Source: Jana Asenbrennerova www.asenbrennerova.com

SOURCINGEmerging global change and its issues

Why global sourcing?

(Source: http://g33-c.blogspot.ie/)

And its risks…

(Source: Rijksmuseum Amsterdam)

Global Sourcing and its Management

• How should one manage sourcing relationships? (and how does this vary according to the mode?)

• Relationship development - Important stages of sourcing relationships.• Formulating sourcing contracts and service level agreements.• Relationship governance structures and practices.• Risk management.• Facilitating effective communication and learning in context of cultural

diversity and distributed work.• The enabling role of ICT across organisational boundaries.• Identifying and addressing emerging relationship problems.• What are the emergent trends in sourcing relationships that are likely to

be important in the future?

O/O Themes• Overview of the global sourcing market• Sourcing models• Countries for sourcing• Supplier capabilities and strategies • Leveraging knowledge• The client perspective• IT Outsourcing lifecycle(s)• Governance• Globally distributed teams• Emerging issues and review

OVERVIEW OF THE GLOBAL SOURCING MARKET PLACE

Intro

A Complex Mix of Terms

Outsourcing

Offshore outsourcing, nearshore outsourcing, onshore outsourcing, insourcing, rural sourcing, domestic sourcing, out-

tasking, crowd-sourcing , cloud services

Best-sourcing…

Captive sourcing

Captive offshoring, nearshoring or onshoring

Shared services

Best-shoring, right-shoring …

What is Outsourcing?

“Sourcing is the act through which work is contracted or delegated to an external or internal entity that could be physically located anywhere.

Sourcing encompasses various in-sourcing and outsourcing arrangements such as offshore outsourcing, captive offshoring, nearshoring and onshoring.”

(Source: Oshri et. al, 2009)

Outsourcing is defined as…

“Contracting with a third party for the completion of a certain amount of work, for a specified length of time, cost and quality.”

(Source: Oshri et. al, 2009)

Offshoring refers to…

…to the relocation of organizational activities to a wholly owned subsidiary or an independent service provider in another country.

“Captive” model of service delivery: where the work is offshored to a center that is owned by the organization

“Offshore outsourcing” model of service delivery: where the work is offshored to an independent third party

ITO and BPO Worldwide Growth Rates in U.S. Dollars, 2001-2012

(Source: Gartner Dec 2009)

Outsourcing trend 2001-2013

(Source: Gartner, 2010)

Global Sourcing Trends 2010-2014

• Trend 1: Spending will continue to rise in all global sourcing markets. But BPO will soon overtake ITO.

• Trend 2: The ITO and BPO outsourcing markets will continue to grow through what has always been the dominant trend, multiple supplier sourcing.

• Trend 3: Global clients will stop viewing India primarily as a destination to lower costs, but rather as a destination for excellence.

• Trend 4: China’s investment in ITO/BPO services signal promise, but Western clients will still be wary. Developing countries beyond India and China will become important players in the global business and IT services markets.

(Source: Willcocks, Lacity, Griffiths and Kotlarsky 2009)

Global Sourcing Trends 2010-2014

• Trend 5: Emerging country competition will accelerate.• Trend 6: Firms will take a second look at ‘software as a

service’• Trend 7: Outsourcing will help insourcing. But backsourcing

will be minimal. Outsourcing is here to stay.• Trend 8: Nearshoring will be a strong trend.• Trend 9: Captives will continue to be built….. And sold• Trend 10: Outsourcing will continue to have successes .. and

disappointments.

(Source: Willcocks, Lacity, Griffiths and Kotlarsky 2009)

Current Trends

IT services are at the forefront of efforts to outsource, for example

• Software application development • Software application maintenance• IT infrastructure• Systems integration• and to a lesser extent business process

outsourcing (IT or HR departments)

IN YOUR OPINION, WHICH ARE THE MOST POPULAR DRIVERS OF O/O?

Exercise:

Key drivers of outsourcing

(Source: Oshri and Kotlarsky 2009)

Access to skills-set not available in-ternally

Cost reduction Access to innovative processes and practices

Frees up internal resources for other purposes

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %64 %

41 % 41 % 40 %

CIO and CFO perspectives

IN YOUR OPINION, WHICH FUNCTIONS ARE MOST POPULAR FOR O/O?

