MGMT 534 Lecture 2 (1).pptx

University of Bridgeport
Strategic Sourcing and Vendor Management
Lecture 2
1
©Copyright, GPS Group, Inc., All Rights Reserved.

2
2.0 Creating a Sourcing Strategy
Pressures for Change
Why bother?
What can be done?
What should be done?
How to do it?
Was it Successful?

Phase 0:
Strategy
Formulation
Phase 1:
Feasibility
Phase 2:
Preparation
Phase 3:
Evaluation
Phase 4:
Commitment
Phase 5:
Transition
Phase 6:
On-going
Management &
Governance
Objectives •Determine
business need
•Align with business
strategy
•Develop sourcing
strategy and identify
areas of opportunity
•Develop business case
•Develop base case (as is
state before sourcing)
and future scenarios
(future state after
sourcing)
•Decompose into discrete
components
• Perform risk
assessment:
- Function
- Country
- Culture
- Security
- Etc
•Develop detailed
requirements/scope
•Finalize/issue RFP
•Formulate provider
selection criteria
and weights
•Evaluate contract &
provider pricing
•Evaluate providers
•Internal Audit review
for controls
•Select and negotiate
provider proposals
•Develop transition
program
•Finalize organization
plan
•Sign contract
•External and internal
communications
•Implement phased
transition plan
•30/60/90 day phases
•Establish relationship
management
strategy
•Manage to contract
•Manage scope and
changes
•Monitor business
value of engagement
via business case
•Issues management
•Manage the
relationship
•Reorient retained
organization
Deliverables
&
Decisions
•High level sourcing
strategy
•Validate strategy
- Internal
- External
•Secure sponsor and
management team
•Inform executive
team
•Identify sourcing
areas of
opportunities and
priorities
•Examine sourcing
geographic
alternatives - on, off,
best shore
•Business case
•Identify PM and
Macro Plan
•Outsourcing market
overview
•Determine core vs.
non-core functions,
processes,
technologies, etc.
•Risk assessment and
mitigation plan
•Consulting contract
(optional)
•External Counsel
agreement (optional)
•Review and approve
at appropriate levels:
- Functional head /
Business unit
- CEO
- Board of Directors
•RFP
•Identify resource
requirements
•Form pre-transition
team
• Identify providers
(Could use RFI to
eliminate
unqualified
providers)
•Score vendors
•Conduct due
diligence
- benchmark
- site visits
- references
•Short list providers
•Draft Master Service
Agreement (MSA)
and Statement of
Work (SOW)
•Approve budget
•Change Management
process and
authorization
•Finalize and sign
contract – MSA and
SOWs (Statement of
Work)
•Transition plan – Pre
and
post checklist
•Form post transition
team
•Risk mitigation, backup
and contingency plan
•Develop human
resources and asset
transfer and retention
plan
•Finalize governance
plan,
process, metrics and
roles
•Finalize training plan
•Finalize pilot testing
and/or validation plan
•Execution of
transition plan
• Implement
relationship
management plan
•Assess results of
initial
transition and fix
issues
•Knowledge transfer
and
finalize
documentation
•Clear hand-offs –
who, what, when,
how,
where and finalize
documentation
•Governance - schedule
of
activities and process
•Change control process
•Escalation process and
roles
•Management and
Performance reporting
•Updated business case
•Renew, expand or
disengage contract
•Build client/provider
high performance teams
•Institutionalize:
- Sourcing process and
continuously improve
- Improve governance
process
- Lessons learned
- Critical success
factors
Enabling
Checklists,
Tools and
Technologies
•Template
- Business plan
- Sourcing plan
- Sourcing business
case
•Business case
template
•Risk assessment
template
•Vendor evaluation
scorecard and criteria
•Criteria for vendor
due diligence
template
•Master Service
agreement (MSA)
•Transition plan
template
•Communication and
governance plan
- Metrics
- Relationship
management
- Escalation
•Transition Checklists
- Pre-transition
- Post-transition
•Governance calendar
go/no go go/no go go/no go go/no go go/no go go/no go
Provider Selection
3
Strategic Sourcing Lifecycle Roadmap
Source: Bullen, Lefave & Selig

4
• Economics – best quality for best price
• Resource Management – finding needed resources
• Decreasing Time-to-Market – HR/Tech/Capacity competitive
advantage
• Flexible & Scalable Operations & Technology move and change with
market demands
• Transformational/Innovation
• Regulatory/Legal
• Enabling Mechanisms
Forces Driving Global Sourcing

