sourcing governance - foundation
TRANSCRIPT
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The understand of Outsourcing and types of outsourcing strategies
The understand Demand Supply Governance Framework
The understand Demand Supply Organization
Prepare for Sourcing Governance Foundation exam
Main goal
Attempt Foundation exam with confidence
Begin to apply the sourcing knowledge, tailoring it to your own projects’ needs
Secondary goal
Benefits and value of Sourcing
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Please share with the class: Your name and surname Your organization Your profession
Title, function, job responsibilities Your familiarity with the project
management Your experience with
sourcing/outsourcing Your personal session expectations
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Foundation Exam Paper based and closed book exam Only pencil and eraser are allowed Mix of simple and medium complex
questions 40 questions, pass mark is 28 (70%) 40 questions covering all 8 Modules Only one answer is correct 1 hour exam No negative points, no “Tricky Questions”
Sample, one (official) mock exam is provided to you
Candidates completing an examination in a language that is not their mother tongue, will receive additional time
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Handbook page
Sourcing Governance section code and title
IO Introduction to Outsourcing
PO Preparing for Outsourcing
SD Supplier Selection and Due Diligence
FP Developing the Outsourcing Financial Case and Pricing
CN Contracting and Negotiating for Outsourcing
TR Managing the Transition to an Outsourced Environment
DF Demand Supply Governance Framework
DO Design of a Demand Supply Organization
Module slide number / total module slides
Slide number / total slides
Module number and name
Sourcing Governancehandbook page
Sourcing Governance syllabus section code
Sourcing Governance is defined in IAOP® Outsourcing Professional Body of Knowledge (OPBOK):• 1st edition, 2010• ISBN-13: 978-9087536138
SyllabusM00 - Course introduction 6/7 | 6/185
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1. Introduction to Outsourcing
2. Preparing to Outsource
3. Supplier Selection and Due Diligence
4. Developing the Outsourcing Financial Case and Pricing
5. Contracting and Negotiation
6. Managing the Transition to an Outsourced Environment
7. Demand Supply Governance Framework
8. Design of a Demand Supply Organization
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In an outsourcing relationship the service provider is responsible for: Process People Technologies (hardware and software)
Responsibility for the results, not just for the resources, is what differentiates outsourcing from more narrow and more traditional supplier, supplemental staffing, and task-level contracting
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Ownership refers to the level of ownership of the people, processes, and technologies used to do the work that is assumed by the service provider
Risk refers to level of risk assumed by the provider for achieving the customer’s intended outcomes - conformance to requirements, operational outcomes, or business outcomes
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Level of riskPeople - processes - technologies - level of risk
Outsourcing Fits Along a Continuum ofBusiness Relationships
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Businesses outsource for different business reasons. These terms are applied in a short hand to explain the principal reason behind
outsourcing: Tactical outsourcing is when business outsources to achieve a single objective (generally cost savings)
and the transaction stands on its own merit. Transitional outsourcing is when business outsources in order to migrate from current business
process environment to a new one and expects the outsourcer to support existing business process until it is no longer required.
This is often used in the Information Technology area when replacing an existing application environment with a new one.
Transformational outsourcing is to take advantage of innovation and new business models. Transformational outsourcing is approached as a way to fundamentally reposition the organization in its markets.
The term Business Transformational Outsourcing is also used to combine this idea with that of Business process outsourcing.
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Benefits of Outsourcing: Cost Reduction Focus on core competences Shorten time to market of new products and services Access to specialized knowledge for innovation Reduce Capital Expenditures and control costs Improve quality of services Innovation Free executive time
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Shortening product lifecycles
Changes in the external business environment that impact the customers and their expectations
Competitors (who, where, etc.)
Macro- and industry-level financials, technology, government actions (such as regulation, deregulation, and laws)
Mergers, acquisitions, divestitures and other structural changes in the industry
Historical sourcing decisions (the more organizations currently outsource the greater they tend to in the future);
Organization-level characteristics, such as, industry, size, rate of growth; the use of benchmarking, reengineering and other improvement programs; the decision-making structure of the organization (centralized, decentralized); how visible a particular function is;
The desire for management control; and employee practices that may restrict or encourage change
External drivers • Internal drivers
Finally, of course, sourcing decisions can only be made when there are, indeed, outside options to be considered, that can demonstrate the ability to deliver high-quality, low-cost solutions.
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The overall outsourcing process has 5 stages and the end of each stage has a gate (go/no go decision point) that the project must successfully pass through before entering the next stage.
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IDEASTAGE
ASSESSMENTSTAGE
IMPLEMEN-TATION STAGE
TRANSITIONSTAGE
MANAGEMENTSTAGE
Series of gates
Question? Appropriate Real Deal Execute
Timeline? 3-6 months 6-18 months
Decision maker? POLICY POLICY & BUSINESS PROCESSBUSINESS UNIT OWNERUNIT
Operate
SET SET SETDecision criteria?
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1.0 Idea Stage Which outsourcing opportunities are appropriate in support of the organization’s
business strategy?
2.0 Assessment Stage With development of the business case and of the provider marketplace, are the
anticipated benefits, indeed, real?
