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GS Modules summary
This is a concise summary of IS604 - Global Sourcing in SMU. All contents thanks to Prof. Patrick Thng.
Edited at 2020-11-24 01:43:02
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GS Modules
1. Introduction
Required reading: 1. Getting offshore right, Aron and Singh(2005)   2. 5 phase cycle: BPO & Outsourcing 2017, Gartner(2017) 
Background
Sourcing/Outsourcing/Insourcing
Sourcing: the act through which work is contracted to an external or internal entity that could physically located anywhere Sourcing - -> Insourcing: a business practice performed within the operational infrastructure of the -> Outsourcing: hiring an outside organization that is not affiliated with the company to complete specific tasks - - > offshore, nearshore, onshore, captive, etc.
Why sourcing?
1. access to skills set not available internally 2. cost reduction 3. access to innovative processes and practices 4. frees up internal resources for other purposes
Which business function?
(2011) 1. IT infrastructure and data management 2. IT and technology consultancy 3. ERP implementation, integration, maintenance, upgrade 4. BPO: finance & admin, HR, payroll, helpdesk, calll center, sales, marketing 5. Software testing/Software quality assurance 6. Solution design and system architecture 7. CRM 8. Data warehouse and business intelligence systems
Who are significant players ?
(2018, top 10) 1. Accenture（埃森哲，爱尔兰） 2. TCS（塔塔咨询服务公司，印度） 3. Cognizant（高知特，美国） 4. Wipro（威普罗，印度） 5. IBM（国际商业机器，美国） 6. HCL（hcl科技，印度） 7. Infosys（印孚瑟斯，印度） 8. CapGemini（凯捷，法国） 9. DXC Technologies（dxc，美国） 10. NTT data（日本电信电话株式会社数据公司，日本）
What services do they provide?
1. Banking services: retail, corporate, capital market, etc. 2. Customer services: general information&enquires, sales, complaint management, retention, etc. 3. HR management: benefits administration, payroll, compensation management 4. Financial accounting: decision support, transactional, learning & development
Terminology
Outsource, Co-source, In source, shared service, in-house
back-source, multi-source, etc.
What's going on today -> top advisiors, outsourcing locations, causes of slowdown, industries
causes of cutback or slowdown of outsourcing(2009): 1. unclear value for money 2. high vendor management costs 3. lack of governance 4. loss of control 5. poor quality 6. desired benefits not realized
Strategy: -> sourcing management model -> outsourcing adopt strategy -> Where to locate&which form of outsourcing
Getting offshore right, Aron and Singh(2005) 1. (Slides 1b-31)Table 2.4 choosing location and organizational form   
Trends: overview -> jobs at risk, ITO trends, gartner's 5 phase hype cycle
(slides 1B, pg 35)Gartner's 5 phase hype cycle: BPO & Outsourcing 2017 1. Technology trigger 2. Peak of inflated expectations 3. Trough of disillusionment 4. Slope of enlightenment 5. Plateau of productivity 
2. Sourcing management - P1
Required reading: 1. Oshri et al, The Handbook of Global Outsourcing & Offshoring, 3rd Edn, Chp 1-4 2. Gottfredson, Puryear, & Phillips, “Strategic Sourcing: From Periphery to the Core”, Harvard Business Review, February 2005    3. Desmet, Fine, & Meyer, “Banking Behind the Scenes,” The McKinsey Quarterly, 2002 Special edition on Technology   
Outsourcing lifecycle model: 4 phases, 9 blocks
(slides 2A pg12) Oshri, Kotlarsky and Willcocks, 2015, The Handbook of Global Outsourcing and Offshoring, Palgrave Macmillan 
1. Architecture - draft outsourcing blueprint
1. Investigate
2. Target
3. Strategise
4. Design
2. Engage - select suppliers
5. Select
RFP
introduction, scope of work, eligibility criteria, expected time schedule, resource requirement, cost structure
6. Negotiate
Contracts & SLAs: contract, SLAs
Contract: Scope Obligations/Expectations/Rights Governance/Reporting Security/Privacy/Warranties/Copyright etc Rules of engagement with vendors & information leaks SLAs: A means to measure the performance of the outsourcing provider with respect to responsiveness and quality of deliverables. Key dimensions to measure : Volume of work Quality–Defectrates, Compliance to standards, technical quality, service availability, service satisfaction Responsiveness–Acknowledgement, Backlog, Implementation Efficiency–cost/utilization
Vendor evaluation & negotiations: evaluation elements, negotiation elements
Vendor evaluation: Reputation and history Financial Performance & Stability Quality Standards and Management Over-sight Employee Statistics (competency, retention) Multiple evaluators Interviewing the vendors for clarity Some of these discussions may lead into contract negotiation stage for finalists Negotiation elements: Know how vendors operate Balancing Act Home Ground vs Away Ground Considerations Do your Homework THOROUGHLY Info leakage prevention Public Sector vs Private Sector characteristics
3. Execution - operate
7. Transition(change management)
-> (slides 2A pg.13)Emotional response over time: stability immobilisation denial anger bargaining depression testing acceptance  -> (slides 2A pg.14)Transition role: steering committee/joint reference panel programme leader team leader human resource representative business representative technical representative communication representative administration resource 
8. Manage
Management structure: strategic outsourcing, vendor m.g., contract m.g., cost m.g.
