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Strategic Outsourcing

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Strategic Outsourcing Based on: Maurice F. Greaver II, Strategic Outsourcing- A Structured Approach to Outsourcing Decisions & Initiatives. Prepared by: Ninna Ricci L ... – PowerPoint PPT presentation

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Title: Strategic Outsourcing


1
Strategic Outsourcing
  • Based on
  • Maurice F. Greaver II, Strategic Outsourcing- A
    Structured Approach to Outsourcing Decisions
    Initiatives.
  • Prepared by Ninna Ricci L. Creencia

2
Part 1 Overview of Strategic Outsourcing
  • Overview
  • Methodology

3
What is Outsourcing?
  • Outsourcing is the act of transferring some of
    an organizations recurring internal activities
    and decision rights to outside providers, as set
    forth in a contract.

4
Reasons and Benefits
  • Organizationally - focus, flexible,
    transformation, customer service
  • Improvement - performance, manage control, risk
    manage, new ideas, image
  • Financially - reduce investment, generate cash
  • Revenue - gain market access, expand
  • Cost - reduce cost, from fixed to variable cost
  • Employee incentive, motivate.

5
Levels of Outsourcing
  • Individual moving specific positions out of the
    organization.
  • Functional having specialized knowledge and
    responsibilities.
  • Process how products or services actually flow
    through the organization.

6
Michael Porters value chainPage 6
7
Types of Outsourcing
  • Tactical
  • Strategic-future vision consideration-current
    and future core competencies-structure-costs-pe
    rformance-competitive advantages.

8
History, Trend, and Growth
  • To describe the growing trend of large companies
    transferring their information systems to
    providers (WWII).
  • Trend in larger organizations is to outsource
    entire processes.
  • Expected to grow at double-digit rates over the
    coming decade.

9
7 Steps to Successful Outsourcing
  • Planning initiatives
  • Exploring strategic implications
  • Analyzing costs/performance
  • Selecting providers
  • Negotiating terms
  • Transitioning resources
  • Managing relationships

10
Planning Initiatives
  • Assess risks
  • Announce initiatives
  • Form project team
  • Engage advisers
  • Train the team
  • Acquire other resources
  • Address issues resource management, information
    management, project management
  • Set objectives.

11
Exploring Strategic Implications
  • Understand organizations vision, core
    competencies, structure, transformation tools,
    value chain, strategies
  • Determine decision rights, contract length,
    termination date
  • Align initiatives.

12
Analyzing Costs and Performance
  • Measure activity costs
  • Project future costs
  • Measure performance existing and future, cost of
    poor performance
  • Benchmark costs/performance
  • Determine specific risks, asset values, make
    total costs, pricing models, final targets.

13
Selecting Providers
  • Set qualifications
  • Set evaluation criteria
  • Identify providers
  • Screen providers
  • Draft RFP
  • Evaluate proposals qualifications, costs
  • Performa due diligence
  • Determine buy total costs, short-list
    providers, finalist providers, review with senior
    management.

14
Negotiating Terms
  • Plan negotiations
  • Address high-level issues, deal breakers
  • Prepare term sheets
  • Negotiate contract scope, performance standards,
    pricing schedules, terms and conditions
  • Announce relationship.

15
Transitioning Resources
  • Adjust team roles
  • Compare/merge transition plans
  • Address transition issues communication, human
    resources, other production factors
  • Meet with employees organization, provider
  • Make offers/termination
  • Provide counseling
  • Physically move.

16
Managing Relationships
  • Adjust management styles
  • Set up oversight council
  • Communicate
  • Define and design meeting agendas, meeting
    schedule, performance reports
  • Perform oversight roles
  • Confront poor performance
  • Solve problems
  • Build the relationships.

17
Part 2 Planning Initiatives
  • Project Management and Champions
  • Outsider Advisers
  • Setting Objectives.

18
Types of Risks
  • Inherent risks
  • General risks
  • Specific risks

19
Risks Related to
  • Risks relating to Project Design
  • Risks relating to Managing the Project
  • Risks relating to the Transition to the
    Providers Services
  • Risks relating to Managing the Providers
    Services.

20
Why Outside Advisers are Needed?
  • Because they
  • help manage risks
  • level the playing field with provider expertise
  • assist the project manager in focusing on
    outsourcing issues
  • act as a paradigm buster (challenge established
    thinking)
  • offer independent observations on the outsourcing
    environment.

21
Organizational Objectives
  • There are a number of questions that the project
    team should explore with senior management
    through discussions, surveys, and other means of
    information gathering in order to frame the
    project and its objectives.

22
Part 3 Exploring Strategic Implications
  • Organizational Structure
  • Determining Core Competencies
  • Restructuring
  • Aligning Outsourcing With Strategy

23
Organization
  • Outsourcing challenges many of the ways in which
    organizations have traditionally been structured.
    For example, large size, vertical integration,
    and functional organizational structures have
    long been accepted as foundations for business
    success and for good reasons
  • However, the reasons have disappeared
  • One of senior managements most important jobs is
    to articulate its vision of the organization at a
    point in the future.

24
What Core Competencies Are
  • Core competencies are the innovative combinations
    of knowledge, special skills, proprietary
    technologies, information, and unique operating
    methods that provide the product or the service
    that customers value and want to buy
  • Core competencies are what sets the
    organizations products and services apart from
    the competitors similar offerings.