5
• Speed and/ or resources flexibility
• Innovation through resources and knowledge sharing
• Technological diversification without acquisition
• Localization – getting closer to customer
• Revenue opportunities, Cross-selling and Up-selling
•Helps clients focus on what they do best and outsource the rest
Sourcing Strategies Beyond Cost Savings

6
No Easy Task
Control the process
Form a team
Define Objectives & Scope
Assign Roles & Responsibilities
Realistic Formal Governance Process
– Define Metrics
Determine Needs
Assemble right skills/bench strength
Select & Manage Vendor (s)
Obtain Consensus
Be innovative Establish Base Line
Formal Procurement/RFP Process
Executive Sponsorship
Overcome Political Fiefdoms Empower
Multi-Cultural Sensitivity and Work Habits
Obtain Multi-Level Approvals
Negotiate Ownership
Create Customer/Vendor Collaboration
Manage Change & Risk
Manage Constitute
Expectations
Issues Resolution
Develop Business Case and Plan
Back-Up, Recovery & Security
Negotiate a flexible contract
Strategic Sourcing is Complex
Resistance to Change

7
On Change and Innovation
Change and Innovation
Never be afraid to try something new.
Remember, amateurs built the Ark…
Professionals built the Titanic!
The only good idea or innovation is an
implemented idea that stays implemented.

8
Unless today’s established corporations learn to reinvent
themselves and their industries, much of the new wealth
will be created by the newcomers.
Gary Hamel
Strategy Consultant
On Change and Innovation
If only half of the changes we hear about are true, businesses
must learn how to sustain a constant cycle of innovation, or
risk complete business failure.
Ivan Seidenberg
Former Chairman and CEO, Verizon

9
- No passion or champion
- Low risk tolerance
- Inflexible processes & beaurocracy
- Procrastination & uncertainty
- Unclear objectives/fuzzy scope/ambiguous responsibilities
- No reward/recognition/celebration process
- Poor execution
- Weak leader and change agents
- Cannot work well in an unstructured environment
- Lack of decisiveness
- No chutzpah
“It is better to be 70% correct & take advantage of an opportunity
rather than100% correct after the opportunity has passed”
Norman Augustine
Former Chairman & CEO, Lockheed Martin Corp.
Major Impediments to Successful Change and Innovation

10
Key Components of Managing Large Scale Change Successfully
• Engage the Top and Lead the Change
- Create the “Value Proposition” & Market/Communicate the Case for Change Clearly
- Committed Leadership and Change Agents
- Develop a Plan and Ensure Consequence Management
• Cascade Down and Across the Organization & Break Down Barriers/Silos
- Recruit Change Agents, Create Cross-Functional and Global Teams (where
appropriate)
- Ensure a Performance Driven Approach
• Mobilize the Organization and Create Ownership
- Role Out Change Initiative
- Measure Results of Change (Pre-Change versus Post-Change Baselines)
- Embrace Continuous Learning, Knowledge and Best Practice Sharing
• Attributes of Effective Change Teams and Agents
- Strong and focused Leader
- Credibility and Authority (Charter) to Lead the Initiative
- “Chutzpa”, Persistent and Change Zealots
- Ability to Demonstrate and Communicate “Early Wins” to build the momentum
- Create a Sense of Urgency and Compete on “Speed”
- Knock Obstacles Out of the Way, Diplomatically or Otherwise

11
A Framework & Roadmap for Managing Change
Leading Change:
– Is there a strong company leadership team (CLT)? Knowledgeable in the model and tools?
– Is the CLT actively involved in leading and driving the change process and initiatives?
– Are CLT members monitoring all “essential elements” and “necessary conditions”?
Creating Shared Need:
– Is the reason to change,
whether driven by threat or
opportunity, instilled within
organization?
– Is it widely shared through
data, demonstration, demand
or diagnosis?
– Does the need for change
exceed its resistance?
Shaping Vision:
– Is the desired outcome
of change clear, and
legitimate?
– Is the outcome
expressed in simple
terms?
– Is it widely understood
and shared?
Making
Commitment:
– Is there a strong
commitment from all
key constituents to
invest in the change,
make it work, and
demand and receive
management
attention?
Making Change
Endure:
– Once the change is
started, can we
implement it on a
sustained basis?
– Are the results
transferred
throughout the
organization?
Monitoring
Progress &
Learning:
– Do we know our
real progress?
– Have
benchmarks and
metrics been set
to guarantee
accountability?
– Has
organization
feedback and
learning been
captured?
Changing Systems, Structures, Processes & Capabilities:
– Is change woven into the very fabric of the organization?
– Are management practices used to complement and reinforce change?
– How have we addressed issues of: staffing & development, measurements & rewards?
– Is there a communication strategy?
– Do we know how the organizational structure must be changed?
(Can be applied to Outsourcing and Other Initiatives)

