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The Outsourcing Process

The Outsourcing Process. Knowledge Tree Consultancy. Value Focused Thinking. Agenda. Rationale Strategy Development Approach Model & Agreement Conclusion. Knowledge Tree Consultancy. Value Focused Thinking. The Outsourcing Rationale. Knowledge Tree Consultancy. Value Focused Thinking.

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The Outsourcing Process

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  1. The Outsourcing Process Knowledge Tree Consultancy Value Focused Thinking

  2. Agenda • Rationale • Strategy Development • Approach • Model & Agreement • Conclusion Knowledge Tree Consultancy Value Focused Thinking

  3. The Outsourcing Rationale Knowledge Tree Consultancy Value Focused Thinking

  4. Outsourcing first became prevalent in industries experiencing severe profit pressures or troubled companies • However, outsourcing is being increasingly used for more strategic reasons Focus on core competencies Cost reduction in non-strategic areas Bilateral benefits Legacy Systems transformation Upgrade technology expertise and/or environment Knowledge Tree Consultancy Value Focused Thinking

  5. Outsourcing first became prevalent in industries experiencing severe profit pressures or troubled companies • However, outsourcing is being increasingly used for more strategic reasons • Focus on core competencies • Cost reduction in non-strategic areas • Bilateral benefits • Legacy Systems transformation • Upgrade technology expertise and/or environment Knowledge Tree Consultancy Value Focused Thinking

  6. The changing market place has transformed outsourcing into a high stakes game with serious implications • Maintaining competitive posture • Cost of reversing decision (in-sourcing) • User service levels and “ownership of own destiny” • Litigation and conflict resolution • Constraint on business growth and flexibility • Maintaining “knowledge” • Ownership of strategic property or proprietary interests • True ROI and economic costs Knowledge Tree Consultancy Value Focused Thinking

  7. Structured properly, outsourcing provides tangible benefits • Refocusing on primary business • Transformation of service levels and user attitudes • Direct and permanent cost reductions, lower overhead • Resolves political differences • Improves ROI • Enhances performance • Can “leapfrog” to better technology • Increase individual productivity Knowledge Tree Consultancy Value Focused Thinking

  8. Outsourcing involves a myriad of issues and considerations. Clear business purpose and rigorous planning process are prime ingredients of success Business issues • Participation/business council • Shareholder value • Growth/change (buy, sell) • Risk • Level of outsourcing Customer issues Vendor issues • Participation/business council • Service Transition • Cost/chargeback • Help support • Agendas/conflicts • Flexibility • Contract length • Technology changes • Liabilities/insurance • Stability Outsourcing decision People issues • Transition process • Transfer – who goes/stays • Salaries/benefits • Emotion • Rumor management Knowledge Tree Consultancy Value Focused Thinking

  9. Outsourcing Strategy Development Knowledge Tree Consultancy Value Focused Thinking

  10. A Company must develop the most viable outsourcing strategy applying analysis tools and performing corporate screening Analysis tools Option development and selection Competitive analysis Resource value line analysis Strategic & economic analysis Interaction value analysis Create options Design evaluation criteria Evaluate options Corporate level screening Iterative process Economic Strategic Cultural Strategy recommendation Knowledge Tree Consultancy Value Focused Thinking

  11. Knowledge Tree risk analysis for determining the optimal degree of outsourcing Issues Activities Deliverables • Which activities can potentially be contracted to an IT Service Provider? • Evaluate all work activities performed to date by IT personnel along the lines of effectiveness and efficiency Resource line value analysis Lower risk Higher risk • Which activities do we do most effectively and efficiently? • Compare effectiveness and efficiency using other companies and third-party IT Service Providers as benchmarks Effectiveness Efficiency Strategic IS decisions • Do we have the right kind of skills for achieving high effectiveness or efficiency? Resource management • Prioritize the activities which may potentially be contracted to an IT Service Provider System definition System development • What is the risk to the organization by contracting out an IT activity? End user support • Conduct a risk analysis for each option Application maintenance • Include a study of the work activities at the Company to identify potential economies of scale • Etc. Operations • How does the risk change as we include more IT activities to the mix? • Etc. Technical support Telecommunications (Example: IT outsourcing) Knowledge Tree Consultancy Value Focused Thinking

  12. Screening criteria should include strategic, economic and cultural perspectives Value Focused Thinking Viable options Optimal option • Focus on core competence ? • Access to new technologies and critical skills • Strategic use of information • Competitive advantage • Flexibility • Service pricing • Internal labor cost • Reduced training cost • Capital investment avoidance • Revenue generation • Communication • Corporate morale • Attitude towards change • Emotions Strategic implications Economic implications Cultural implications Knowledge Tree Consultancy Value Focused Thinking