25
Ways to Acquire and Develop CC
  • Hiring talented people
  • Renting talented people (consultants,
    academicians, etc.)
  • Executing development contracts (to share the
    cost of developing)
  • Joint venturing (to share existing core
    competencies)
  • Licensing (the use of core competencies)
  • Acquiring or taking equity positions in
    organizations (who have the core competencies).

26
Examples of Core Competencies
27
Alternative Approaches to Operational Change
28
Provider Relationship
  • Strategic partner will approach the relationship
    as if it were a part owner of your business will
    participate in strategic planning meetings and
    share in the strategic decisions.
  • Supplier provider wants to deliver the requested
    services with a performance that at least meets
    the specifications will use an operational
    ,tactical, or transactional approach, paying
    close attention to activity performance will
    prefer a pricing model.

29
Part 4 Analyzing Costs and Performance
  • Existing and Projected Costs
  • Performance Standards
  • Other Financial Issues

30
Existing and Projected Costs (overview)
  • In order to evaluate the decision to outsource,
    it is necessary to understand the costs of the
    activities of the target function. Requires
    research and analysis.

31
Identifying Activities
  • Inputs Activities
    Outputs
  • The project team should interview
    knowledgeable people within the function and
    concentrate on production factors
  • People
  • Facilities (space and related services)
  • Equipment
  • Software
  • Third-party contracts.

32
Performance Standards (overview)
  • Should measure existing and projected performance
  • Organizations should have performance measures
    for their significant activities that support
    their strategies
  • Knowing the performance measures for the
    activities being considered for outsourcing helps
    the project team make judgments.

33
Measuring Current Performance Level
  • Productivity Measuring inputs / outputs
  • Quality Measuring waste, errors, and rework
  • Timeliness Measuring the meeting of deadlines
  • Cycle time Measuring elapsed time from start to
    stop in minutes, hours, days, etc
  • Utilization Measuring time invested in a
    specific activity / total time available
  • Creativity Measuring artistic achievement (such
    as design) or new ideas, discoveries, products,
    etc
  • Outputs Measuring the results of activities
  • Financial Measuring certain financial objectives
    (such as budgets, net income, earning per share,
    and economic valued added)

34
Asset Identification and Capital Budgeting
  • The project team identifies which assets, such as
    facilities, equipment and technologies, are
    related to each activity. If an activity is then
    outsource, consideration can be given to the
    disposition of each asset.

35
Part 5 Selecting Providers
  • Service Providers
  • Developing the Request for Proposal
  • Comparing and Evaluating Proposals
  • Provider Selection

36
Identify Potential Providers
  • Strongest research skills are most useful
  • Project team identifies greatest number of
    providers who might have the right qualifications
    and might be interested in providing the services
  • Networking
  • Get five to seven proposals from the most
    qualified, interested, and cost-competitive
    providers, and to evaluate those proposals
    efficiently.

37
What to see in a Proposal
  • A clearly written RFP
  • Sufficient information (to shorten their time
    investment)
  • Reasonable time to respond to the RFP
  • Access to the organizations decisions makers.

38
Restate All Proposals
  • If the Request For Proposals has been prepared
    (WELL), all else should be easy
  • Other things should be considered in the
    RFPQualifications EvaluationPerformance
    CommitmentsPrice Comparison and EvaluationMake
    or Buy Financial DecisionDecision Time.

39
Relationship Manager
  • Relationship manager the person who will deal
    directly with the providers account manager
  • Relationship manager the former head of the
    unit being outsourced avoids confrontation,
    termination, severance, and so on . . .
  • Relationship manager help technical specialists.

40
Part 6 Negotiating Terms
  • Negotiations
  • Contracts

41
Negotiate and Contracts
  • The final agreement for the RFP is negotiated
  • Negotiating process is like a funnel, from top to
    bottom issues, analysis and discussions, issues
    are addressed and agreed upon
  • Outsourcing contracts scope of services,
    performance standards (service-level agreement),
    pricing schedules, terms and conditions.

42
Part 7 Transitioning Resources
  • The Transition Process

43
Transition Process
  • The Relationship Team takes over
  • Transition Roles communication issues, human
    resources issues, transition issues
  • Communication Issues general meeting, individual
    meeting for those receiving offers, individual
    meeting for those interview.

44
Part 8 Managing Relationships
  • Performance Monitoring
  • Solving Problems

45
Performance Monitor
  • The relationship manager manages one or more
    contracts and providers
  • To build the relationship effectively, the
    relationship manager and the organization should
    be active in monitoring and evaluating
    performance and in addressing issues.

46
Resolving Disputes
  • Outsourcing problems is segmented into one of
    four areas
  • People
  • Process
  • Technology
  • All other

47
Third-Party Intervention
  • Mediation
  • Arbitration Non-binding and Binding
  • Judicial By a judge or by a jury

48
Termination
  • At contract expiration
  • For cause
  • For convenience

49
Reasons Not To Outsource
  • If there are reasons to Outsource, there are
    reasons NOT to Outsource
  • Uncertainty
  • Loss of Control
  • Conflict
  • Employee Unhappiness
  • Financial
  • Excuses

50
The End
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