12
The Role of the CEO to Achieving Business Growth, Improving
Shareholder Value and Creating an Effective Sourcing Environment
Executing enterprise-wide strategic initiatives & effective business
operations is a complex undertaking that requires a balance between
growth, effectiveness and efficiency and sourcing (which can affect all
three criteria)
• Increase
management/
employee
competency/
training
• Implement
strategic change
in a planned,
coordinated, and
controlled
manner
• Improve
outcomes of
implementation
efforts
• Enhance team
building
dynamics and
enterprise
behavior
• Compliance
• Speed (reduce
time) to market
• Minimize risks
and uncertainty
• Flawless
execution
• Facilitation of
best practices
• Reduce costs
• Reduce Capital
Expenditures
• Reduce
obstacles
• Reduce defects
• Increase
customer loyalty
• Governance &
Key performance
indicators
• Code of Ethics
Growth (Maximize Value
Proposition)
• Earnings per share
• Growth and sustainability
• Increase revenues /profits
• New products/services
• Mergers/acquisitions/jJVs
• New market entry
• Outstanding customer service
• Breakthrough innovations
• Focus on high value customer
retention
• Portfolio Investment
Management
• Financial Management
• Effective Asset Utilization &
Optimization
. Program/Project Management
• Outsourcing
Optimize Effectiveness
& Efficiency
•Continuous process
improvement and quality
management
• Cost reduction, containment,
and avoidance
• Effective supply chain
management
• Enabling enterprise wide
technology and systems
• Service Management
• Change management
• Outsourcing
• Value chain optimization
• Human resource motivation,
training, and life time learning
• Outsourcing
CEO Role
Companies need to consider the impact of sourcing on the following business strategy
areas: Financial, Operations, Marketing, R&D, Supply Chain and Logistics,
Information Technology, HR and other key areas.

13
Strategy Formulation – Phase 0
• Establish a clear outsourcing strategy, business case and plan that
align, with the business.
• Identify the appropriate outsourcing opportunities & prioritize them.
• Create executive alignment and commitment to outsourcing that
creates a favorable outsourcing culture within the organization.
• Develop & Ensure the Experience Base – Organizations can rapidly fill
their experience deficit through subject matter expert coaching or
outside consulting support. Experience has been shown to be an
important factor in creating successful engagements.

14
Why Consider Global Sourcing?
• Strategic Questions
• Value Questions
• Delivery and Execution Questions

15
Strategic Questions
• Is the sourcing strategy in line with our business vision and strategy and competitive differentiation?
• Do we understand the risks?
• Financial, Operational, Security, Privacy, Intellectual Property, Other?
• Do we have adequate provisions in place for disaster prevention, recovery and contingencies?
• Do we understand regulatory compliance requirements that apply to the outsourcing work and subsequently to
the provider?
• Can outsourcing add strategic value?
• Can this sourcing opportunity be created as a revenue source for the company alone or through a joint venture?
• Revenue growth; cost reduction/containment/ avoidance; reduce speed to market; business process
transformation; etc.?
• How can we measure the value of global sourcing?
• key performance measures
• Impact on the business/function/department/process
• What organizational resources are required to support global sourcing?
• Skills
• Budget
• Competencies
• Certifications
• What governance, controls and consistent process should be institutionalized for effective sourcing?
• What experienced/qualified teams can we put in place?
• For example: functional head, executive sponsor, auditor, accountant, lawyer, project manager and procurement
• Are there known providers for this service?
• Do we understand their capabilities, capacity and scale to provide this service?

16
Value Questions
• Will we reap benefits?
• Clear accountability for achieving the benefits
• Linking benefits to MBO’s and incentive compensation schemes
• An effective benefits realization process and sign-off within the company
• Do we have a clear current “as is” profile
• Covering affected assets, people and processes
• Understanding licenses, costs, equipment, facilities etc.
• Do we have the capability of effectively working with outsourcing providers?
• What industry frameworks, standards and models should we use?
• Should we hire a consultant?
• To assist in developing, review and/or validate our sourcing strategy and approach?
• As an advisory firm to help choose the provider(s)
• Is this process or operation scalable?
• Can it be leveraged with more volume, more customers, etc.?
• Is the cost of the operation competitive with what could be obtained in the market?
• Would de-skilling (loss of in-house expertise) have a negative impact?