4. Re-generate - next generation
9. Refresh
Finalcials: optimal cost & effort: effort/cost over outsourcing lifecycle
(slides 2A, pg16) Global Sourcing of Business & IT Services, L Willcocks & M Lacity, Palgrave Macmillan, 2006 
Common Issues & Challenges
Lack of skilled personnel with the necessary competencies eg sourcing competencies are distinct from vendor management competencies Lack of senior management commitment Understanding of the value proposition is not clear Insufficient data for effective decision making Organization design structure related obstacles
2. Sourcing management - Story from Life Time fitness
1. Kern, T., Willocks, L.P., van Heck, E., “The winner’s curse in IT outsourcing”, California Management Review, 44(2), Winter 2002   2. Best Practices in Outsourcing – The Bancolombia Experience  compared with Willcock’s & Lacity Model(4 Phases & 9 Building Blocks): This model is not only for outsourcing, but also for new business area or business acquisition. This model only consists of 'Architecture' and 'Engage' phases.  3. Denis Chamberland, Ivey Business Journal, “Is It Core or Strategic ? Outsourcing as a Strategic Management Tool”, Aug 2003 4. Network Computing, Wesley Bertch, “How Offshore Outsourcing Failed Us”, Oct 2003, http:// www.nearsoft.com/images/stories/nearsoft/backupcopies/offshorefailedus.html
Background
Business: high-growth, nationally expanding health and fitness chain IT: centralized IT organization Management: experienced executive team
Needs: a small, low-risk web application for LTF real-estate division
Offshore choice
Tier 1 offshore development firm CMM level 5 six sigma practices
Project
fixed price contract 9-week timeline web application for managing real-estate of LTE vendor does all phases from business requirements to QA
Organization team
LTE: 1. a manager of real-estate, 2. a LTE software manager Vendor: 1. an on-site liaision, 2. an on-site business analyst, 3. an offshore project manager 4. an offshore technical manager
Story
a good start: meet frequently and document all requirements within four weeks
first red flag: the reviewing engineer found UI and screen flow were confusing
response from management: extend timeline, increase cost by 35%, internal analysis
problem again: 1. flaws in database design; 2. inaccordance of code
response:
vendor response: 1. not report on daily basis; 2. worked longer; 3. promise to 'deliver' made
LTF response: 1. flew internal team to India and made informational meeting
deliver: from a tested 'finished' application, LTF found lots of defects
vendor response: 1. categorize 'in scope' and 'out of scope' errors 2. 'out of scope' were deemed LTF's problem 3. 'in scope' errors could be fixed
LTF decided to take delivery and overhaul the code
What should to do
1. set up offshore process team ourselves instead of relying on the vendor 2. relocate an internal team in India to build and manage a competent offshore team
Lessons
1. Fixed-bid offshore projects tend to misalign interests
"we care about what the code looks like" "by placing undue emphasis on cost and time line while sacrificing quality and customer focus."
