This document discusses sourcing decisions and outlines factors to consider when deciding whether to outsource or insource business functions and IT services. It provides a matrix for determining whether activities should be insourced or outsourced based on their strategic importance and contribution to operational performance. The document also lists types of functions that can potentially be outsourced, from discrete activities to entire business functions. It notes benefits and risks of outsourcing, and outlines key steps in the outsourcing process from establishing the business case to transitioning to business as usual operations. Guidelines are provided for effective outsourcing decisions and management.

1. Change management and business
performance improvement
Extract: Module 2 Section 11
Ged Melia

2. Section 10: Shared service centres
Section 11: Sourcing decisions
Section 12: Minimising IT project risk
Section 13: Downsizing and restructuring
Section 14: Growth – making M&A work
Section 15: Growth – good practices in Sales
Module 2 - Business performance improvement
Section 8: Improving processes
Section 9: The management control cycle
Section 7: Continuous improvement

3. Section 11: Sourcing decisions

4. Outsource Insource
Sourcing decisions
? ?
“Vision without execution is hallucination.”
Thomas Edison (attrib)
“Execution without vision
should get outsourced”
Anon

5. Sourcing decisions
Source: Harvard Research Group, 2005 study
Drivers behind sourcing decisions

6. Factors driving the timing of sourcing decisions
• Specific IT program or project
benchmarks.
• Part of annual or long- range
business plan review.
Planned, Orderly
Budget Reviews
• Change in IT architecture or
platform.
• Major change in IT strategy.
Major IT Architectural
challenges
• Change in business strategy (key
expansion or contraction).
• Inter-divisional organization changes
in management or function.
Division-Level
Disruptions
• Potential merger and acquisition
activity.
• External industry or national events.
• Potential spin-offs.
Company-Wide
disruptions
Sourcing decisions are typically driven by circumstances or an event rather
than by a calendar. While prospective outsourcing partners will promote the
‘as soon as possible’ perspective, the prudent course of action is to
undertake some extensive internal analysis and benchmarking beforehand.

7. Form a strategic
alliance
Retain
Eliminate
Outsource
Strategicimportance
Contribution to operational performance
Low
High
High
Low
The insource/outsource decision
All decisions are likely to be specific to a set of circumstances but a good
starting point is to identify the task or activities strategic and operational
importance and work out where it should fit in the matrix.

8. What can be outsourced?
•Office equipment.
•Capital equipment.
•Bounded, single IT applications.
Discrete activities
and commodities
•Hardware, software, network infrastructure.
•Business infrastructure (printing/copying/data
input.
IT services and
infrastructure
•Business applications within overall business
function (payroll, market research).
•Web-based or hosted business processes.
Business processes
and applications
•All or most processes within a function (HR,
accounting, procurement).
Entire functions and
businesses
Repetitive tasks Expert tasks Specialised tasks

9. Benefits of outsourcing
Reduces operational cost
Facilitates focus on core activities
Outsource partners usually specialists
Better able to manage peaks and troughs
Lower IT/technology capital expenditure
Potential 24 hour time zone cover
May speed up processing
Access to cutting edge technology

10. Risks associated with outsourcing
Financially unstable partner
Quality control
Poorly structured SLAs
Loss of the ‘wrong’ staff during transition
Post transition roles poorly defined
Lack of organisational alignment
Failure to effectively communicate
E2E processes that are not seamless

11. Ineffective contract change control
Unrealistic pricing
Poor forecasting and planning
Poor record keeping
Culture and language stresses
Confidentiality and data protection issues
Currency variation
Time zones
Risks associated with outsourcing

12. Outsourcing steps
1
2
3
4
5
6
7
Create the ‘burning platform’.
Establish business case /understand costs
RFP.
Shortlist/BAFO
Contract and SLA
Planning
The process broadly follows the same tender approach
taken with other vendors but there are some clear
differences. It is usually a significant change programme
involving people leaving the business, process changes,
technology integration challenges and a detailed focus on
how the new operating model will work post handover
(performance, quality, communication, reporting etc.)
Cost &
service.
buy-in.
Clearly
define the
parameters
and specs
Usually
cost but
can be
expertise
or
technology
Project plan:
New processes.
Comms.
Redundancies
Etc.
Search and
initial
partner
discussions
/’beauty
parade’.
Detailed
negotiations,
and
selection.
Detailed
operational
parameters
and contract
Transition to BAU
Pilot testing, O/S
recruitment,
leaver processing,
SLAs, KPIs etc.

13. Outsourcing guidelines
Don’t outsource a problem
Make sure it fits with long term strategy
Consult stakeholders and get buy-in
Treat as a major project
Get the cost/service quality balance right
Choose the right outsource partner
Scope the contract properly
Make sure it works operationally (E2E)

14. Outsourcing guidelines
Apply governance and change control
Hire-in during the transition period
Communicate service levels and roles
Incorporate partner planning into the MCC
Measure and manage performance
Monitor and manage risk including DR
Ensure that there is an exit strategy

15. Dilbert….