Transcript Strategic sourcing of resources, capabilities and competencies

Chapter 9
Strategic sourcing of
resources, capabilities and
competencies
Paula Goulding
ICT326
1
Introduction
‘We set out to shape a global enterprise that
preserved the classic big company advantages
while eliminating the big company drawbacks.
What we wanted to build was a hybrid enterprise
with the body of a big company and the soul of a
small company.’
(Jack Welch, CEO, GE, 1995)
ICT326
2
Developing e-business
capabilities
large,
established
firms
act
small
small start-ups
get big fast
enjoy
advantages
of being big
retain benefits
of being small
Do all organisations need to be ‘big’ and ‘small’
simultaneously?
ICT326
3
Developing e-business
capabilities
 need to combine:
– Efficiency, power, resources, reach of ‘big’
and
– Speed, agility, responsiveness of ‘small’
 new capabilities, resources, and competencies
needed to exploit digital business
infrastructure
ICT326
4
Organisational capabilities
 Need capabilities and resources:
– To identify opportunities and to create and
communicate visions, goals, objectives
strategies
– To innovate and improve, to create excellent
core business processes
– To establish relationships and systems linking
them to suppliers, trading partners and
customers, and manage knowledge and
intellectual resources
– To maintain controls without stifling flexibility,
creativity, agility, responsiveness, while
remaining competitive, manage uncertainty
ICT326
5
Understanding capabilities
 Organisations become competitive through
their ability to access (internally or
externally) and exploit required resources,
competencies and capabilities
– Decision must be made on:
 Capabilities to develop and acquire
internally
 Capabilities which would be better sourced
through external providers
– Crucial to delivering value to customers
ICT326
6
Understanding capabilities
 Organisational capability is derived through
accessing competencies (the ability to do things or
‘know-how’) and resources needed to deliver on
customer value proposition and thus achieve
business objectives
ICT326
7
Building IT capabilities
 What we know…
‘Technical wizardry does not generate
sustainable competitive advantage’
(Peppard 2000)
 IT is becoming commoditised…few impediments to
purchasing IT
– Require capabilities and competencies to leverage
value from IT investments
ICT326
8
Sourcing required IT capabilities
 Historically, IT capabilities were developed inhouse
 With increasing complexity and greater
emphasis on cost controls, decisions often taken
to access some/all capability from external
providers
– IT outsourcing
ICT326
9
Outsourcing defined
‘commissioning a third party (or a number of third
parties) to manage a client organisation’s IT assets,
people, and/or activities to required results. This can and
often does involve a degree of transfer of assets and staff
to the third party organisation.’
(Fitzgerald & Willcocks 1994)
‘the use of a third party vendor to provide information
products and services that were previously provided
internally’
(Lacity & Hirschheim 1994)
‘Outsourcing encompasses the movement of any part of
MIS functionality to an outside agent’
(Chapman & Andrade 1998)
ICT326
10
Degrees of outsourcing
 Total outsourcing
– >80% IT requirements are outsourced
 Selective sourcing
– IT viewed as a portfolio of activates
– 20-80% sourced internally
– Decisions made on a case by case basis
ICT326
11
Degrees of outsourcing
 Insourcing
– >80% IT requirements provided internally
– Deliberate decision to retain IT in-house
after evaluating marketplace
 Backsourcing
– Building IT capabilities internally
following an outsourcing arrangement
ICT326
12
Outsourcing decisions
 None of these approaches are inherently good
or bad
– ‘horses for courses’
 IT becomes more diffused and more complex,
yet more pivotal to the achievement of business
goals and objectives, to the creation of efficient
and effective business processes
– Different perspectives emerge on how best to deal
with increasing demands for IT services
– Sourcing decisions are about how to achieve desired
levels of competence, expertise and capability in IT,
and how to manage increasing complexity
ICT326
13
What can be outsourced?
 All / most IT/EC operations
 All / most applications development and/or
maintenance functions
 All/most networks and communications
facilities
 Training
 E-business strategy formulation
 Re-engineering processes and IT support
General heuristic is to outsource those activities & services
which are regarded as non-core. However, many organisations
are now outsourcing core activities.
ICT326
14
Why outsource?
•
•
•
•
•
•
Accrue cost savings / better control of costs
Uncertainty about value of IT
Improve levels of service
Internal IT to concentrate on ‘value add’
More predictability
Refocusing staff
ICT326
15
Why outsource?
 Changing business strategy
– focus on core competencies
– shed all non-core functions
– determination to improve business performance
– accommodate business change, restructuring
ICT326
16
Why outsource?
 Acquire new skills, ‘state of the art’
technology
– resources not available internally
 Cash infusion
 Popular trend
ICT326
17
Risks of outsourcing?
• Contractual complexity /
incompleteness
–
–
–
–
–
IT services to be outsourced
required service levels
IT personnel to be provided by vendor
fees payable
clauses covering disputes, changing
requirements
ICT326
18
Risks of outsourcing?
 Increased dependence on outside
parties for service
– poor relationship with vendor
– loss of skills
 Recognition that IT played strategic role
– strategic disadvantage
ICT326
19
What are the risks?
 Unrealistic contract negotiations
– vendor pushed to provide low quotation
– set about attempting to be profitable after
winning the contract
ICT326
20
What are the risks?
 Hidden costs
– Costs of locating & contracting with a vendor
– Transitioning to the vendor
 Disruption
 ‘help’given bringing vendor up to speed
– Contract management
 Fulfilling contractual obligations
 Bargaining with vendors
 Negotiating contract changes & variations
– Transitioning back in-house(?)
ICT326
21
Best practice in outsourcing
 Contracts are essential
– Fee-for-service
– Strategic alliances/partnerships
– Buy-in contracts




Allow vendor to be profitable
Contract management
Change management
Retain IT management skills in-house
ICT326
22
Trends in outsourcing
 Contract renegotiation
– Changes demanded to improve performance measurement,
better monitoring of contract performance
 Backsourcing
– Decision to rebuild some IT capability internally
 Netsourcing (e-sourcing)
– Obtaining entire infrastructure requirements from single
vendor who delivers all required services via Internet
ICT326
23
Trends in outsourcing
 Application service providers (ASPs)
– Similar to netsourcing, but parts of services can be
accommodated
– Not confined only to infrastructure
 Business processing outsourcing
– Outsourcing entire business process or function
 Offshoring
– Trend to access IT services from developing
countries with lower cost structures
ICT326
24