4. REASONS FOR OUTSOURCING
• Traditional role - reaction to
problem
• Reduction and control of costs
• Avoid large capital investment
costs
• Insufficient resources available
• Modern role – business strategy
• Allows company to focus on
their core competencies
• Keeping up with cutting-edge
technology
• Creating value for the
organization and its customers
• Building partnerships
5. TYPES OF OUTSOURCING
Outsourcing models:
Business
processes
BPO: Business Process Outsourcing
BPO
Administrative
processes
AMO
SDO
Application Development
and Maintenance
IT-infrastructure
APO: Administrative Process Outsourcing
ASP: Application Service Provider
DBRO: Design, Build, Run & Operate
ADM: Application Develop. & Maintenance
ITO:
IT Infrastructure Outsourcing
ITS: IT Services, Managed Hosting
9. WHAT CAN BE OUTSOURCED
• System integration
• Data network
• Mainframe data center
• Voice
network, internet/intranet
• Maintenance/repair
• Applications development
• E-commerce
• End-user support system
11. HOW TO IMPLEMENT OUTSOURCING
• Program initiation
• Opinions and ideas shared to
form draft contract
• Program implementation
• Transferring staff
• Service Level Agreement (SLA)
• Establish communications
between partners
• Actual transfer of the service
• Establish management
procedures
• Contract agreement
• Contract fulfillment
12. LEAD SUPPLIER MODEL
LEAD SUPPLIER MODEL
• Continuation of the
traditional outsourcing
model
• One supplier –
responsible for the the
activity
• Activities carried out by
subcontractors
• Cooperation and
coordination between all
the suppliers
•
13. COLLABORATIVE PARTNERING MODEL
COLLABORATIVE
PARTNERING MODEL
• Choice of several lead
suppliers
• Clear
parameters, roles, and
responsibilities
• Usage of sub-suppliers for
specifics activities
• Cooperation and exchange
of knowledge
• Competitive environment
•
14. 7 STEPS TO A SUCCESSFUL SOURCING
STRATEGY
• Identify the company’s needs and determine the needs of your customers.
• Carry out a SWOT analysis to evaluate the risks the company is exposed to
• Set out and carefully choose one or multiple outsourcing partners through a
thorough and extensive
• research
• Once the supplier/s is/are selected, choose on an outsourcing model that
works best for the company’s need (near-shoring,off-shoring,multi-sourcing
etc.)
• Begin talks and discussions with your outsourcing partner/s to clarify
processes and procedures as well backup, recovery, and business continuity
plans
• Set clear SLAs, Set KPIs and ROI evaluation systems
• Evaluate carefully the expenditures on the outsourcing partnerships
15. CORPORATE GOVERNANCE
• Focus on outcomes not on
transactions
• Focus on the WHAT, not the
HOW
• Agree on clearly defined and
measurable outcomes
• Optimize pricing model
incentives for cost/service
trade-offs
• Governance structure provides
insight, not merely oversight
16. PREPARING FOR OUTSOURCING
DO NOT FORGET TUPE
• TUPE stands for The Transfer of Undertakings (Protection of
Employment) Regulations 1981. The Regulations were
introduced to safeguard employees’ rights in the event of a
transfer of an undertaking, business or part of a business. This
includes:
– The obligation to inform and consult all employees in
scope transfer
– Transferee inherits all claims and statutory rights
– Continuity of employment is preserved for employees
– Employees transfer on their existing terms and conditions
of employment
– Transfer connected dismissals are automatically unfair
17.
18. CASE STUDY
Insurance Company’s outsourcing challenge
• Multiple company locations across geographies
• Lack of accountability due to inadequate and unclear
• support delegation
• High Turnaround Time (TAT)
• Unclear support procedures
• Customer dissatisfaction
• Employee frustration
• Growing resource costs due to delay
• High incidence of repetitive and abandoned calls
• Burden of regular training and technology updates for
support functions
• Absence of data capture on requests, solutions
provided and follow-up
20. RESULTS
Some of the key result areas identified were:
Annual revenue savings close to 60 percent
Better process standardization using a detailed manual
on process maps / flow charts
Leveraging core competencies and reducing onshore load
Better efficiency at lower delivery cost following a
continuous process improvement model
Improved TAT through implementing a TAT monitoring
system and access provisioning
More flexibility to changing technology environment
Specialized and continuous training programs to help
staff stay current
Value-add in business model through customer relationship building
21.
