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Chapter 9 Strategic sourcing of resources, capabilities and competencies


Chapter 9 Strategic sourcing of resources, capabilities and competencies Paula Goulding Introduction We set out to shape a global enterprise that preserved the ... – PowerPoint PPT presentation

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Title: Chapter 9 Strategic sourcing of resources, capabilities and competencies

Chapter 9 Strategic sourcing of resources,
capabilities and competencies
  • Paula Goulding

  • We set out to shape a global enterprise that
    preserved the classic big company advantages
    while eliminating the big company drawbacks.
    What we wanted to build was a hybrid enterprise
    with the body of a big company and the soul of a
    small company.
  • (Jack Welch, CEO, GE, 1995)

Developing e-business capabilities
large, established firms
small start-ups
get big fast
act small
enjoy advantages of being big
retain benefits of being small
Do all organisations need to be big and small
Developing e-business capabilities
  • need to combine
  • Efficiency, power, resources, reach of big
  • and
  • Speed, agility, responsiveness of small
  • new capabilities, resources, and competencies
    needed to exploit digital business infrastructure

Organisational capabilities
  • Need capabilities and resources
  • To identify opportunities and to create and
    communicate visions, goals, objectives
  • To innovate and improve, to create excellent core
    business processes
  • To establish relationships and systems linking
    them to suppliers, trading partners and
    customers, and manage knowledge and intellectual
  • To maintain controls without stifling
    flexibility, creativity, agility, responsiveness,
    while remaining competitive, manage uncertainty

Understanding capabilities
  • Organisations become competitive through their
    ability to access (internally or externally) and
    exploit required resources, competencies and
  • Decision must be made on
  • Capabilities to develop and acquire internally
  • Capabilities which would be better sourced
    through external providers
  • Crucial to delivering value to customers

Understanding capabilities
  • Organisational capability is derived through
    accessing competencies (the ability to do things
    or know-how) and resources needed to deliver on
    customer value proposition and thus achieve
    business objectives

Building IT capabilities
  • What we know
  • IT is becoming commoditisedfew impediments to
    purchasing IT
  • Require capabilities and competencies to leverage
    value from IT investments

Technical wizardry does not generate sustainable
competitive advantage (Peppard 2000)
Sourcing required IT capabilities
  • Historically, IT capabilities were developed
  • With increasing complexity and greater emphasis
    on cost controls, decisions often taken to access
    some/all capability from external providers
  • IT outsourcing

Outsourcing defined
  • commissioning a third party (or a number of
    third parties) to manage a client organisations
    IT assets, people, and/or activities to required
    results. This can and often does involve a
    degree of transfer of assets and staff to the
    third party organisation.
  • (Fitzgerald Willcocks 1994)
  • the use of a third party vendor to provide
    information products and services that were
    previously provided internally
  • (Lacity Hirschheim
  • Outsourcing encompasses the movement of any
    part of MIS functionality to an outside agent
  • (Chapman Andrade 1998)

Degrees of outsourcing
  • Total outsourcing
  • gt80 IT requirements are outsourced
  • Selective sourcing
  • IT viewed as a portfolio of activates
  • 20-80 sourced internally
  • Decisions made on a case by case basis

Degrees of outsourcing
  • Insourcing
  • gt80 IT requirements provided internally
  • Deliberate decision to retain IT in-house after
    evaluating marketplace
  • Backsourcing
  • Building IT capabilities internally following an
    outsourcing arrangement

Outsourcing decisions
  • None of these approaches are inherently good or
  • horses for courses
  • IT becomes more diffused and more complex, yet
    more pivotal to the achievement of business goals
    and objectives, to the creation of efficient and
    effective business processes
  • Different perspectives emerge on how best to deal
    with increasing demands for IT services
  • Sourcing decisions are about how to achieve
    desired levels of competence, expertise and
    capability in IT, and how to manage increasing

What can be outsourced?
  • All / most IT/EC operations
  • All / most applications development and/or
    maintenance functions
  • All/most networks and communications facilities
  • Training
  • E-business strategy formulation
  • Re-engineering processes and IT support

General heuristic is to outsource those
activities services which are regarded as
non-core. However, many organisations are now
outsourcing core activities.
Why outsource?
  • Accrue cost savings / better control of costs
  • Uncertainty about value of IT
  • Improve levels of service
  • Internal IT to concentrate on value add
  • More predictability
  • Refocusing staff

Why outsource?
  • Changing business strategy
  • focus on core competencies
  • shed all non-core functions
  • determination to improve business performance
  • accommodate business change, restructuring

Why outsource?
  • Acquire new skills, state of the art technology
  • resources not available internally
  • Cash infusion
  • Popular trend

Risks of outsourcing?
  • Contractual complexity / incompleteness
  • IT services to be outsourced
  • required service levels
  • IT personnel to be provided by vendor
  • fees payable
  • clauses covering disputes, changing requirements

Risks of outsourcing?
  • Increased dependence on outside
  • parties for service
  • poor relationship with vendor
  • loss of skills
  • Recognition that IT played strategic role
  • strategic disadvantage

What are the risks?
  • Unrealistic contract negotiations
  • vendor pushed to provide low quotation
  • set about attempting to be profitable after
    winning the contract

What are the risks?
  • Hidden costs
  • Costs of locating contracting with a vendor
  • Transitioning to the vendor
  • Disruption
  • helpgiven bringing vendor up to speed
  • Contract management
  • Fulfilling contractual obligations
  • Bargaining with vendors
  • Negotiating contract changes variations
  • Transitioning back in-house(?)

Best practice in outsourcing
  • Contracts are essential
  • Fee-for-service
  • Strategic alliances/partnerships
  • Buy-in contracts
  • Allow vendor to be profitable
  • Contract management
  • Change management
  • Retain IT management skills in-house

Trends in outsourcing
  • Contract renegotiation
  • Changes demanded to improve performance
    measurement, better monitoring of contract
  • Backsourcing
  • Decision to rebuild some IT capability internally
  • Netsourcing (e-sourcing)
  • Obtaining entire infrastructure requirements from
    single vendor who delivers all required services
    via Internet

Trends in outsourcing
  • Application service providers (ASPs)
  • Similar to netsourcing, but parts of services can
    be accommodated
  • Not confined only to infrastructure
  • Business processing outsourcing
  • Outsourcing entire business process or function
  • Offshoring
  • Trend to access IT services from developing
    countries with lower cost structures