Bharat Vagadia Strategic Outsourcing The Alchemy to Business Transformation in a Globally Converged World 4y Springer
1 Role of Strategic Sourcing in a Changing World 1 1.1 Economic Drivers 1 1.1.1 Challenging Times Leading to Changing Business Models and Practice 2 1.1.2 Contrary Forces at Work 2 1.1.3 All Eyes on Cost 2, 1.1.4 AllAboard 3 1.1.5 Mixed Fortunes for the Outsourcing Industry 4 1.1.6 Changing Commercial Models 5 1.1.7 Getting it Right 5 1.2 Take Aways 6 2 Globalisation and Convergence: Drivers and Strategic Outsourcing 7 2.1 Introduction 7 2.2 Convergent World 8 2.3 Raising Barriers to Globalisation and Convergence 10 2.4 Adapting Businesses to Compete on a Global Level 11 2.5 A Case in Point: The Rise of India 16 2.6 Take Aways 19 3 Social and Philosophical Considerations of Outsourcing 21 3.1 Introduction 21 3.2 Economic Consequences 22 3.3 Social Consequences 23 3.4 Separating the Spin from Reality 24 3.5 Policy Implications 24 3.6 Take Aways 25 References 25
< Contents 4 From Tactical to Strategic Outsourcing 27 4.1 Introduction 27 4.2 The Role of Relationships 28 4.3 Information Technology Outsourcing and the Cloud 31 4.3.1 Cloud Computing and IT Outsourcing 31 4.3.2 Cloud Services 32 4.3.3 The Challenges of Cloud Sourcing 36 4.3.4 Cloud Vendors 37 4.4 Business Process Outsourcing and Call Centres 38 4.4.1 Defining BPO Services by Organisational Impact 39 4.4.2 Drivers for Customer Service Outsourcing 41 4.4.3 The Future of Call Centres 43 4.5 Travel, Transport and Logistics Outsourcing 44 4.5.1 Drivers for Logistics Outsourcing 44 4.6 Finance and Accounting Outsourcing 45 4.6.1 Drivers for F&A outsourcing 46 4.7 Human Resource and Recruitment Processing Outsourcing 47 4.7.1 Drivers for HRO 47 4.8 Knowledge Process Outsourcing 48 4.8.1 Typical KPO Services 49 4.8.2 Challenges in Knowledge Process Outsourcing 50 4.9 Legal Process Outsourcing 51 4.9.1 Drivers for LPO in Law Firms 52 4.9.2 What Not to Outsource 52 4.9.3 LSO Challenges 52 4.9.4 Corporations Rather Than Legal Firms Driving LSO 53 4.10 Take Aways 54 5 Outsourcing Within Industry Verticals 55 5.1 Banking Sector 55 5.1.1 Banking Value Chain 56 5.1.2 Outsourcing Drivers for Banking Sector 57 5.2 Insurance Sector 58 5.2.1 Insurance Sector Value Chain 60 5.3 The Telecoms and Technology Sector 62 5.3.1 Main Drivers for Outsourcing and Managed Services 63 5.4 Public Sector 67 5.4.1 A Means to Radically Transform Service Provision 68 5.4.2 -Evolving Generations of Outsourcing 69 5.4.3 The Drivers for Outsourcing in the Public Sector 72 5.4.4 Public-Private Partnerships (PPP) 73 5.4.5 Outsourcing Offshore Versus Onshore 73 5.4.6 A Closed Market for New Suppliers 74
xi 5.5 Retail Sector 74 5.5.1 Drivers 75 5.5.2 Outsourcing Drivers not Just Focused on Cost 75 5.5.3 The Need for an Integrated Contact Management Strategy... 75 5.5.4 Transforming Customer Service Cost Centres into Sales Centres 76 5.5.5 The Need for Greater Pro-activity 76 5.6 Charity Sector 77 5.7 TheSMESector 78 5.8 Take Aways 79 References 80 6 Strategic Outsourcing: Risks, Rewards and Relationships 81 6.1 Rewards 81 6.2 Risks 84 6.2.1 Loss of Core Competence and Innovation Capability 85 6.2.2 Cost Escalation 86 6.2.3 Supply Market Risk 86 6.2.4 Change Management Costs 87 6.2.5 Selection, Contracting and Vendor Management 87 6.2.6 Communication Challenges 87 6.3 Relationships 87 6.3.1 Knowledge Retention 89 6.3.2 Trust 89 6.4 Take Aways 91 References 91 7 Sourcing Models 93 7.1 Evolution of Sourcing Models 93 7.2 TakeAways -. 98 8 Strategic Outsourcing Decision Governance 101 8.1 Introduction 101 8.2 Decisions Driven by Consensus and Debate 107 8.3 Suggested Decision Process for Outsourcing 107 8.3.1 Denning the Objectives 107 8.3.2 Outsource for the Right Reasons 108 8.3.3 Using a Methodical Approach 109 8.3.4 Engage with All Stakeholders 109 8.3.5 Choosing the Right Relationship Ill 8.3.6 Negotiating a Robust Contract 112 8.3.7 Use of Performance Incentives 112 8.3.8 Establish a Relationship Governance Structure 112 8.3.9 Establish a Relationship Management Function 113 8.3.10 Managing Human and Communication Issues 113