3.0 Implementation Stage Can we reach agreement on a deal with one of the providers?
4.0 Transition Stage Can we execute successfully?
5.0 Management Stage With the transition complete, are we ready to operate under the new
agreement? Are the benefits being realized?
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Stage Implementation steps / Deliverables Decision Criteria
Idea
Develop Concept Perform High Level Review of Operations Identify corporate direction Perform Situation Analysis & Identify Outsourcing Opportunity Get executive Sponsor Assign Steering Comm.
Alignment with business strategy? Core competency? High level cost/benefit acceptable? Acceptable risk? Competitive advantage? Legal, ethical, etc.?
Assessment
Analyze current processes & functions Define proposed processes & functions Define user needs Perform risk analysis Develop business case (with plan)
Acceptable business case? Acceptable risk?
Implementation
Issue RFP Finalize deal structure and terms Develop and negotiate contract Develop human resource and asset transfer plan Communications Plan Governance plan
Approved contract?
Transition
Detailed transition plan (with pilot) Implement new organization structure Transfer people, assets, functions and/or processes Develop training plan
Approve pilot? Approve transition plan? Assess transition and fix issues as
necessary
Management
Perform daily management activities Monitor performance Implement relationship management process Institute change management process
Governance and Metrics being met? Renew, Expand, Disengage?
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Purpose of the Outsourcing Business Plan: To provide a framework for organizing and providing the right information at the
right time in a way that is consistent and useable at the various levels of the organization
Executive summary
Strategy- Overall Strategy- Business Requirements- Strategic Choice- Strategic Objectives- Structural Model- Contractual Model- Provider Selection and/or Recommendations- Risk & Risk Mitigation
Operations- Division of functions, roles & responsibilities- Transaction activities- Division of assets and systems- Management of day to day operations- Management of the overall relationship- Management of outsourcing contract performance
Human Resources- Division of human resources- Diagnostic of the client human resources needs- Diagnostic of the provider human resources needs
Financials- Financial baseline- Incremental impact of transaction on the provider- Provider’s valuation- Management of the financial process- Financial studies
Communications- Client Organization Communication Plan - Provider Organization Communication Plan- Customer Communication Plan - Regulatory, Government & Community Communication Plan- Union Communication Plan
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Executive summary
Strategy- Overall Strategy- Business Requirements- Strategic Choice- Strategic Objectives- Structural Model- Contractual Model- Provider Selection and/or Recommendations- Risk & Risk Mitigation
Operations- Division of functions, roles & responsibilities- Transaction activities- Division of assets and systems- Management of day to day operations- Management of the overall relationship- Management of outsourcing contract performance
Human Resources- Division of human resources- Diagnostic of the client human resources needs- Diagnostic of the provider human resources needs
Financials- Financial baseline- Incremental impact of transaction on the provider- Provider’s valuation- Management of the financial process- Financial studies
Communications- Client Organization Communication Plan - Provider Organization Communication Plan- Customer Communication Plan - Regulatory, Government & Community Communication Plan- Union Communication Plan
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Factors to be considered when assessing the organizational maturity are: Outsourcing competency Strategic coalition Customer impact Sourcing capability Process expertise Governance style Relationship
management
Level 1 - Initial Process
Level 5 - OptimizedProcess
Level 4 - Managed Process
Level 3 - Organizational Standardsand Institutionalized Process
Level 2 - Structured Process and Standards
Ad Hoc
Process Control
Basic Knowledge
Process Improvement
Process Definition
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Definition Performing or sourcing any part of an organization’s activities at or from a
location outside the company’s home country Often, the term “near shore” is used to acknowledge short distance away from
the home country
Offshoring can have two forms: Captive – where company owns the processing Outsourced – where another firm provides the processing
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Onshore Obtaining services from an external source in the home country
Rural Outsourcing
Variation of home country outsourcing where an organization obtains the services of an external source in a rural area (implies that the service is less expensive) in the home country
Near-Shore Outsourcing
Refers to contracting a company in a nearby country to your home country, often one that shares a border (but not always)
Offshore Outsourcing
Refers to contracting with a company that is geographically distant from your home country
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Maturity of an organization to manage a remote location (regardless of distance)
Maturity of an organization to manage a location in a different country / culture
Stability of the process, including documentation, performance measures and reporting requirements
Ability to provide knowledge transfer to people processing remotely Regulatory and legal constraints surrounding the process Dependence and availability of technology infrastructure Market availability of skills at offshore locations Management views and concerns with the societal impact of
offshoring
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A Business that wishes to use a captive delivery center in an offshore location can opt for the B-O-T model
A Business outsources the task of setting up a delivery center to a local company - from building the infrastructure to initial staffing and operating the center for a finite period - and then take over responsibility
Benefits of this approach include: Lower start-up risks Reduction of set-up time Lower balance sheet impact Gain knowledge during first start-up period Creating local market awareness
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Loss of control Process too critical to be
outsourced Loss of flexibility Negative customer reaction Employee resistance Poor or ineffective outsourcing
process, performance metrics and project management
Implement effective governance policies, process and controls
Adequate training and certification
Management commitment and focus
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Best of breed
Single Provider
Ease of implementation and governance
Economies of scale
Long term partnership
Dependency
Inferior service levels
Advantages
Drawbacks
Spread of risks
Competition
Best price/results ratio
Innovation
Governance complexity
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