MALAYSIA: GATEWAY TO ASIA. Shared Service Centres: Building Tomorrow s Talents Single Customer View: Reality or Mirage?

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1 RM12, S$8, US$8 ISSUE #34, 2013 ISSN KDN NO: PP14967/03/2013 (032223) MICA (P) 199/06/2010 Inside Shared Service Centres: Building Tomorrow s Talents Single Customer View: Reality or Mirage? Special Focus MALAYSIA: GATEWAY TO ASIA What to Retain and What to Source?

2 OUTSOURCING STRATEGIC SOURCING WHAT TO RETAIN & WHAT TO SOURCE? CORE AND CONTEXT: A UNIQUE METHODOLOGY TO DRIVE STRATEGIC SOURCING DECISIONS By Hemant Puthli & Atul Vashistha G lobal sourcing is not a static phenomenon but a dynamic one, characterised by rapid changes in a fast integrating global economy. Traditional markets and drivers are changing, and new sourcing markets are emerging all the time, fundamentally altering sourcing economics and sourcing benefits. In this environment, companies need to periodically review their sourcing strategies in order to optimise global sourcing, perhaps every two years. Today, sourcing is an integral part of global corporations, a key element of boardroom strategy and an important driver of the bottom line. Like other elements of corporate strategy, sourcing requires complete lifecycle planning. Corporate leaders need to demonstrate vision as much as execution, and develop a long-term roadmap with rigorous governance procedures indd 28 8/23/13 5:46 PM

3 Whether or not to source is no longer the big question facing global corporations. That s because they already source so much. Rather, the key questions that confront them are: t 8IBU FMTF DBO XF TPVSDF t 8IFSF FMTF DBO XF TPVSDF GSPN t $BO XF DIBOHF PVS TPVSDing portfolio to derive more CFOFGJUT With the rapid maturing of the ITO and BPO service industries and the emergence of new skills and new markets, opportunities for sourcing have risen manifold. Today, it is possible to source diverse processes that possibly couldn t be imagined in previous years. Over 100 countries have emerged as sourcing targets with varied skills and maturity to provide quality services to global corporations. KEY STRATEGIC QUESTIONS For both global corporations with a history of sourcing practices and smaller companies newly embarking on a sourcing programme, global sourcing is best viewed through a prism consisting of the six basic questions what, why, where, who, how and when. The first two what and why form the core subject of this article and examine the key debate on Core vs. Context: how global corporations choose what to source (Context) and what to retain in-house (Core).The why examines the business case behind the decisions to source certain services while retaining some others, in order to make sure the company s sourcing program is aligned with its long-term goals. CORE VS. CONTEXT Today, it is possible to source diverse processes that possibly couldn t be imagined in previous years. Over 100 countries have emerged as sourcing targets with varied skills and maturity to provide quality services to global corporations indd 29 What to source and what to retain in-house is a fundamental choice global corporations face. Logic dictates that companies should retain those services, functions and processes in which they really excel, and those that give them a competitive advantage. By corollary, if those services, functions or processes were produced or performed externally, the company would risk eroding its competitive advantage. It follows that what is core to an enterprise should never be sourced. All other components of the enterprise would be contextual Figure 1 each would be considered for sourcing depending on global opportunities (for example: mature supply-side market for sourcing such services) and the company s own vision and business strategy. However, these two categories are not as obvious and simple as they seem. In reality, the choices represent a fundamental top-level challenge to sourcing strategies and success. The reason: In most enterprises, the two are not easily determined, and there is a large gray area that exists in between. Besides, what s core and context are continually changing on account of dynamic marketplace changes. What was core yesterday may no longer be so today. Similarly, context changes on account of the growing maturity of service providers, as well as the emergence of new skills and newer geographies in the global sourcing market. Figure 1 uses the Cube metaphor to bring out the three main dimensions that drive Core/Context differentiation in the case of an ITO scenario dealing with Applications Development Maintenance and Support (ADMS) services: Business Alignment, Technology Edge and Application Life Cycle Stage. The closer an application is to the origin of the cube i.e. highly aligned with strategic business objectives, based on emerging technologies, in the early stages of the life-cycle the more likely it is to be included as core. C o nve r s e ly, t h e f a r t h e r i t i s f ro m the origin i.e. not very strategic from a business perspective, based on legacy technologies, very much in steady-state (or perhaps even Sourcing by intuition, or experience, is a poor choice in the modern world, especially when Big Data is at hand. 8/23/13 5:47 PM