17
Delivery and Execution Questions
• Have we done in house benchmarking to determine:
• Are we deploying well and effectively: Scalable, disciplined and consistent
management, governance and delivery processes capabilities and attitudes?
• Appropriate and sufficient resources available with the right competencies,
capabilities and attitudes at the right time
• Would loss of data or content of this service/product hurt the firm?
• How? What would be the impact?
• Overview of provider questions:
• Is the provider certified vis-à-vis an industry standard (e.g. ISO, CMMI, ITsqc, etc.)?
• Does the provider have local and international presence and capability?
• Has the firm had previous experience with the provider?
• Does the provider have a superior reputation for delivering quality services at a
reasonable cost?
• What processes (e.g. transition management, project management, quality
management, performance management, etc.) are being used by the vendor? Are they
acceptable?
• Is the provider undertaking sustainable practices?
• What is the “optimum” relationship management model to be established between the
company and the service provider?

18
Potential Benefits of Global Sourcing
• Enables business to focus on strategic functions and competitive strengths
• Lowers annual operating costs and capital investments
• Increases speed to market
• Provides access to scarce, new or supplementary resources
• Capital infusion (depending on what is outsourced) for assets that are
transferred
• More politically acceptable in certain situations (e.g. if the in-house function
does not have a good reputation)
• Provides scalable resources and bench strength
• Enables greater innovation through access to new skills, processes, tools and
technologies
• Improves productivity and quality through individual or company certifications

19
Barriers and Risks of Sourcing
• Leadership and organizational maturity
• Control Issues
• Economic Issues
• Process Issues
• Resource and Cultural Issues
• Legal and Compliance Issues
• Employee, Customer and Protectionism Issues
• Sustainability and Social Responsibility Issues

20
Strategic planning is worthless unless there is first a
strategic vision
John Nesbitt
Megatrends
On Vision and Planning

AS-IS
Current State
of the
Organization
Strategic
Alignment
Maturity &
Stakeholders
TO-BE
Future State of
the
Organization
Gap Analysis
Strategic
Alternatives
Generation
and
Evaluation
Super
SWOT
Methods for
Strategic
Analysis
Ansoff for
Opportunities
Porter for
Competitive
and Other
Threats
Implementation
Strategies
and
Next Steps
• Where are we ? Before Sourcing
Generic Strategy Analysis Process – Before & After Sourcing
•What could we do/be?
•What should we do/be?
(After Sourcing)
Balanced Scorecard,
Management Team,
Strategic Audit, + + +
Why change?
•How do we get there?
•Did we get there?
(Metrics and Governance)
5 Forces Model
21

Situation Assessment Strategic Alternatives What do we want to be?
(in customer value terms)
Strategic Imperatives to
Achieve Vision/Goals
Action
Initiatives
•
Internal Capabilities
and
Core Competencies
•Mega-Trends
-Industry
- Global
-Customers
-Channels
-Technology
-Regulatory
-Competitors
++++
• Market Trends
•SWOT
-Strengths
- Weaknesses
-Opportunities
- Threats
- Gaps
Alternative Development
-Customer Needs
-Key Assumptions
-Target Segments
-Advantages/
Disadv.
-Differentiation
-Uniqueness
Scenario Hypothesis:
-Value Proposition
-Products/Services
- Alliances/JV
-
Investment Limits
-
-Funding Sources
•Evaluation Criteria
- Strategic
-Feasibility
-Economics
-Legal/Ethical
Vision Statement
Why we have
a Right to our Vision?
Goals, Objectives and Metrics
(Quantitative
and Qualitative)
$X $X
0
2000
$X $X
NPV
Growth
Opportunities
Maximize
Customer
Intimacy
Maximize
Stockholder
Value
Operational
Excellence
Integrate
Technology
and People
Products/Services
Mergers, Acquisitions & JVs
Database Technology
Integrated Customer
Relationship Mgmt
.
Revenue Management
Profit Maximization
/Cost Control
Quality, security,
competency
Outsourcing
ERP
Process Innovation
and Technology Depl.
Where are we?
(Preference Based)
Why Change? What constraints? What
Could/Should We Do?
The 5-7 Core Items
What Must We Do to Win
?
How Do We Get There?
Did We Get There?
Business Strategy Formulation & Related Project Plan Development Framework
Project
Business
Cases,
Selection
&
Approved
Funded
Projects
22
Increasing detailed market, economic planning, analysis and assessments

