Change management and business performance improvement

Extract: Module 2 Section 11

Ged Melia

Section 10: Shared service centresSection 11: Sourcing decisions

Section 12: Minimising IT project riskSection 13: Downsizing and restructuringSection 14: Growth – making M&A work Section 15: Growth – good practices in Sales

Module 2 - Business performance improvement

Section 8: Improving processes

Section 9: The management control cycle

Section 7: Continuous improvement

Section 11: Sourcing decisions

Outsource Insource

Sourcing decisions

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“Vision without execution is hallucination.” Thomas Edison (attrib)

“Execution without vision should get outsourced”

Anon

Sourcing decisions

Source: Harvard Research Group, 2005 study

Drivers behind sourcing decisions

Factors driving the timing of sourcing decisions

• Specific IT program or project benchmarks.

• Part of annual or long- range business plan review.

Planned, Orderly Budget Reviews

• Change in IT architecture or platform.• Major change in IT strategy.

Major IT Architectural challenges

• Change in business strategy (key expansion or contraction).

• Inter-divisional organization changes in management or function.

Division-Level Disruptions

• Potential merger and acquisition activity.

• External industry or national events.• Potential spin-offs.

Company-Wide disruptions

Sourcing decisions are typically driven by circumstances or an event rather than by a calendar. While prospective outsourcing partners will promote the

‘as soon as possible’ perspective, the prudent course of action is to undertake some extensive internal analysis and benchmarking beforehand.

Form a strategic alliance Retain

Eliminate OutsourceStra

tegi

c im

porta

nce

Contribution to operational performance

Low

High

High

Low

The insource/outsource decision

All decisions are likely to be specific to a set of circumstances but a good starting point is to identify the task or activities strategic and operational

importance and work out where it should fit in the matrix.

What can be outsourced?

•Office equipment.•Capital equipment.•Bounded, single IT applications.

Discrete activities and commodities

•Hardware, software, network infrastructure.•Business infrastructure (printing/copying/data input.

IT services and infrastructure

•Business applications within overall business function (payroll, market research).•Web-based or hosted business processes.

Business processes and

applications

•All or most processes within a function (HR, accounting, procurement).

Entire functions and businesses

Repetitive tasks Expert tasks Specialised tasks

Benefits of outsourcing

Reduces operational cost

Facilitates focus on core activitiesOutsource partners usually specialistsBetter able to manage peaks and troughsLower IT/technology capital expenditurePotential 24 hour time zone cover

May speed up processing

Access to cutting edge technology

Risks associated with outsourcing

Financially unstable partner

Quality control

Poorly structured SLAs

Loss of the ‘wrong’ staff during transitionPost transition roles poorly definedLack of organisational alignment Failure to effectively communicate E2E processes that are not seamless

Ineffective contract change control

Unrealistic pricing

Poor forecasting and planning

Poor record keeping

Culture and language stresses

Confidentiality and data protection issues

Currency variation

Time zones

Risks associated with outsourcing

Outsourcing steps

1 2 3 4

5 6 7

Create the ‘burning platform’.Establish business case /understand costs

RFP.Shortlist/BAFO

Contract and SLA Planning

The process broadly follows the same tender approach taken with other vendors but there are some clear

differences. It is usually a significant change programme involving people leaving the business, process changes,

technology integration challenges and a detailed focus on how the new operating model will work post handover (performance, quality, communication, reporting etc.)

Cost & service.buy-in.Clearly define the parameters and specs

Usually cost but can be expertise or technology

Project plan:New processes.Comms.RedundanciesEtc.

Search and initial partner discussions/’beauty parade’.

Detailed negotiations, andselection.

Detailed operational parameters and contract

Transition to BAU

Pilot testing, O/S recruitment, leaver processing, SLAs, KPIs etc.

Outsourcing guidelines

Don’t outsource a problem

Make sure it fits with long term strategyConsult stakeholders and get buy-in

Treat as a major project

Get the cost/service quality balance rightChoose the right outsource partner

Scope the contract properly

Make sure it works operationally (E2E)

Outsourcing guidelinesApply governance and change control

Hire-in during the transition period

Communicate service levels and roles

Incorporate partner planning into the MCC

Measure and manage performance

Monitor and manage risk including DR

Ensure that there is an exit strategy

Dilbert….