8.3.11 Single Versus Multi-Sourcing 113 8.3.12 Understand the Vendors 114 8.4 TakeAways 115 9 Transition and Relationship Governance 117 9.1 Introduction 117 9.2 Managing the Soft Issues 121 9.3 Governance and Relationship Management 123 9.4 Typical Governance Structures 124 9.4.1 Joint Review Board (JRB) 124 9.4.2 Service Management Team (SMT) 126 9.4.3 The Operating Group/Service Delivery Team (OGSDT) 126 9.5 Governance in Practice 126 9.6 Role of the Legal Contract 127, 9.7 Service Level Agreements 129 9.8 Take Aways 131 References 131 10 Insights from Academic Research on Outsourcing 133 10.1 Introduction 133 10.1.1 Defining Outsourcing and Offshoring 133 10.1.2 From Tactical to Strategic Outsourcing 134 10.1.3 Empirical Studies Suggest Outsourcing can be a Risky Practice 135 10.2 Outsourcing Rewards 136 10.2.1 Better Focus on the Core Business 136 10.2.2 Cost Reduction 136 10.2.3 Benefit from Supplier Investment and Innovation 137 10.2.4 Increased Flexibility and Technology 137 10.2.5 Gain Access to External Competencies 137 10.3 Outsourcing Risks 138 10.3.1 Strategic Risks 138 10.3.2 Operational Risks 139 10.3.3 Commercial Risks 140 10.3.4 Human Resource (HR)/Communication Risks 140 10.4 Outsourcing Models 141 10.4.1 Agency Theory 142 10.4.2 Transaction Cost Economics (TCE) 142 10.4.3 Resource Based View (RBV) 143 10.4.4 Dynamic Resource (Capability) Model (DRM) 144 10.4.5 Incomplete Contract Theory 144 10.4.6 OtherModels 145 10.5 Take Aways 147 References 147
11 Minimising Risk Through the Contract 151 11.1 Introduction 151 11.2 Outcome Based Accounting Controls 152 11.3 Appropriate Contractual Clauses 152 11.4 Contract as an Enabler of Trust 153 11.5 Take Aways 154 12 Minimising Risk Through Relationships 155 12.1 Introduction 155 12.2 Trust 155 12.2.1 Organisational Trust 157 12.2.2 Group Trust 157 12.2.3 Individual Trust 157 12.2.4 Creating Institutional Mechanisms for Building Trust 157 12.3 Control and Its Relationship to Trust 158 12.4 Vendor Selection 159 12.5 Service Level Agreements as a Means of Control 163 12.6 Collaboration 164 12.7 Relationship Management and Internal Knowledge Retention 165 12.8 Necessity of Legal Contracts for Positive Trust Development 168 12.9 Adaptation to Cultural Differences 169" 12.10 Knowledge Transfer 169 12.11 Managing Distance and Communication Challenges 170 12.12 Continuous Improvement 170 12.13 Risk Minimisation in Practice 171 12.14 Take Aways 173 References 173 13 Offshoring Leaders, Laggards and Hopefuls 175 13.1 Introduction 175 13.2 Location Selection 176 13.2.1 From Countries to Cities 177 13.3 Criteria to Assess the Location Decision 179 13.3.1 Factor Weightings 179 13.3.2 Country Evaluation 180 13.3.3 Relative Merits of each Location, Based on a Rational Analysis 180 13.4 Effects of the Recent Political Unrest on Offshoring 181 13.5 The Outsourcing Industry in Asia 182 13.6 The Outsourcing Industry in India 184 13.6.1 Infrastructure Challenges 186 13.7 The Outsourcing Industry in China 192 13.8 The Outsourcing Industry in Philippines 193 13.9 The Outsourcing Industry in Europe 194 13.10 The Outsourcing Industry in North America and Latin America 195
13.11 The Outsourcing Industry in Middle East and Africa 196 13.12 Take Aways 197 References 198 14 Managing Cultural Differences 199 14.1 Introduction 199 14.2 Cultural Influences on Management Style 200 14.3 Cultural Influences on Hierarchy 201 14.4 Cultural Influences on Group Relationships and Motivations 202 14.5 Cultural Influences on Negotiation Styles 202 14.6 Distinctions Blurring Between Cultural Dimensions 202 14.7 Cultural Differences in Evidence 203 14.8 Take Aways 206 References 206 15 Implementing Successful Strategic Outsourcing Programmes 207 15.1 The Eight Principles to Success 207 15.2 Principle 1: Strong Yet Flexible Contracts 209 15.3 Principle 2: Effective Governance 210 15.4 Principle 3: Effective Control and Monitoring 211 15.5 Principle 4: Building Commitment and Mutual Dependence 212 15.6 Principle 5: Ensuring Goal/Expectation Alignment 213 15.7 Principle 6: Building Individual and Institutional Trust 215 15.8 Principle 7: Managing Effective Collaboration and Knowledge Sharing 215 15.9 Principle 8: Effective Communications 216 15.10 A Summary of Strategic Outsourcing: Risks, Rewards and Relationships 216 15.10.1 Don't Start at the End 216 15.10.2 Establish What is Core 218 15.10.3 Establish What Success Means 218 15.10.4 Measuring Success 218 15.10.5 Making It Happen: Ever Had a Yearlong Migraine? 219 15.10.6 The True Picture 220 15.10.7 It's Not All Plain Sailing 220 15.10.8 Impact on Strategy and Value Retention 221 15.10.9 Don't Overlook the Challenges 221 15.10.10 Organisational Change 221 15.10.11 Cultural Adaption 222 15.10.12 Detailed Contractual Agreement 222 15.10.13 Knowledgeable Resources 222 References 222 Further Reading 223