Technical
trends/pressures
Uncertainties/constraints
External Pressures/Trends
Competitive
pressures
Economic
pressures
PHASE 1
Where
are
we?
(situation
assessment of
current
or “as is” state
Internal Pressures/Trends
Corporate (CEO)
pressures
Regulatory
pressures
Environmental
trends/pressures
User pressures
Employee
pressures
Business unit
pressures
Legal pressures
Customer pressures
PHASE 2
Why change?
Issues:
What are major issues?
What are major opportunities?
What are major risks and threats?
PHASE 3
What could we do?
Strategic alternatives
•Economics/ Feasibility
•Sourcing Model
•Best Shore Alternatives
•Strategic Fit
Sourcing Opportunities, Impact
Top management
vision, objectives
PHASE 4
What should we do?
How should we get there?
Implementation and
Transition Strategies
and Recommended action
programs
Sourcing initiatives:
- Priorities
- Single/Multiple Vendors
- Life Cycle and Process
- Incremental/ Radical Outsourcing
- Strategic/ Tactical Outsourcing
- Best Shore
PHASE 5
Did we get there? Validation, measurement,
control & corrective actions
Outsourcing Strategy Formulation Template
(Current Company Profile)
General
Costs
Personnel
Process/Function considered
as sourcing candidates
Process Maturity
Organization & Staff
Strengths/ Weaknesses
Opportunities/Threats
Gaps
Have the sourcing initiative added value? Met the business case
justification criteria? Met the operational performance metrics?
23

Flexible and scalable processes,
templates and tools
Executive
Management
Business Units
Corporate
Staff Functions
Key selection metrics: new/incremental revenues,
reduce/contain/avoid costs, share of customer $, ROI,
NPV, ROA, strategic fit, intellectual capital, barriers to
entry (patent), degree of risk Vs reward, customer
satisfaction, laws and regulations
Standalone, limited scope
projects or projects which
are interrelated and part of a
program
High visibility, large funding, complex,
strategic, >6 months, high risk, etc.
(Examples: enterprise-wide ERP; e-
Business; complex new product or
solution delivery; enterprise
architecture; M and A;
Flexible processes,
tools and disciplines
are used for
development, but life
cycle tasks will vary by
project type (e.g. IT,
eBusiness, new
product, M and A etc.)
• Quality
• Purchasing
• Vendor Management
• Continuous process improvement
Business Plan
Portfolio Management
Sourcing Life Cycles
(Varies by type of initiative)
Ongoing Processes, Operations and Governance
(Sourcing supports on going company processes and operations)
• Legal/Contract
• Administration
• Customer service
• Information Technology
• Sales/marketing
Plan
Feasibility
(Build/Buy)
Vendor
Selection
Transition
(Test/Pilot/
Train)
Manage
On-
going
Relationship
Program/Project Management
(Key Metrics – Time, Cost, Risks, etc)
Initiation
Planning
Execution
Termination
Evaluation, selection, prioritization and
funding of imperatives and initiatives
Vision, goals
objectives,
strategies and
financials
Strategic Sourcing
initiatives (From Business
Plan)
BPO
NPD
Mfg.
IT
• Finance/accounting
• Transportation
• Training/Human
Resources
Asset Classes:
• Strategic
• Infrastructure
• Transactional
• Informational
Business Plan and Sourcing Linkage - Opportunity Assessment, Selection and
Operational Deployment Triangle
Evaluate/
Select
Deploy
Control/
Measure/
Govern
24

Sourcing
Opportunities
List
Establish
Selection
Criteria
Define
Alignment
& Benefits
Manage
And
Control
Initiatives
Evaluate
Vendor
Operations
Select
Initiatives &
Vendors
Conduct
Stage/Gate
Review(s)
Review
And
Validate
Initiative
Metrics
and
Key
Performance
Indicators
Establish
Priorities
Analysis and Selection
Phase
Control
Phase
Evaluation
Phase
Managing Change
Business
Value
Business Plan
High Level Flow – Business/ Sourcing Planning, Project Selection, Execution &
Evaluation
Traces the flow of process from plan through sourcing opportunity selection and
execution
25

