sourcing governance - foundation

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LunchCoffee and breaks

M00 - Course introduction 2/7 | 2/185

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


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


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


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

M01 - Introduction to Outsourcing 2/22 | 9/185

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


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.


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


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.


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?


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?


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


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


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


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


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


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


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


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


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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