Wednesday, August 14, 2013
Here are two articles that are useful for our online discussions for the week. Let us use today til August 21 for the online discussion.
IT outsourcing:
http://www.outsourcing-center.com/2013-01-twelve-best-practices-to-create-a-world-class-outsourcing-case-article-53821.html
Asset Retirement & Disposal:
http://newsroom.cisco.com/images/2010/Cisco-Thought-Leadership-Paper.pdf
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Let me start the discussion on the online article of Michael Alfonsi entitled "Twelve Best Practices to Create a World-Class Outsourcing Case." Outsourcing practices can become an organization's competitive advantage especially if executed and planned strategically in terms of partnering with firms that are expert on certain business processes. However, there are certain disadvantages to outsourcing, which the author pointed out namely increased costs to manage the outsourced processes, transportation and logistics, loss of control, creation of future competition and negative impact on employees. Thus, in order to address these issues, he presented twelve steps, which could help in achieving a world-class outsourcing plan.
ReplyDeleteThe first step is to create a scenario analysis by conducting a thorough research to highlight the benefits associated with the project. He further suggested that it is best to lay out the best and worst case scenarios in order for decision makers to have a clear picture of the project. These scenarios must be backed up with factual data, assumptions and indicators in order to arrive at a well-discerned decisions. Next is to identify the operational performance indicators, which are the difference between real current state costs and the envisioned costs demonstrating the positive impact of the potential solution. Afterwards, determining the cultural factors is also necessary before estimating the costs of the project. If no investment will be made, it was also suggested to come up with an analysis on the risks of no investment, thereby suggesting a possible loss of opportunity. The next step is to align the solutions with the company's strategy since it is impertinent to achieve a return on investment if the proposed solution is not linked with strategic goals. Understanding the in-house operation is also necessary since a business process is a critical component of the company's value chain. Optimizing the business process is also recommended in order to make the most of outsourcing. And in order for the new process to succeed, the team must be involved for feedback and improvement since the transition period will not run as smooth during the introductory phase. Lastly, creating systems for on-going management is required to put systems in place. This will allow transparency and improvements.
The steps suggested by Mr. Alfonsi is a specific and analytical approach towards Porter's 5 Forces framework and some concepts developed in environmental scanning whenever a company would consider outsourcing. It is simple yet logical and could surely help decision makers in an organization especially that the population ecology of today's business environment is shifting towards more collaboration.
Alfonsi's article succinctly discusses the 12 key steps in overcoming objections and avoiding risks in coming up with a world-class outsourcing case. His article is to provide guidance aimed at addressing common objections to outsourcing and given that that there have been studies that have shown that half of all outsourcing agreements fail because of inadequate planning and analysis .
DeleteThe 12 steps may have been presented sequentially but they can be done simultaneously or interdependently. With in-depth research and analyses, steps 1-8 clearly specify how to build the outsourcing case by presenting key performance indicators, return on investment, risk of no investment and its alignment to company’s strategic goals. Steps 9 and 10 relate to step 4 as outsourcing is not only seen as a simple labor shift, from one location to another, but also contributes to business process improvements. Alfonsi mentioned the Gartner’s Magic Quadrant in Step 10. Gartner is the world's leading information technology research and advisory company that delivers technology-related insights necessary for its clients to make the right decisions. The Gartner’s Magic Quadrant is a methodology in the assessment of a market and its participating vendors and is seen as a crucial business task. Companies have to contend with vendor differentiation caused by differing sizes, levels of complexity and strategies, thus, making it very challenging to compare vendors' offerings. Gartner's Magic Quadrants are supposed to help companies overcome these challenges by offering snapshots of markets and their participants, thus, helping the company assess vendors' strengths against its current and future needs and helps get the best value- adding vendor to do the job.
As in any new initiative, step 11 is very crucial and it is all about collaboration and getting the buy-in of stakeholders. Step 12 is all about sustainability - proper implementation, evaluation, generating feedback and management of process improvement efforts.
All the steps emphasize the need to do in-depth research, analysis, collaboration and alignment of company’s short and long term business goals. At the end of the day, a company which pursues an outsourcing business model sees it as a strategic measure to attain specific business goals. Following the steps presented in this article can very well turn around a successful outsourcing case.
The rise of outsourcing validates a management theory that supports focusing on one's core competency. Simply put, focus on what you do best and let others who do it better or do at their best do the rest.
DeleteAlfonsi conservatively presents several pit falls why outsourcing remains as cost pit. The reasons he mentioned why outsourcing does not work are all valid and gladly supported by practical experiences and theoretical undertakings.
On incorrect identification of a process as a non-core competency. This is brought about by the incompetence or lack of experience of identifying core competencies. A number of times, non-core competency is often attributed to processes that are being performed dismally by employees. In such a case, rather than the lack of skill and experience of the employee - hiring and job mismatch - should have been identified as the culprit, it is the non-core competency issue that is wrongfully highlighted.
On the mismatch of resources and talents needed internally. This is attributed to the disconnect between what the process needs and the resources that are available at hand. A number of times, job items are created that are not well thought of or incorrectly thought of. In such a case, the key would be to know the internal process, and identify the business' strengths that can best complement and weaknesses that can be best improved.
On incorrect goals or misinterpreted performance measures. This is a function of business strategy and information technology (IT) strategy alignment. A number of times, the disconnect between these two is the main cause of why a certain IT investment does not pay off.
On choosing a wrong provider. The core management team responsible for IT investment has to be technically and business-wise competent to identify the gap between what are needed and the solution provider for these needs. Sadly, it is often the case of the neighboring company or the presentation and marketing skills of the service provider that call the shot in decision-making.