2. Time and material arrangement could give the client more control over process
Root causes
1. Inexperienced labor: offshore developers and testers are on a junior level 2. Overemphasis on Process: can't factory-produce software without business knowledge 3. Project Performance Metrics Masking Problems: selective customer satisfaction surveys
2. Scourcing management - selection criteria, capabilities & competencies
Required readings: ◦ Lacity & Willcocks, "Transformattional Leaders", 2013  ◦ Lacity etal, "Leadership Pairs"   ◦ Lacity & Willcocks, "Nine Practices for Best-in-Class BPO Performance", MIS quarterly executive, 2014 
Selection criteria
Location/Country factors
Farell (2006), Smarter Offshoring, HBR 85-92 Oshri, Kotlarsky & Wilcocks, The Handbook of Global Outsourcing & Offshoring, 2011, Palgrave & Macmillan, 66 Cost Labor Infrastructure Taxes Skills Skill pool: size & graduate rate, management, technical know-how, business knowledge, language, scalability Vendor landscape: sector size, vendor competencies Business & living environment Governmen t support Business culture/ethics Living environment Infrastructure Travel accessibility Quality of infrastructure Telco&IT Real estate Transportation Power Risk profile Political & regulatory Physical & environmental Macroeconomic Intellectual property Market potential Size of domestic market Access to nearby markets
Vendor capabilities(potential) & competency(proven)
Oshri, Kotlarsky & Willcocks, The Handbook of Global Outsourcing & Offshoring, 2015, Palgrave & Macmillan Three competencies(with 12 capabilities): Delivery: to respond to customer’s ongoing needs. Leadership Program m.g. Governance Behavior m.g. sourcing Business m.g. Domain expertise Transformation: to improve service radically in terms of quality and cost. Leadership Program m.g. Customer development Behavior m.g. sourcing Process Re-engineering Technology exploitation Relationship: to align its business model to the values, goals and needs of the customer Leadership Program m.g. Customer development Governance Planning & contracting Organization design 
Client sourcing capabilities
Oshri, Kotlarsky & Wilcocks, The Handbook of Global Outsourcing & Offshoring, 2011, Palgrave & Macmillan, Nine core capabilities for high-performing IT and functions IT Leadership - how do you manage vendor, the client business units etc Informed buying Relationship building Contract Facilitation Making Technology & process work Business Systems Thinking – not micro-management but outcome-driven Architectural planning and design Contract monitoring Vendor Development & management 
3. Innovation
Required readings: ◼ Leslie Willcocks & MC Lacity, Innovation: Step Change in Outsourcing: Towards Collaborative Innovation, The New IT Outsourcing Landscape , 2012, Palgrave Macmillan, pg 129 (JFST-v3n02_willcocks_09.pdf) ◼ Lacity & Willcocks, Outsourcing Business Processes for Innovation, MIT Sloan Mgt Review, 2013 ◼ Oshri and Kotlarsky, Innovation in Outsourcing, 2011 ◼ A Catalyst for Innovation, Accenture Outlook
Innovation through sourcing
What:
1.“Introduction of something new that creates value for the organisation that adopts it” 2. broader than invention 3. types of innovation 
Why
Competitive advantage e.g. Google Market pressures e.g. Microsoft Survival e.g. Blackberry Political e.g. Word Bank Economic slowdown e.g. Europe, US Ref: Innovation in Outsourcing: Towards a Practical Framework, Ilan Oshri and Julia Kotlarsky (2011)  
How
Ref: Leslie Willcocks & MC Lacity, Innovation: Step Change in Outsourcing: Towards Collaborative Innovation, The New IT Outsourcing Landscape , 2012, Palgrave Macmillan, pg 129 (JFST-v3n02_willcocks_09.pdf) ◼ Three phases of outsourcing between 1989 to 2009 ie: Contract administration Contract management Supplier/Relationship management ◼ Now: Move towards collaborative innovation 
Collaborative Innovation
Ref: Leslie Willcocks & MC Lacity, Innovation: Step Change in Outsourcing: Towards Collaborative Innovation, The New IT Outsourcing Landscape , 2012, Palgrave Macmillan, pg 129 (JFST-v3n02_willcocks_09.pdf)   
Trust
Ref: Leslie Willcocks & MC Lacity, Innovation: Step Change in Outsourcing: Towards Collaborative Innovation, The New IT Outsourcing Landscape , 2012, Palgrave Macmillan, pg 129 (JFST-v3n02_willcocks_09.pdf) 
Innovation ladder
Ref: Innovation in Outsourcing: Towards a Practical Framework, Ilan Oshri 1 and Julia Kotlarsky (2011)  
