Smartsourcing Adding Innovation to the “Cost Cutting” Outsourcing Dr. Nicolae Varachiu Acquis...
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Transcript of Smartsourcing Adding Innovation to the “Cost Cutting” Outsourcing Dr. Nicolae Varachiu Acquis...
Smartsourcing Adding Innovation to the
“Cost Cutting” Outsourcing
Dr. Nicolae VarachiuAcquis Technical Officer, ARIES
Business Development Coordinator, Honeywell
20.02.08 Dr. N. Varachiu 3
The most profound impact of…
…the 20th-century enterprise was the way we moved workers to where the work was.
Thomas M. Koulopoulos, Tom Roloff, Smartsourcing – Driving Innovation and Growth Through Outsourcing, Platinum Press, 2006
…the 21st-century enterprise will be the way we move work to where the workers are.
20.02.08 Dr. N. Varachiu 4
Sourcing
= a number of procurement practices, aimed at:
• finding,
• evaluating and
• engaging
suppliers of goods and services
http://en.wikipedia.org/wiki/
20.02.08 Dr. N. Varachiu 5
Outsourcing
= subcontracting a process, such as product design or manufacturing, to a third-party company
http://en.wikipedia.org/wiki
= a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.
http://financial-dictionary.thefreedictionary.com/
20.02.08 Dr. N. Varachiu 6
Business segments typically outsourced:
• information technology • human resources • facilities and real estate management • accounting• customer support and call center• telemarketing / market research, • manufacturing • engineering
http://en.wikipedia.org/wiki
20.02.08 Dr. N. Varachiu 7
Multisourcing
= large (predominantly IT) outsourcing agreements.
Multisourcing is a framework to enable different parts of the client business to be sourced from different suppliers.
http://en.wikipedia.org/wiki
20.02.08 Dr. N. Varachiu 8
Offshore
• Offshoring describes the relocation of business processes from one country to another.
This includes any business process such as production, manufacturing, or services.
http://en.wikipedia.org/wiki/Offshoring
20.02.08 Dr. N. Varachiu 9
Nearshoring
= means sourcing service activities to a foreign, lower-wage country that is relatively close in distance or time zone (or both).
Examples of nearshoring: • American clients nearshoring to Mexico, • Austrian clients nearshoring to Slovakia, • Japanese clients nearshoring to China.
http://en.wikipedia.org/wiki
20.02.08 Dr. N. Varachiu 10
Offshore & Outsourcing
Outsourcing involves contracting with a supplier, which may or may not involve some degree of offshoring.
Offshoring is the transfer of an organizational function to another country, regardless of whether the work is outsourced or stays within the same corporation
http://en.wikipedia.org/wiki
20.02.08 Dr. N. Varachiu 11
Reasons for outsourcing: • Cost savings• Cost restructuring• Improve quality Knowledge
Contract Operational expertise Staffing issues Capacity management Catalyst for change Reduce time to market Risk management Time zone Customer pressure.
http://en.wikipedia.org/wiki
20.02.08 Dr. N. Varachiu 12
Reasons for outsourcing: • Cost savings• Cost restructuring• Improve quality Knowledge
Contract Operational expertise Staffing issues Capacity management Catalyst for change Reduce time to market Risk management Time zone Customer pressure.
http://en.wikipedia.org/wiki
20.02.08 Dr. N. Varachiu 13
First reasons for outsourcing: • Cost savings
The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels. Access to lower cost economies through offshoring.
• Cost restructuring Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
http://en.wikipedia.org/wiki
20.02.08 Dr. N. Varachiu 14
Smartsourcing . . . …is not about …is about economy of scale economy of scope
just technology competency
ownership partnership
cost cutting innovation
cheap labor smart, educated workers
episodic here to stay
just outsourcing outsourcing is only one facet
T. Koulopoulos, T. Roloff, Smartsourcing . . ..
20.02.08 Dr. N. Varachiu 15
CENTER FOR GLOBAL OUTSOURCING http://www.outsourceglobal.org/
6th Annual Int'l Smart-Sourcing Conference, Atlantic City, NJ,USA on Sept. 6-7, 2007
7th Annual Int’l Smart-Sourcing Conference, to be held in Hyderabad City, India from August 8-9, 2008
20.02.08 Dr. N. Varachiu 16
```
Pareto Principle or the 80-20 rule applied to organizations:
non-core functions/ competency
core functions/
competency
areas that define the
organization’s mission
20.02.08 Dr. N. Varachiu 17
Take advantage from diversity! ! !