4 OUTSOURCING STRATEGIC SOURCING a global sourcing consultant to help determine its core services, functions and processes. An unbiased evaluation of an enterprise s operations can be an invaluable investment to design clear sourcing strategies that are aligned with the enterprise s long-term objectives. CONTEXT: THE SPACE THAT CONTAINS SOURCING OPPORTUNITIES Companies need to periodically review their sourcing strategies in order to optimise global sourcing, perhaps every two years. Today, sourcing is an integral part of global corporations, a key element of boardroom strategy and an important driver of the bottom line. approaching retirement) the more likely it is to be included as context. But how to decide which applications MJF PO XIJDI QBSU PG UIJT DVCF 5IF CFTU of leaders and the best of enterprises stand by the simple mantra: Trust (your gut feeling) but validate. This is because analytics are at the heart of today s enterprise. There are few corporate decisions that are not based on data, or cannot be based on data. Data-based decisions minimise subjectivity, eliminate errors and complement expertise. Sourcing is no exception. Sourcing by intuition, or experience, is a poor choice in the modern world, especially when Big Data is at hand. One way that corporate leaders are supplementing their intuition is by utilising the expertise and skills of global sourcing consultants. Leading firms utilise complex analytics tools and monitoring systems to deliver detailed sourcing analytics that take the guesswork out of sourcing decisions. By combining qualitative and quantitative factors, such analytical tools perfectly complement a corporate leader s intuition and experience. CONSIDERATIONS IN DETERMINING CORE In order to define an enterprise s core, the enterprise must undergo a data driven portfolio analysis. This methodology must include an in-depth evaluation of the complete range of IT or business process and related resources in IT, this means applications, infrastructure, IT indd 30 organisation, staff and others. to assess current efficiencies and costs, and their strategic importance to the company s business. This includes exploring issues such as whether a software application is legacy or modern, complex or simple, well documented or not. These parameters help to identify each application s location on each dimension of the Sourcing Cube, so that its coordinates in that decision space can eventually be determined. Equally important, the IT personnel s tasks, functions and roles must be assessed to determine which of these are best served in-house and which can be offshored while ensuring business continuity. Employing an analytics methodology that breaks down complex functions into simple data points is key to enabling intelligent decision-making. For example, some expert advisory firms, like us, offer analysis that can deliver a single number in the form of Full Time Equivalent or FTE jobs that can be optimally offshored. It s important to note that enterprises vary in their reasons for sourcing. Even when they source similar processes, enterprises vary in the weightages they allocate to different processes, or in the way they prioritise things. Consequently, an enterprise must assess its past historical sourcing practices, as well as its motivations to source, in order to make a well-informed sourcing decision. Oftentimes, enterprises rely on the objective analysis and assessment of Just as determining core is key to aligning an enterprise s sourcing strategy with its long-term objectives, context is key in leveraging emerging or available market opportunities. A key set of contextual sourcing programmes emerges from global dynamics. For example, a policy change in Costa Rica or the Philippines might significantly alter the benefits of sourcing, requiring enterprises to act swiftly and restructure their sourcing programmes. Today, cost is not the only driver for the modern enterprise, and, in many cases, not even the most important driver. A number of value drivers such as access to skills, capabilities, scalability, process maturity and time zone advantages determine sourcing decisions. Therefore, the emergence of new skills, new geographic areas and higher maturity levels, among other things, mandates review of an enterprise s sourcing programmes. Another set of benefits emanates from a key management precept: It is too expensive, if not impossible, to excel in everything we do. Such is the time and age in which we live. If a company were to carry out 25 different operations, there would conceivably be companies out there that could do some, or even most of the work cheaper, better and faster. In these circumstances, it makes little sense for companies to try and keep everything in-house. Enterprises can and need to wisely pick and choose tasks and processes that it can source in order to derive strategic benefits that are in line with its long-term business goals, and minimize risk. CONCLUSION Sourcing is an imperative for most global corporations looking for agility and flexibility as competitive strengths. However, sourcing options have increased in complexity, making it critical for corporations to use smart tools and methodologies to determine what should be sourced and what should be retained in-house. Analytical tools and methodologies offered by global sourcing consultants have become an essential piece of the sourcing puzzle. The balance of quantitative data and qualitative expertise provided by these firms help global companies realise optimal benefits from global sourcing while remaining aligned with strategic long-term objectives. Hemant Puthli is an advisory partner and Atul Vashistha is the founder of Neo Group. 8/23/13 5:47 PM

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