Source of innovation ideas
Ref: M Sharma, M Lacity and L Willcocks, BPO: A Catalyst for Innovation, Outlook by Accenture 2012 
Challenges
Ref: Oshri et al, The Handbook of Global Sourcing & Offshoring, 2 nd Ed What are the challenges? Frequent failures to achieve 43% viewed innovation as a critical element of in BPO, more than half were disappointed Lessons to mitigate failures: Take the lead in innovation ie do not be passive Build early momentum & expand scope gradually Measure & publicise Culture is not prerequisite – changeable Build enabling environment for innovation Do not innovate alone, get partners Gain executive support
Transformational sourcing
Definition
Ref: JC Linder, Transformational Outsourcing: MIT Sloan Review, 2004 Transformational Outsourcing: "partnering with another company to achieve a rapid, substantial and sustainable improvement in enterprise level performance"
Varieties
Required readings: ◼ Jane C. Linder, “Transformational Outsourcing”, MIT Sloan Management Review, 45(2), 2004 
4. Vendor perspective
Required Readings: ◼ Kern, T., Willocks, L.P., van Heck, E., "The winner’s curse in IT outsourcing", California Management Review, 44(2), Winter 2002
Client – Vendor Key Concerns Perspectives
Ref: Communication of the Association of Information Systems 
Client – Vendor Key Assessment Perspectives
Ref: Client - Willcocks & Lacity, Global Sourcing of Business & IT Services, Palgrave Macmillan, 2006  vendor - Oshri, Kotlarsky & Wilcocks, The Handbook of Global Outsourcing & Offshoring, 2011, Palgrave & Macmillan, pg 144 
Vendor's Perspective of Risks in ITO
Ref: MD Aundhe, SK Matthew, Risks in offshore IT Outsourcing, European Mgt Journal (2009) Macroeconomic risks Relationship specific risks Project specific risks Relationship maturity Nature of contract Nature of service Nature of client
5. Risk management & Compliance
Compliance
Definition
Abiding by the legislative and regulatory frameworks as defined by the localities’ authorities.
Areas to consider
◼ Labor & Industrial Relations Laws (Visas quotas etc) ◼ Central Bank's Regulations (eg MAS Banking Act) ◼ Occupational and Safety Regulations ◼ Taxation rules eg VAT; Cross border withholding taxes
Illustrative examples
Banking Secrecy Act
MAS Technology Risk Management Notice(TRM)
◼ Background and History: 2013, consolidation of IBTRM and other technology risk-related guidelines. ◼ Scope: technology risk Key points relating to IT outsourcing: -> 5: Management of IT Outsourcing Risks Due diligence Cloud computing
MAS Outsourcing Guidelines
◼ This is a separate section in addition to TRM ◼ Revised Version Issued in July 2016 by the MAS ◼ Key Revision: Cloud Technology Outsourcing Key points: -> 5.2: Responsibility of the Board amd Senior Management -> 5.4: Due dililgence on Vendor
Risk Management Framework
(Aron et.al.)Forms of Risk
Ref: Aron et. al. "Just right outsourcing: Understanding and Managing risk", Journal of MIS, 22(2), 2005 ◼ Strategic / Structural risks: Caused by deliberate actions by client or vendor ◼ Operational risks: Caused by complexity and breakdown in operations ◼ Atrophy risks: Caused neither by vendor or client actions but by the "outsourcing" movement ◼ Other Intrinsic risks: Geo-political, exchange rate risk, etc
Structural risk
Ref: Aron et. al. "Just right outsourcing: Understanding and Managing risk", Journal of MIS, 22(2), 2005 
Operation risk
Ref: Aron et. al. "Just right outsourcing: Understanding and Managing risk", Journal of MIS, 22(2), 2005 
Souricng modes from a risk perspective
Ref: Aron et. al. "Just right outsourcing: Understanding and Managing risk", Journal of MIS, 22(2), 2005 
(Prof Shi)Forms of Risk
Ref: Prof. Shi, "BPO risk management puzzle", CMR, 49(3), 2007 
The sourcing risk puzzle

Solving the puzzle

Accounting perspective

Yet another framework
Ref: Willocks L.P., and Lacity. M. C., "IT outsourcing in insurance services: risk, creative contracting and business advantage", Information Systems Journal, 9, 163-180. 
Vendor's perspective
Ref: MD Aundhe, SK Matthew, Risks in offshore IT Outsourcing, European Mgt Journal (2009) Macroeconomic risks Relationship specific risks Project specific risks Relationship maturity Nature of contract Nature of service Nature of client
Mitigating Risks
Review Mechanism
Organization processes Hiring capabilities/quality etc.
Process
Conduct Audits Measure Quality vs. Price Measure, Fix issues - iterative proccess etc. 