The following 3-Question test provides an easy to apply litmus test to
appropriate sourcing:
• If we started from scratch today, would the business build the
capability internally?
• Is the business so good at the activity that others would hire it to do
it for them?
• Is this an activity of the business where its future leaders will come
from?
Bottom Up Planning:
• Each function/Division should assess its own sourcing strategy in
collaboration with the top down strategy.
Top-Down Strategic Planning
26

• Know your supplier - culture, process, financial, strengths.
• Market extensions of existing services and products with adaptations. Outsourcers can
provide.
• Strong managers are a huge key.
• Recognize that skills exist globally (not just in U.S.)
• Startups in outsourcing take a long time .
• Prepare to face tough cultural blockades on OS. Hit (sell to) top and bottom of company.
• Technological solutions are the obvious answer.
• U.S. is not the only market for OS products.
• Improving costs and operational excellence is forever.
* Former Pesident of GE Capital
Gary Wendt* - 9 Lessons
27

• Cost savings and conservation of capital
• New Technological enablement to transform businesses
• Knowledge driven economy
• Corporate reporting / governance / control
• Creating a network of “capabilities” & access to skills
• Innovation
What are “C” Level Executives Thinking About?
28

Business Case Primary Purposes
• First – Document the Strategic analysis leading to the
outsourcing decision (Current State or As-Is State)
• Second – Document how outsourcing upon the
contemplated terms is an attractive opportunity
• Third – Clearly define the future mode of operations
by providing a “blueprint” of how it will be achieved
(Future State)
Source: Jean-Francois Poisson, Bell Canada and CxO Research Ltd.,
Business Case Outline, www.cxoeurope.com
Developing the Outsourcing Business Case (OBC)
29

Succeeding at Outsourcing …
• Making the right strategic decision
• Transitioning the operations and human resources
• Developing the proper contractual & financial model
• Properly communicating throughout the process
• Develop a strong relationship model between client
and provider
Source: Jean-Francois Poisson, Bell Canada and CxO Research Ltd., Business Case Outline, www.cxoeurope.com (modified)
Developing the Outsourcing Business Case (OBC) (Cont’d)
30

Outsourcing Opportunity/
Business Case
End with feedback to
requestor
No Go
Log Initiative to
Outsourcing DBMS
Go
Checklist
(See above
checklist in
text)
Process/
Function
Current/Future
Baseline
Legal/
Regulatory
Metrics
Alternatives
(Existing/New)
Security/
Privacy
Financial
Scope/Impact
Human
Resources
Technology
Value
Delivered
Core
Competencies
Feasibility
Transition
and On going
Support
Business
Need
Available
Qualified
Vendors
Select Criteria Used to Help Evaluate an Outsourcing Opportunity and Business Case
Outsourcing Business Case Opportunity Evaluation Criteria Summary
31
Source: Bullen, Lefave & Selig, Strategic Sourcing, Van Haren, 2010.

.
Outsourcing Business Case Outline – Major Network Company (Illustrative Example)
32
1. Executive Summary (Synopsis of Business Case):
Purpose, Objectives, Strategy and Scope
Description of Opportunity, Value and Alignment
Financial, Operations, HR, Risks
Dependencies, Assumptions, Constraints
Sponsor and Management Team
2. Assessment of Current (As Is) Environment (Reference
Base – Where are we today?):
Current Processes, Functions and Technology
Current Costs, Resources, Volumes, Locations
Major Issues, Constraints and Sensitivities
3. Proposed Business (Outsourcing) Scenario (Future state):
Proposed Requirements, Processes, Functions and Technology
Proposed Cost/Benefit Analysis
Major Issues, Constraints and Sensitivities
Impact on the Organization, Resources, People
Roles and Responsibilities of Customer and Vendor
4.Change Analysis (Why Change?)
Value Proposition Analysis
Financial Analysis (description and quantification; full economic
life cycle; best case, worse case, most likely case; cash flow;
costs/savings)
Non-Financial Analysis (Impact on Operations, R&D, etc.)
Risk Analysis & Mitigation
5. Recommended Sourcing Approach
Structural Model (The Business Deal and Structure)
Contractual Model
Critical Success Factors
Macro Plan, Milestones and Schedule
Transition Team
Division of Assets
Day-to-Day Management
Key Performance Indicators
6. Appendices
Proposed Project Plan
Proposed Risk Management Plan
Proposed Contingency and Backup Plan
Proposed Communications Plan
Proposed Transition Plan
Proposed Governance Plan