22. VENDOR MANAGEMENT
• Vendor management is a discipline that enables organizations to
control costs, drive service excellence and mitigate risks to gain
increased value from their vendors throughout the deal life cycle –
“Gartner”
• Vendor management allows you to build a relationship with your
suppliers and service providers that will strengthen both
businesses.
• It is not negotiating the lowest price possible but it is constantly
working with your vendors to come to agreements that will
mutually benefit both companies.
• A well managed vendor relationship will result in increased
customer satisfaction, reduced costs, better quality, and better
service from the vendor
23. FOUR STEPS FOR SUCCESSFUL
VENDOR MANAGEMENT
Risk Analysis
Due Diligence
in Vendor
selection
Supervision
and
Monitoring of
Vendors
Documenting
the Vendor
Relationship
Contract
Issues
24. STEP 1: RISK ANALYSIS
Risk Analysis requires the Company to identify the importance of the
function to the organization, the nature of the activities the vendor
will perform, and the inherent riskiness of the activity.
- What would be the effect on the company if the function failed or
was not adequately performed ?
- Will outsourcing this function cause dependency on the third-party
provider for an essential function?
- Are there other potential vendors that could quickly provide the
same service if the current vendor fails?
25. STEP 2: DUE DILIGENCE IN
VENDOR SELECTION
• Due diligence requires a reasonable inquiry into a vendor's ability
to operationally meet the requirements for the proposed service
and an inquiry into the vendor's financial ability to deliver on its
promise
• Company should question operational
issues, staffing, expertise, and the vendors internal control
• The Company must consider the financial condition of the vendor. It
should analyse any available audited financial statements or
balance sheets.
26. STEP 3: DOCUMENTING THE
VENDOR
RELATED CONTRACT ISSUES
All contracts should be in writing and, to the extent applicable, should cover
• Expectations and responsibilities
• The scope of work and fees
• Type and frequency of reporting on the status of work involved
• Process for changing scope of work
• Ownership of any work product
• An acknowledgement that the vendor is subject to regulatory review
• privacy and information security, and supervision and dispute resolution
Legal counsel should review all significant contracts
If the contract is a technology contract, a service level agreement (SLA) is essential. An
SLA will establish the performance standard and service quality expected under the
agreement.
The term of the contract is another essential factor.
27. STEP 4:ONGOING SUPERVISION AND
MONITORING OF VENDORS
• To adequately supervise a vendor, an officer must review
and be accountable for the performance of the vendor
• Monitoring and supervision should include ongoing (at
least annual) review of the vendor's financial condition and
insurance coverage
• The vendor's contingency plans should be reviewed to be
certain that they remain in place and have been adequately
tested.
28. VENDOR MANAGEMENT – CISCO
CASE STUDY
CHALLANGE
SOLUTION
• More than 35000 employees, 100’s of
locations, Huge IT Infrastructure
Budget, Each office has complex
requirements
• Cisco uses its own products and services
wherever possible, but still spends
US$500M a year globally on other IT
products and services.
• Lack of Consistent Processes and
Strategic Planning cost CISCO significant
amount of money
• It had signed multiyear contracts for
products that became obsolete as they
moved to new technologies
• Global vendor Management
Office(VMO) within CISCO that supports
strategic vendor relationships across IT
Organizations
• VMO has Defined Seven Phases of
CISCO Vendor Management
ENGAGE
INVESTIGATE
EVALUATE
NEGOTIATE
CONTRACT
COMPLIANCE
RENEW
29. VENDOR MANAGEMENT – CISCO
CASE STUDY
S
ENGAGE : When changing business climates or
technologies generate the need for products or
services within Cisco, the VMO leads the
engagement of vendors to help ensure
consistency and fairness of communications
INVESTIGATE : The VMO also works with sales,
marketing, development, business units,
finance, and procurement to identify potential
vendors, and investigate possible solutions.
EVALUATE : The VMO initiates a bid process.