6. Governance
Required Reading: ◼ Gartner Report: “Build a Sourcing Governance Framework That Aligns With Your Organizational Style”, Author: Cassio Dreyfuss , Report ID Number: G00147653, 17-Aug-2007, (Access via SMU library)
What
Ref: Ohsri, Kotlarsky and Willcocks, The Handbook of Global Outsourcing and Offshoring, 2011, Palgrave Macmillan “The processes and structures that ensure the alignment of strategies and objectives of the parties involved.” Hefley & Loesche, eSourcing Capability Model for Client Organisations, van Haren 2009 “Typically describes the ways in which rights and responsibilities are shared between the various participants, especially the management and the Stakeholders.”
Elements
- The organisational structure, roles & responsibilities - The policies - The communication channels - Control and Monitoring frameworks - Performance Metrics eg SLAs - Problem solving mechanisms
Why
- The high costs of outsourcing going wrong - Risks - Deals usually more than 2-3 years - High stakes involved eg Scotts cases study; FFB case study Reduce Hidden cost  Lift up partnership 
Structure
IBM recommendation: Meng et al. “A unified framework for outsourcing governance”, IEEE conference on enterprise computing, 2007 
Responsibility Matrix
IBM recommendation: Meng et al. “A unified framework for outsourcing governance”, IEEE conference on enterprise computing, 2007 Customer Joint Service Provider Strategic Outsourcing Strategy Relationship: (MP -> management process) 1.relationship MP 2. service level MP 3. contract MP Supporting: 1. risk MP 2. change MP 3. workforce MP 4. knowledge MP Business Strategy Functional Outsourcing Tactical Planning Provider Selection Process Business Tactical Planning Portfolio Management Bidding Process Operational Outsourcing control -> Project & service Outsourcing implementation -> Service development & deployment -> Service operation & maintenance
Sample governing stucture
Ref: Ohsri, Kotlarsky and Willcocks, The Handbook of Global Outsourcing and Offshoring, 2011, Palgrave Macmillan 
Escalation Paths

Management Maturity Model
Ref: Fairchild. A.M., “ITO Governance: An examination of outsourcing maturity model”, 2004 Hawaii international conference on system sciences (from IEEE digital library) 
Ecosystem

Style
Gartner report #G00147653, “Building a sourcing governance framework that aligns with your organization style” 
Typology

7. Trends
Facts
1. ITO Market Alone: -> 1989: US$3 billion -> 2006: US$200 billion (17 years: 670% growth) -> now US$520.74 bn 2. Expected Benefits: Operational, Transformational, Strategic (see next slide) 3. Results achieved far from satisfactory 4. Key to success: detailed management on both the client & supplier sides
Expected benefits
Ref: L Willcocks and M Lacity, "Global Sourcing of Business & IT Services", Palgrave Macmillan, 2006 
Elements to achieving success
1. Develop Sourcing Strategy 2. Identify & nurture core inhouse capabilities 3. Evaluate Sourcing Options 4. Assess Supplier Capabilities 5. Relationship management techniques: contracts, SLAs, risk mitigation, post contract management processes and structure, governance 6. Avoid a winner's curse situation
Trends
As businesses come under cost pressures & availability of pervasive cloud computing offerings, there would be the revival of application service provisions BPO will overshadow ITO (estimated from $140b in 2005 to over $220b in 2010 and *$304b (est.) in 2013 – see next slide). Traditional IT players like IBM, HP/EDS etc. are bundling IT services with BPO services Growth of IT outsourcing would come from new value propositions – virtual networks, cloud computing, analytics etc. Multi-sourcing and best sourcing with best in class suppliers will be dominant. Outsourcing failures and disappointments will be BAU (Based on 2006-11 data, between 30% to 50% will fail) Clients will become more savvy as they move into second and third generation outsourcing where they design the sourcing contracts instead of suppliers leading the drafting of contracts (over 80% now) Outsourcing methodologies and best practices will influence insourcing
Challenges
Ref: L Willcocks and M Lacity, Global Sourcing of Business & IT Services, Palgrave Macmillan, 2006 1. Back offices not aligned with business eg Mergers and acquisitions have resulted in a poor back office streamlining ie not a pure IT issue. 2. Alignment of suppliers' incentives with that of their clients ? 3. How do you protect IP during the client to supplier knowledge transfer process ? 4. How do clients retain sufficient knowledge when engaging in large scale outsourcing ? 5. How do clients & suppliers sustain early enthusiasm of budding relationships for the long term ?