Outsourcing Business Case Outline – Major Network Company (Illustrative Example)
33
Executive Summary
Outsourcing Strategy
• Overall Strategy
• Strategic Outsourcing Objectives
• Strategic Alternatives and Comparison of Base Case
Before and After Outsourcing
• Implementation Strategy
• Exit Strategy
Business Operations
• Division of Functions, Roles and Responsibilities
• Transition activities
• Division of Assets, Systems and People
• Management of day to day operations
• Management of overall relationship
• Management of Outsourcing Contract
Performance
• Service Provider’s Operational Planning Process
• Contingency/Disaster Recovery Process/Plan
Human Resources
• Division of Human Resources
• Diagnostic of Stay-behind HR Needs
• Diagnostic of the Provider’s HR Policies
• Diagnostic of the Displaced Employee Needs and
Legal Considerations
Financials
• Financial Baseline of Company
• Incremental Impact of Transition on Company
• Incremental Impact of Transition on the Provider
• Provider Evaluation – Due Diligence
• Management of the Service Provider Financial
Processes
• Management of Internal Financial Process
Communication Plan
• Employees
• Customers
• Regulatory
• Government
• Community
Appendices

• Business/ Sourcing Plans and
Alignment
• Sourcing Plan Review & Approval
• Sourcing Opportunity Selection,
Prioritization and Authorization
• Formal Periodic Progress &
Performance Reviews
• Final escalation point for issues
resolution
Working Groups,
Subteam Management
Program/Project/Operations
Sourcing Managers: Day-to-Day
Management oversight of the
Program/Project and Operations
Subteams:
Specialists,
Task Delivery,
Assemble as
Necessary
PROGRAM/OPERATIONS
MANAGEMENT/WORKING BOARD(S)
Program/
Project/Operations
Teams
Vendor
Sourcing &
Outsourcing
sub teams
Functional/
Process
Sub Teams
User
Sub Teams
Roles and Responsibilities must be defined
for each Project and Service
and will vary by as defined in a
Responsibility Assignment Matrix
PROGRAM/PROJECT &
OPERATIONS MANAGEMENT
OFFICE (PMO) – policy,
process, tools, training,
facilitation, audit, certification,
reporting (Center of
Excellence)
Program/project /operations /
repository;
Documentation Repository
Executive & SBU
Steering Boards
Sourcing Operating Board Business Case, Vendor Selection,
Contract Management, Security,
Risk, Continuity, etc
Business and Sourcing Executives;
Multi-Level – Enterprise, SBUs &
Major Functions – Supply Chain,
Marketing & Sales, Customer Service,
R&D, Finance, etc.
Plans, Budget, PMO,
Performance Metrics,
Financials, etc
Board/CEO
• Multi-level sourcing
management and working boards
with different focus areas – IT,
BPO, manufacturing , supply
chain, etc.
Business/Sourcing Steering and Governance Boards, Operating Committees and
Roles (Illustrative Example – Federal Government Agency)
34

.
High Level Assessment of Outsourcing Process Maturity Based on CMMI* (Example
of an Insurance Company)
Ad Hoc
Illustrates an Insurance Company Organization’s Current and Future Targeted
State of Outsourcing Maturity. All Organizations Require a Roadmap and Plan
to Move Up to Higher Levels of Maturity and Effectiveness
A Best Practice Framework Can be Used
to Assess the Level of Outsourcing
Maturity Within an Organization.
Module 2
Level 1 - Initial Process
Level 5 - Optimized
Process
Level 4 - Managed Process
Level 3 - Organizational Standards
and Institutionalized Process
Level 2 - Structured Process and Standards
Basic Knowledge
Process Improvement
Process Control
Process Definition
* Based on SEI’s (Software Engineering Institute) CMMI (Capability Maturity Model Integrated) developed at Carnegie Mellon University
Insurance Company Illustration:
12-18 months target. To
achieve Level 3 maturity
Current Sourcing Maturity Level
Targeted Sourcing Maturity Level
35

.
Outsourcing Maturity and Organizational Certification via ITsqc
Two eSourcing Capability Models (one for Clients and one for Service
Providers was developed by ITsqc (IT Service Qualification Center) at
Carnegie Mellon University
Client Framework
(Illustrative Example)
Source: ITsqc
36