The VMO will issue a RFI to gain more
information from vendors if needed; or a more
detailed RFP
30. VENDOR MANAGEMENT – CISCO
CASE STUDY
NEGOTIAION : Low Prices, Strong Strategic
Partnership, clear deliverables and fair prices of
product deliverable
CONTRACT: Cisco purchasing group confirms
the contract, working closely with the Cisco
legal department to resolve any contract issues.
Contract length no more than 24 to 36 months
COMPLIANCE : VMO generates quarterly
reviews that compare commitments and
performance with established criteria
RENEW : VMO proactively reengages with
vendors and Cisco client groups to restart the
process
31. Life Cycle Of Vendor Management
Evaluate and Select the Highest
Value Vendors
• Standardize required phases and
steps.
• Capture key documents and
information.
Life Cycle Of Vendor Management
• Enforce review and approval
processes to ensure stakeholder
buy-in.
32. Life Cycle Of Vendor Management
Manage and Measure
• Centralize vendor information.
• Track and monitor vendor
commitments — contractual or
otherwise .
•
Life Cycle Of Vendor Management
Establish alerts to ensure
commitments are met, issues
addressed, and renewals tackled.
33. Life Cycle Of Vendor Management
• Systematically score vendors across
multiple
categories
of
performance,
while
allowing
stakeholders to rate vendors in the
categories that apply to them
•
Conduct
period-over-period
performance reviews of like vendors to
identify consolidation opportunities.
Optimize and Consolidate
Life Cycle Of Vendor Management
Perform portfolio-level analysis and
reporting
to
support
a
factbased, systematic program for strategic IT
vendor management.
36. TOTAL COST OF OWNERSHIP
TCO is
Philosophy, Methodology and
tool for analyzing all the
relevant quantitative and
qualitative cost of acquisition
of project in IT in order to
make decision.
37. NEED OF TCO
• Performance measurement
• Framework for cost analysis
• Benchmarking performance
• More informed decision making
• Communication of cost issues internally and with
suppliers
• Support external teams with suppliers
• Better insight/understanding of cost drivers
• Support an outsourcing analysis
38. METHODOLOGY TO CALCULATE TCO
Acquisition
Costs
• Advisory services
• Vendor performance
• Time and effort for acquiring Etc.
Ownership
Costs
• Hardware
• Human resources
• infrastructure
• Communication system Etc.
Post Ownership
Posts
• Maintenance
• Disaster recovery and maintenance Etc.
41. CONCLUSION
• Invest in Planning
• Focus on Total cost of Ownership
• Manage costs holistically
• Use real time expertise to provide
offshore knowledge and process
management
Assessing staffing requires questions such as: What is the quality and experience of the staff? Are there sufficient employees to meet the financial institution's expectations for performance? Are the managers competent and familiar with the industry? Are employees and management well trained? Does the staff turn over quickly or is it stable?Assessing industry expertise requires questions such as: How long has the vendor been involved in providing this service to other companies? Does the vendor provide this service to other companies? Are there user groups or references that the bank can consult concerning quality? How do these references assess the quality of service performed by the vendor? What is the reputation of the business? Has the vendor been involved in litigation that casts doubt on its ability to provide the services in the manner required by the bank? Is the vendor aware of any bank regulatory requirements and other legal requirements relating to its goods or services?
Scope should, at a minimum, include: Services to be performed by the vendor Responsibilities of the financial institution Timeframes Implementation activitiesDetails concerning feesThe financial institution's responsibility for expenses incurred by the vendor
Every time Cisco opened a new location or an implemented a new service in an existing location, one of several scenarios ensued:1. local managers calling up local suppliers and ordering whatever was needed. most expensive solution for Cisco. A lack of formal contracts often led to disagreements over prices, warranties, and support. 2. Regional IT offices negotiating contracts with local suppliers. Each contract was negotiated individually, so past lessons and economies of scale were not referenced.3.IT group would call for requests for proposals or quotes (RFPs or RFQs), and award the business based on responses. While this resulted in better prices, the proposal process was not consistent, resulting in little or no emphasis on establishing strategic vendors or planning for the future.
RESULTS:Incresed flexibility and simplicityLower Cost to CISCOLower Cost to VendorBetter Communications with Vendor
