can consume 10% to 15% of the revenues across large firms. That's a big chunk.’ • HSBC decided to outsource mainly because the need to constantly improve technology was becoming difficult for the bank. • "We wanted better service quality than what we had, and more agility to respond quickly to changes in the market," Lars Gustavsson, Group Chief Information Officer, ABN Amro • Outsourcing its tech and back-office functions has proved such a successful move for IndyMac Bancorp that its ranking among the largest U.S. mortgage lenders has soared from No. 22 to No. 9 in just three years.
  8. 8. What was your company’s major reason for outsourcing?
  9. 9. Outsourcing Growth Continues Unabated
  10. 10. Despite a maturing outsource industry and constant improvements in infrastructure, every year countless software projects either outright fail or experience massive cost and schedule overruns, costing companies millions if not billions of dollars. Why is this happening?
  11. 11. Why is this happening? • Sloppy, ad-hoc, ―Compulsive Outsourcing‖ – Only about ―cutting cost‖. Vendor selection primarily based on low-cost provider – Bad processes with a ―take our mess for less attitude‖ – Do it because competitors are doing it – Random mandate with no vendor mgmt strategy – No ―partnering‖ strategy – No outsource project management capabilities
  12. 12. Challenges in Current Environments • Generalists are not good enough … • Building in-house teams is expensive • Building infrastructure and process capability is expensive and time consuming • Frequent surprises are common
  13. 13. The New Global Trend: Multisourcing Multisourcing is the disciplined provisioning and blending of business and IT services from the optimal set of internal and external providers in the pursuit of business goals. Gartner
  14. 14. Multisourcing … • Leverages multiple best-of-breed specialist teams • Uses a combination of internal teams and outsource partners • Leverages specialized teams that are expert in and focus on a single function • Focus on delivering real value by improving business processes and/or functions • Is Partner-centric as opposed to vendor-centric A multisourcing strategy should deliver enhanced value and an overall competitive advantage through improved return-on-investment, product quality, and time-to-market.
  15. 15. ―The mega-outsourcing deals of the past rarely delivered innovation and significant service improvements. Smart CIOs today are selecting world-leading specialist suppliers to derive the most from their outsourcing relationships.‖ - Someone
  16. 16. Outsourcing vs. Multisourcing Outsourcing Actions Multisourcing Disciplines Ad hoc/reactionary Strategic and repeatable Tactical event Studied, operating model Problem-focused Outcome-focused Reactive, compulsive Predictive, monitored, measured Situational reaction Comprehensive and disciplined Separated Integrated Managed metrics Governed outcome "Supplier" relationship "Partner" relationship Command and control Trust and control
  17. 17. Advantages of Multisourcing • Ability to leverage industry best practices • Significant improvements to both quality and cost • Better diagnosis of problems and more comprehensive solutions • Higher quality, better trained, more stable teams. Specialists • Better visibility into real project status information • No conflict of interests between functions and better visibility into real project status A strategy for Innovation and Continuous Process Improvement, as opposed to focusing strictly on cost and maintaining a status quo
  18. 18. Transition from Vendor to Partner Customer Outsource Provider • Efficiency and • Predictable, recurring Base Predictability revenue • Optimum value at a • Predictable profitable competitive price engagements • Preferential partner status • Extend relationship • Continuous optimization • Revenue and profit Enhancement • Competitive parity enhancement • Referenceable or advantage engagement • Preferred • Repeatable knowledge partner status • Extend relationship • Competitive advantage • Brand enhancement Transformation • Enhanced revenue • Business expansion • Premier or exclusive and revenue growth partner status • Profits commensurate with value delivered
  19. 19. Contract vs. Relationship Transformation Relationship Management Dominates Enhancement The Contract Utility The Business Contract Value The Contract Contractual Management Dominates Relationship Impact Key: = Contractual Management = Relationship Management = The Partnership
  20. 20. Making It Work …
  21. 21. Multisourcing Challenges … • A new mind-set and frameworks for – Communicating – Coordinating – Integrating • Managing multiple partner relationships – both inside and outside the organization. • Existing Outsourcing framework does not necessarily support multisourcing requirements – Contract focused? • Availability of specialist partners
  22. 22. Multisourcing – Critical Success Factors  You must have a strategy.  Multisourcing governance is the single most important factor in determining success.  Multisourcing is built on a network of relationships — not transactions.  Multisourcing requires creating measurements that matter.  Complexity increases. If you can’t measure it you can’t manage it  End-to-End process management for communication and coordination
  23. 23. Making Multisourcing Work .. • A well-defined engagement model that clearly delineates responsibilities, expectations, and measures of success. • Near real-time end-to-end process visibility with dependencies between upstream and downstream partners well understood • A well-defined measurement system that defines Key Performance Indicators (KPIs) and considers both output and in-process measures. • A well-defined management review and feedback mechanism to assure effective governance