37
Select Sourcing Models*
*Modified from Rottman & Lacity, 2004
Model Type Captive Model Joint-Venture Model Build-Operate-
Transfer Model
(Turn-Key)
Fee-for-Service Model
Description The customer builds,
owns, staffs and
operates
The customer and supplier
share ownership in
operations and both
contribute select resources
The vendor owns,
builds, staffs and
operates the facility on
behalf of the customer;
ownership, assets and
employees transfer to
the customer after
completion
The customer signs a
contract for services in
exchange for paying the
vendor a fee
Set-up cost Highest High Medium to High Low
Financial risk Low Medium Low Low
Operational risk Low Medium Low Medium
Security, privacy and
IP risks
Low Medium Low Varies with vendor, a
country’s laws and
culture
Ability to control Highest Depends on the amount of
ownership
Medium Low
Examples IBM, Cisco,
Accenture
TRW/Tech Mahindra,
Citigroup Tata
Bechtel, Haliburton Pfizer, Westchester
County, Morgan
Stanley, Dell,+++

Outsourcing Process Improvement Flow - In order to develop and/or improve a governance
process (business or Outsourcing), an organization must assess its current & future outsourcing
state and develop a plan to transform to a higher level of outsourcing effectiveness.
Outsourcing – Current & Future State Transformation Flow
Where do we want
to be?
Where are we
now?
How do we get
where we want to
be?
How do we know
we have arrived?
Vision and
business objectives
Assessments
Process Change
Metrics
( Define Future State
of IT Governance and
Components including
Assumptions – This is
an iterative process)
(Assess Current State
of outsourcing using a
leading
Best Practice
Framework like
CMMI or equivalent )
(Develop & Implement
Strategies and Actions
For Transformation
from
Current to Future
State)
(Performance
Management –
Monitor, measure
progress
& take action)
· Imperatives
(must do’s)
· Strategies &
Actions
· SWOT Analysis
(Strengths,
Weaknesses,
Opportunities &
Threats)
· Gaps
· Core
Competencies
· Adopt best
practices &
industry models
· Executive
Champion
· Project
Management
· Deliverables
· Technology
enablers/on-
ramps
· Balanced
Scorecard
38

• Develop a Plan and Build a Business Case
– Baseline model
– Requirements & scope
– Costs (realistic)/savings
– Contingency Plan
– Assumptions/Constraint
– Obstacles
– Metrics – OLAs, SLAs, Cost, Schedule,
Other
• Go/No-Go
– Communicate decision to stakeholders
• RFP
– Preparation
– Narrow the field - RFI, RFQ
– Invitation to Vendors
- Vendor briefings
- Site visits
- Vendor proposals
• Evaluation & Selection
- Multidisciplinary team
- Qualitative & quantitative evaluation
criteria
- Cultural match/bench strength
- Due Diligence
- Final selection
• Contract Negotiation/Signing
– It takes two to tango
– Contract types
– Fixed price (well defined)
– Time & material (not well defined)
– Cost & fixed fee
– Cost & variable fee
– Unit price contract
– Terms & Conditions
– Change and Risk Management
– Governance, Metrics and Escalation
– Contingency and Disaster Recovery Options
– Disengagement Options & Responsibilities
- Triggers and Conditions
- Ownership
- Transition Roles/Responsibilities
• Transition Management, Contract Management &
Performance Monitoring
- Transition Planning, Roles, Pilot, Training &
Readiness Validation
- Assure compliance with project or service
objectives, scope, schedule, & deliverables
– Measure and evaluate delivered work
– Vendor governance and reporting
– Integrate vendor tasks and deliverables into
Project Plan
- Assign Senior Manager/Director/VP to manage vendor
relationship with “clout”
Summary Checklist for Managing Successful Outsourcing Initiatives: From Plans to Deals
39

• Outsourcing without enhancing business strategy generally leads to
dissatisfaction and failure
• Service providers not usually involved in client’s strategy formulation
• Business cases for outsourcing are important
• Tactical outsourcing has a limited value and is best treated as a “commodity buy”
• Understanding impact of outsourcing on people and systems is a key success
factor
• “C” Level Executives don’t adequately consider the business change agenda and
how outsourcing plays a role in it
• If you don’t have C-Level support you don’t get A-Level players on your project
team.
Summary
40

Bullen, Christine, Lefave, Richard and Selig, Gad J., Implementing Strategic
Sourcing: A Manager’s Guide to World Class Best Practices, Van Haren
Publishing, 2010, ISBN # 978 90 8753 5797
Slides Developed By: Dr. Gad J. Selig, PMP, COP; Managing Partner and
Founder, GPS Group
41
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