  13. The Outsourcing Approach Knowledge Tree Consultancy Value Focused Thinking

  14. The outsourcing process has four main phases Outsourcing Feasibility Analysis Vendor Procurement Contract Negotiations Implementation • Establish Objectives • Risk assessment • Review current operations • Assess problems and opportunities • Define Scope • Determine outsourcing strategy • Develop RFP • Develop financial baselines • Develop service level baselines • Establish evaluation criteria • Identify potential outsourcing vendors • Evaluate vendor proposals • Develop strategies • Set expectations and goals • Drive negotiations • Develop transition plan • Build contract management capabilities • Customer communications and orientation • Outsourcing relationship management Knowledge Tree Consultancy Value Focused Thinking

  15. The Outsourcing Model & Agreement Knowledge Tree Consultancy Value Focused Thinking

  16. Main components of the outsourcing model between the Company and its Service Provider Outsourcing agreement (service to be provided) Vendor (provider of service) Service Provider Customer (receiver of service) Company Departments Agreement — the legal document binding vendor and customer Components Services provided by vendor to the customer according to the contract Management Roles & responsibilities between vendor & customer in carrying out the contract SLA Outlines the service level promised by the vendor for each contract component Pricing Pricing scheme used by the vendor to determine the dollar value of the contract Knowledge Tree Consultancy Value Focused Thinking

  17. Companies should pay particular focus on some components of the outsourcing agreements Terms & conditions Overall scope of agreement Mutual protection How the parties are protected within agreement Contract termination Conditions leading to contract termination Statement of legal responsibilities of both parties Legal Outsourcing contract between The Company and Service Provider Statement of work Overview of services according to the outsourcing components Financial agreement How vendor compensation is managed Performance measurement How performance is measured and reported Basic procedures governing the relationship Business Knowledge Tree Consultancy Value Focused Thinking

  18. Conclusion Knowledge Tree Consultancy Value Focused Thinking

  19. In the final analysis — an outsourcing decision is based on… e.g. A need to achieve more effective service delivery at an affordable cost Identification of needs An understanding that each business has different requirements and different goals Establishing unique objectives (Slides 20-29) The degree of support by all functions within the business Gaining consensus A complete understanding of structure, benefits, and pitfalls Modeling the relationship Knowledge Tree Consultancy Value Focused Thinking

  20. KNOWLEDGE TREES & VALUE-FOCUSED THINKING VFT

  21. Alternative-focused thinking for decision/evaluation(d/e) problems • Recognize a d/e problem • Identify alternatives • Specify values • Evaluate alternatives • Select an alternative VFT

  22. Value-focused thinking for decision/evaluation(d/e) problems • Recognize a d/e problem • Specify values • Create alternatives • Evaluate alternatives • Select an alternative VFT

  23. Objectives • Fundamental objectives • Means objectives VFT

  24. Identifying and structuring objectives Minimize loss of life to children Minimize loss of life Minimize loss of life to adults Maximum safety Minimize serious injuries to children Minimize serious injuries Minimize serious injuries to adults Minimize minor injuries VFT 1. A fundamental objectives hierarchy

  25. Identifying and structuring objectives Minimize driving under influence Maximize quality of driving Have reasonable laws Minimize accidents Maintain vehicles properly Enforce the law Maximum safety Maximize use of safety features on vehicles Educate about safety Motivate purchase safety features Require safety features VFT 2. A means-ends objectives network

  26. Identifying objectives: Devices • 1. A wish list • 2. Alternatives • 3. Problems and shortcomings • 4. Consequences • 5. Goals, constraints and guidelines • 6. Different perspectives • 7. Strategic objectives • 8. Generic objectives • 9. Structuring objectives • 10.Quantifying objectives VFT

  27. An objective must be: • Essential • Controllable • Complete • Measurable • Operational • Decomposable • Non redundant • Concise • Understandable VFT

  28. Qualitative & Quantitative thinking within VFT Qualitative thinking about values: identifying and structuring objectives Quantitative thinking about values: specifying attributes quantifying values Evaluating alternatives Decision making activities: 1. Creating alternatives 2. Identifying decision opportunities 3. Guiding decision processes = information flow = insight

  29. Rumors Personal needs Previous experience Expected service Gap 5 M O D E L Experienced service GAP CLIENT SUPPLIER Gap 4 Actual provided service External communication Gap 3 Translation of perceptions to specifications of quality service Gap 1 Gap 2 Management perceptions of client expectations regarding service VFT

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