  24. 24. Leadership, Senior Managers Business IS CFO Communication Results Business Coordination Requirements Integration Value IS Service Business Technical Providers Members, as Required Multisourcing requires a new mind-set and frameworks for Communicating with, coordinating, and integrating deliverables from multiple partner relationships both inside and outside the organization
  25. 25. Value Stream Mapping as a Foundation Business (VOB) Customer (VOC) Annual Sales = Peak Demand = Efficiency Metrics Current Target Efficiency Metrics Current Target Margin ## ## Metric 1 Metric 2 Metric 2 Metric 3 Metric 3 Metric 4 Metric 4 Effectiveness Metrics Current Target Effectiveness Metrics Current Target Metric 1 Metric 1 Metric 2 Metric 2 Metric 3 Metric 3 Metric 4 Metric 4 Coordination, Communication, Integration (VOP) Discovery Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Post Launch Process Owner: Smith Process Owner: Smith Process Owner: Smith Process Owner: Smith Process Owner: Smith Process Owner: Smith Process Owner: Smith Description: High Level Description: Preliminary Description: Build business case Description: Development Description: Testing and Description: Full Production and Description: Post Launch Investigation / Scoping / detailed investigation Validation Launch Review Efficiency Current Efficiency Current Efficiency Current Efficiency Current Efficiency Current Efficiency Current Efficiency Current Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 1 ## Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Effectiveness Current Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 1 ### Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 2 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3 Metric 3
  26. 26. Non-negotiable … • Clearly defined roles and responsibilities • Clearly defined interfaces between the Communication parties • Clearly defined overall and per service Coordination provider objectives • Clear definition of service providers stake Integration in the process • Clearly defined metrics and scorecards that objectively gauge progress and success Copyright © 2002
  27. 27. What does the future hold? CIO Governance and Process Management Scorecards and Management Contracts Core Functions and Activities Service Level Agreements Dashboard Incentives/gain sharing Integrator / Prime Contractor Communication Plans Specialist Service Providers Process Infrastructure, metrics, measurement systems, etc
  28. 28. Software Performance Assurance (SPA) An Example Where a Multisourcing Strategy Pays Dividends
  29. 29. Software Projects are Challenging … • Software product development is complex and entails many Risks • Has not caught up with other processes with respect to process capability and management – Variation – Waste and complexity • Defects are painful and can be very expensive – Direct Cost – Revenue Risk – Market risk • Quality resources are expensive and in short supply • Projects routinely suffer from significant schedule and budget slippage
  30. 30. More than half of software projects fail to meet objectives and suffer significant schedule and budget slippage because of defects, the most significant being those defects discovered late and/or post- production! Studies have shown that it can cost 50 times more to correct a defect discovered post- release than it does if that defect is discovered during earlier stages.
  31. 31. Clearly, effective software testing and verification should be a priority. Why do companies continue to miss delivery schedules, overrun budgets, and release defect ridden software that requires countless rework loops to get even close to acceptable performance?
  32. 32. Some Reasons … In-house • Testing and verification function not viewed as strategic or core. Design/development focused • High cost of onshore resources constrains ability to build QA team • Lack of specialized personnel, processes, infrastructure, tools, etc • Takes too long to build team and infrastructure Outsource • Lack of reliable status info from single outsource partner • Generalist partners that do not have sufficient expertise in all aspects • Status Quo, little or no process improvement or innovation
  33. 33. How SPA fills the void .. Focus on testing only with aligned personnel, processes, infrastructure, and experience in place • Allows clients to keep core design/development inhouse or leverage other specialist providers • 100+ certified testing experts. They are specialists in software testing and verifications • Complete inventory of best practices • Infrastructure in place to execute a multitude of project types • Proven, repeatable processes • Patented technology enablers • Experience in multisourcing environment
  34. 34. SPA’s Value Proposition • Access to highly trained team of specialists • Can build team very quickly • Leverage an existing infrastructure and best practices • Flexibility in team size/composition • Flexibility in services • Focus on communication plans • 30+% savings over traditional outsourcing? • Focus on long-term partnerships. Build business value • Focus on innovation and continuous process improvement
  35. 35. Conclusion • Multisourcing is an innovative discipline that takes organizations beyond "quick-fix" cost cutting to enable capability building, global expansion, increased agility and profitability, and competitive advantage. – Innovation and real business value – Reduced Risk – Reduced overall cost • Multisourcing requires a new mind-set and frameworks for communicating, interacting with, and overseeing multiple partner relationships, both inside and outside the organization – End-to-End Process and Status visibility – Partner vs. Vendor – Strategic vs. Tactical
  36. 36. Eric Harris Software Performance Assurance Ph: 972-533-4605 Email: eric.harris@softwareperformanceassurance.com

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