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Outsourcing – Managing for Success
Stuart Payne, Morgan Chambers
Copyright © 1999 Morgan Chambers plc
Copyright © 1999 Morgan Chambers
http://www.sap.hp.com/public/
Agenda
Recap – why outsource
Building a Sourcing Strategy
Risks and Risk Management Strategies
Effective Contracting
Supply Management – best practice
Copyright © 1999 Hewlett PackardCopyright © 1999 Morgan Chambers
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Copyright © 1999 Morgan Chambers
http://www.sap.hp.com/public/
Reasons why Organisations Outsource
Commercial
Service
• cost reduction• transfer of fixed costs to variable costs• cost transparency• quantifiable service• improved service
Resource• access to a wider resource pool• access to specific technical skills
Strategic• enabling management focus on core
business and supporting step change
Quality• processes & procedures• best of breed
Technical• provision of step change technical
advancement
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Supporting Organisational Change
Mergers/Acquisitions/Disposals
Speed to Market
Upsizing/downsizing/rightsizing
Geographic considerations
Increasing Shareholder Value
e-Solutions
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Key Drivers – UK Experience
based on FTSE100
8%
17%
37%
7%
18%
13%
Access to Skills / Technology Change Enabler Cost savings
Focus on Core Business Other Quality / Service Improvement
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Achievable Savings - industry examples
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0%
10%
20%
30%
40%
50%
60%
DataCentre
WAN /LAN
Desktop AppsMgmt
Consolidation'stretch'Typical Savings
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Typical Concerns re. Outsourcing
….It is expensive! ….I will be locked in to a long term contract! ….I will lose control of my affairs! ….It is risky and can go horribly wrong! ….My staff will all leave!
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Main Risks in Outsourcing
Poor alignment with business goals
Lack of Preparation
Supplier Capability
Inflexibility
Ineffective Management
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Risk Mitigation Strategies
Clearly define objectives and need
Run a formal and appropriate Supplier selection process
Provide the Supplier with a full check list of requirements
Communicate (sponsors, influencers, end-users)
Establish an effective Supply Management Team
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Understand your Organisation
DifferentiatingExpertise
Support withstrategic consultanciese.g.
Board of Directors
e.g. Project Managers
OUTSOURCING MANAGERS
ProfessionalExpertise
Support withspecialist
consultancies
GenericExpertise
Support withoutsourcing
e.g. Programmers
Clerks
The
Val
ue In
divi
dual
s A
dd to
the
Com
pany
Incr
ease
s
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A Sourcing Strategy Process
Stage 1 - Initiation
Stage 2 - Information Gathering
Stage 3 - Capability & Criticality Review
Stage 4 - Sourcing Options
Stage 5 - Final Report and Strategy
COSTS
ORGANISATION
BUSINESS DRIVERS
Critical success factors
PERFORMANCE
MARKET
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Sole-source vs Competitive tender?
Unique Solution?
Established/trusted business partner?
Time of Essence?
Independent VFM check if sole-source adopted
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The Contract-Allow the Supplier Flexibility
Don’t be too prescriptive in how services are delivered
Focus on the end view of service
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Contract Fitness for Purpose
• Services• Assets• People• Pricing
• Term• Exits• Change• Improvements
Detailed supporting documents, operating documents, procedure
manuals etc.
Appendices, SLAs, rvice
Descriptors, etc.
Future blueprint
Schedules
‘Hygiene’ level
UNDERPINNING BUSINESS RELATIONSHIPS
Contract
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The Contract-Always Remain in Control
Define clear procedures for managing the Supplier
and the Agreement
Ensure that there is escalation in place
Build in effective recourse
Oblige the Supplier to run a CIP
Secure rights to service ‘configurables’
Retain publicity rights
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A WIN-WIN SITUATION IS IMPERATIVE!
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People & Innovation
Finance
The BusinessPerspective
Processes and Services
Effective supply management
Relationship Management
KPI / CIP ManagementKPI / CIP Management
Staff Awareness for Customer Focus
Staff Awareness for Customer Focus
Sourcing Strategy & Business Case
Sourcing Strategy & Business Case
Customer SatisfactionCustomer Satisfaction
Finance ManagementPrice Reduction Opportunities
Contract ManagementContract Management
Change ManagementChange Management
Service ManagementService Management
Legal FrameworkLegal Framework
‘‘The service does not provide what the business really needs’’
‘‘We don’t work well as as team and their people don’t add value’’
‘‘Not delivered on time or to the specification and it also did not work
any way’’
‘‘Too expensive and does not provide value for money’’
Finance ManagementFinance Management
Risk/Reward Schemes
Finance ManagementPricing Strategy
Assets & Liabilities
VFM Analysis
The Outsourcing KPIs
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Key Tasks
Transition Measurement
/Reporting ‘Soft’ services Timely meetings Remedial plans No second- guessing Penalties - realism Quick wins/big hitters
Plan changes Check alignment SLA trade-offs Continuous
improvement
…Remember the contract and your business goals!!!
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Sourcing Relationships can be complex ...
OutsourcingManagement
Team
Supplier
End Users
BusinessManagement
Executive
SpecialistAdvisers
Customers
Media
SupplierSupplier
ServiceIntegrator
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Relationship Management
Establishing relationships at all staff levels within a
Customer / Supplier outsourcing scenario is critical
to the overall success of the relationship and the
customer’s perception of the quality of the services
being delivered
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Key Tasks ….
Define Suppliers’ points of contact - ensure adherence
Establish unambiguous roles and responsibilities for the Customer, End-Users and Supplier
Regularly review in-house staff skills and numbers
Promote a continuing bond between Supplier staff and End-Users
Make the morale of supplier staff a customer concern
Sort out personality conflicts
Retain right to veto key staff
Ensure awareness, understanding and commitment from all parties
Define clear escalations
Involve end-users in performance assessment
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Contract Management functions
PartnershipManagement
Contract
Managem
ent
Com
mer
cial
Man
agem
entTechnical
Managem
ent
Ser
vice
Inte
grat
ion
ProcessManagement
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Leverage Mechanisms – (if things don’t always go as expected)
Escalation Penalties Unbundling Bad press Termination
Service reviews Planning CIP Gain shares Up-sell Good press Benchmarking
MORE!
WAR!
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The Outsourcing Value Proposition
Outsourcer economies
Added benefits
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