• All policemen are British• All cooks are French• All mechanics are German• All lovers are Italians• And everything is organized by Swiss
20.02.08 Dr. N. Varachiu 18
Take advantage from diversity? ? ?
• All policemen are German• All cooks are British• All mechanics are French• All lovers are Swiss• And everything is organized by Italians
20.02.08 Dr. N. Varachiu 19
Take advantage from diversity? ? ?
• All policemen are German• All cooks are British• All mechanics are French• All lovers are Swiss• And everything is organized by Romanians
20.02.08 Dr. N. Varachiu 20
Smartsourcing
• Increases innovation in processes, from core to non-core and let the organization to:– Focus on their most critical areas of differentiation, customer value and competency– Achieve high level of innovation in non-core operations
20.02.08 Dr. N. Varachiu 21
Outsourcing Smartsourcing ?• Focusing more on
costs & replicating the status quo
• No interest on concurrent innovation initiative
T. Koulopoulos, T. Roloff, Smartsourcing . . ..
• Improving process excellence & promoting innovation …
…among organization’s core process initiatives
• Strong relationship between organization and its service partner
20.02.08 Dr. N. Varachiu 22
Outsourcing Smartsourcing ?
“The key in the case of Smartsourcing is that you need to be as diligent and critical of defining and understanding the value of your core competencies as you are in defining and understanding the value of the processes you outsource and then creating innovation across the spectrum.”
T. Koulopoulos, http://www.itbusinessedge.com/item/?ci=14270
20.02.08 Dr. N. Varachiu 25
Outsourcing
Low
Low
Low
HighCompetency
Dif
fere
nti
ati
on
Customer value
20.02.08 Dr. N. Varachiu 26
Smartsourcing
Low
Low
Low
HighCompetency
Dif
fere
nti
ati
on
Customer value
20.02.08 Dr. N. Varachiu 27
Smartsourcing
Low
Low
Low
HighCompetency
Dif
fere
nti
ati
on
Customer value
Push Towards
Higher Value,
Differentiation,
and Innovations
20.02.08 Dr. N. Varachiu 28
Smartsourcing
Low
Low
Low
HighCompetency
Dif
fere
nti
ati
on
Customer value
Push Towards
Higher Value,
Differentiation,
and Innovations
20.02.08 Dr. N. Varachiu 29
Smartsourcing simple questions
1. Do you know what your core competencies are so that you can focus and prioritize your energies on them?
2. Can you define your processes and your work so that you can transport them easily to partners?
3. Are you able to measure innovation and its impact in all aspects of your business?
T. Koulopoulos, T. Roloff, Smartsourcing . . ..
20.02.08 Dr. N. Varachiu 30
Smartsourcing DashboardExcellent
Poor
How important is the process to your competitive position?
Non-Core Core
Segment 3: Process Outsourcing
Segment 4: Process Offshoring
Segment 1: Process Optimization
Segment 2: Process Re-engineering
Ho
w g
oo
d is
yo
ur
per
form
ance
?
T. Koulopoulos, T. Roloff, Smartsourcing . . ..
20.02.08 Dr. N. Varachiu 31
Segment 1: Process Optimization
• Core processes you execute well are sources of long-term competitive advantage and differentiation
• Continually optimize these processes to maintain competitive advantages
20.02.08 Dr. N. Varachiu 32
Segment 2: Process Re-engineering
• Processes you consider the core of your business but which perform poorly leave you vulnerable to competitive disadvantage
• Define a plan to fix these processes but keep them in-house and migrate them to Segment 1 as soon as possible
20.02.08 Dr. N. Varachiu 33
Segment 3: Process Outsourcing
• Processes that do not differentiate you in the market and are not executed well could leverage best in-class operation from a third party
• Keeping these processes in-house may be unnecessarily expensive but they are not likely mature enough to offshore
20.02.08 Dr. N. Varachiu 34
Segment 4: Process Offshoring
• Processes that offer not competitive advantage but are operating above industry average performance levels can be moved offshore
• Offshore providers will replicate existing process performance at a much lower cost