Exercise:

Areas of business outsourced by large European companies

(Source: Oshri and Kotlarky 2011)

Risk factors in global sourcing

• Financial risks• Technical risks• Managerial risks• Behavioural risk• Legal risk• Contractual risk• Security and privacy

• Language and communications

• Different time-zones• Cultural risk• Geopolitical risk• Hidden costs

Extra costs (1)

Specification costsClient costs associated with the process of explaining and defining what services are required from the system and identifying the constraints on systems operation and development.

Design costsClient costs associated with the description of the structure of the software to be implemented, the data which is part of the system, the interfaces between the system components, and, sometimes, algorithms used.

(Source: Dibbern et al., 2008)

Extra costs (2)

Coordination costsCosts for integrating and linking together client and vendor resources to accomplish a collective set of tasks.Control costsCosts for ensuring that the vendor acts and performs in a manner that is consistent with achieving the desired objectives of the client

Knowledge transfer costsCosts associated with the communication of knowledge from the client organization so that it is learned and applied by the offshore vendor.

(Source: Dibbern et al., 2008)

Hidden costs

(Source: Robinson and Kalakota, 2004)

Relevance for Activity in Ireland

Time to achieve ROI

(Source: Oshri and Kotlarsky, 2009*)

CIO & CFO CIO perspective CFO perspective0 %

5 %

10 %

15 %

20 %

25 %

30 %

35 %

40 %

45 %

50 %

13 % 13 % 14 %

38 %

47 %

28 %29 %25 %

33 %

17 %

13 %

22 %

3 % 2 %4 %

6 months or less 12 months (1 year) 18 months 2 years More than 2 years

Causes of cutback or slowdown of outsourcing

(Source: Oshri and Kotlarsky, 2009*)

Unclear value for money

High vendor management

costs

Lack of Governance

Loss of control Poor quality Other Desired benefits not realised

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

78 %

46 %

38 %

29 %

17 %13 %

6 %

Outsourcing and offshoring locations

III – India, Israel and Ireland

BRIC – Brazil, Russia, India and China

Approx. 120 emerging countries competing trying to attract outsourcing and offshoring

business

Emerging geographies Expanding the EMEA Envelope

(Source: Everest Research Institute 2008/2009)

Nearshoring opportunities

(Source: Carmel and Abbott, 2007)

Dimensions of Nearshoring

• Geographic, temporal, cultural, and linguistic proximity

• Economic, legal, political, and historical linkages

• Being a hub or near to a hub

Emerging Tier 3 Countries

Top EMERGING outsourcing cities

1. Cebu City, Philippines 2. Shanghai, China3. Beijing, China 4. Kraków, Poland 5. Ho Chi Minh City, Vietnam 6. Buenos Aires, Argentina 7. Cairo, Egypt 8. São Paulo, Brazil9. Shenzhen, China10. Hanoi Vietnam

(Source: Global Services-Tholons Study, 2009)

CONSIDER EGYPT AS A SOURCING LOCATION?

Exercise:

Advantages of EgyptKey Findings

• Scalability of labour resources• Linguistic skills• Better cultural fit with West European countries than

many other Arab-speaking countries • Convenient, cost-effective ‘nearshoring’ destination

for European companies• Attractive call/contact centre destination for large

multi-nationals with multi-lingual clients around the world

• University links

(Source: Willcocks, Griffiths and Kotlarsky 2009)

INNOVATION THROUGHSOURCING

Driving and responding to change

Source: Natalie Behring nbbehring.photoshelter.com/gallery/Etrash/G00007TfGa5ZupWUAlso: www.greenpeace.org/international/en/campaigns/toxics/electronics/the-e-waste-problem/where-does-e-waste-end-up/

ResponsibilityManagement has impacts!•Managing change•Business process re-design (BPR)•Organizational re-design•Sourcing re-design•Technology enablement

(Source: Lacity and Fox , 2009)

ConsequencesManagement has consequences…

What is responsible management?

Do we accept global social responsibility?

Are our projects sustainable?

Ethical?

Environmental impact?

Do we engage with civil society?

Are our products and services inclusive?

(Source: Lacity and Fox , 2009)

New Sourcing Models…

DEMOCRATIC

OPEN

SHARED

GLOBAL

Microsourcing

An Story from India

"You're in a space warp where you don't know you're in Bangalore."

Ilan Oshri, Julia Kotlarsky and Leslie P. Willcocks

The Handbook of Global Outsourcing and Offshoring

9780230293526