Ultimately, it is the chief executive officer (CEO) that decides whether the outsourcing case gets approved or not. As such, the CEO has to see in the packaging of the outsourcing case the much needed benefits (spelled as cost reduction and management since IT is always viewed as a cost center). With this in mind, the 12 practices are helpful guides in making sure that a nod is given for every outsourcing opportunity.
Among the 12 best practices, the use of sensitivity analysis coupled with a "no investing" option are game changers. Presenting outsourcing case at its most-likely-case, best-case, and worst-case scenarios not only shows depth of analysis but more importantly builds a calculated expectation on the expected turnout. Moreover, as all outsourcing cases require money, the best pitch for this is to present how much more it will cost the business if it will not take the outsourcing case. Clearly, this sets the prelude to an easier quantification of benefits which is always the most difficult to justify. Once done, the next few steps are but a walk in the park. It must be a reminder though that these steps will only be taken once the reasons for why business outsourcing does not work are addressed and taken into consideration.
Operations not considered among core competencies of an organization may be outsourced as long as proper controls are established so as to focus on the more strategic functions of the organization. Developing globalization trends that unify cultural diversity lead to increasingly homogeneous landscape contributory to more standardized process quality conducive to process outsourcing. Cost considerations inclusive of loss of economies of scale, threat of future competition, cultural and control issues remain to be the challenges faced in outsourcing considerations. Erroneously dismissing one core competency as non-core would be a blunder in strategic formulation. While detailed accounting of costs associated in outsourcing and establishment of stringent control systems to ensure met quality, process outsourcing becomes a strategic edge among firms to focus on the core components of the organizations. However, after deciding on functions to outsource, regular and religious review, monitoring and evaluation of outsourcing set up should still be conducted to make sure that prevailing outsourcing strategy is still aligned with the organizational strategic framework.
DeleteThe second article is a study conducted by Forrester Consulting for Cisco. It was intended to help organizations in Europe in reducing costs and mitigating risks by improving maturity of management processes that are associated with end-of-life IT assets. The study involved more than 300 European IT and Business Professionals and key findings showed that financial, regulatory and business continuity drive end-of-life management. Operating costs, data security regulations and business continuity were issues and concerns raised when ending the life of an IT assets. It was also revealed in the study that end-of-life management is the least important and least mature. Thus, lagging in terms of technology usage and green IT policies.However, European organizations are able to manage all categories of end-of-life IT assets at comparable maturity levels. It was even presented that every IT practice requires ownership and end-of-life management should be treated the same given its increasing ability to mitigate risks and avoid unnecessary costs.
ReplyDeleteIn order to address these issues, the consulting firm suggested a self-assessment scorecard, guided by the following principles:-
1. Assess the people of end-of-life management. Organizations should assign ownership and accountability of end-of-life management to an individual or group that has executive sponsorship with clear business objectives.
2. Assess the process of end-of-life management. Organizations should optimize processes associated with end-of-life management, ranging from the identification of assets to determining final disposition and everything else in between.
3. Assess the technology of end-of-life management. Organizations should automate processes, reporting, and integration with providers of end-of-life management services.
4. Assess the providers of end-of-life management services. Organizations should evaluate providers of end-of-life management services, using both general criteria, such as data security and environmental certifications, supplier stability, and geographic presence, and the activities performed, such as data erasure, pickup, and transport, and the ability to recycle and remarket.
The 2010 Forrester Study commissioned by Cisco was aimed at assisting European organizations reduce costs and mitigate risks by improving their maturity levels on their end-of-life IT asset management processes. It was noted in the Study that under the IT Asset Life-cycle Management (ITALM), it is the end of life management which is the least important, least mature and also lags in the use of technology and green IT policies.
ReplyDeleteThe key findings show that the low level of maturity of end-of-life management processes in Europe is a financial, regulatory and brand reputation liability. European organizations cited operating costs, data security, regulations and business continuity as major concerns when managing end-of life IT assets. The Study also cited that timing, cause and final disposition of end-of –life IT assets vary by IT asset category. And that while internal ownership of end-of-life management process is strong, accountability and responsibility of end-of –life management vary by job type. Lastly, European organizations rely heavily on providers of end-of life services.
However, recent drivers - from increasing data security, environmental regulations, opportunity to reduced cost and improve operational performance are challenging European organizations to rethink their current practices.
The identified important justifications to improving end-of life are also the companies’ chief concerns in end-of life management- compliance to environmental regulations, improving green IT practices and avoiding negative brand reputations.
To develop a plan for improvement, Forrester developed self-assessment scorecards to help IT professionals and their stakeholders. This includes the assessment of four key variables of the end-of-life management:
- People (assignment of ownership and accountability who has executive sponsorship with clear business objectives)
- Process (optimization of processes associated with end of life, from identification of assets to its final disposition)
- Technology (automation of processes, reporting and integration with providers of end –of life- management services)
- Providers (evaluation of providers of end-of-life management services, using general and specific criteria)
It was clearly noted in the Study that organizations cannot be fully successful in their ITALM if they don’t have mature end-of live management processes. Thus, by employing end-of-life management processes, organizations can overcome their chief concerns and deliver cost reduction, risk mitigation and resiliency benefits.
Clearly there is value in having a mature end-to-end ITALM. Given my experience in IT governance in the public sector, and while there are efforts to standardize asset management, I would surmise that many Philippine private and public organizations would have low maturity levels on the entire ITALM, and much lower levels of maturity on the end-of life IT asset management.
Do you agree? And if yes, how do you think we can improve this scenario?
The article is presented well although many of the steps are not really new. Management accounting has plenty to say on the matter of outsourcing, particularly on a number of steps put across by the author.
ReplyDeleteAlfonsi mentioned Niccolls' report that about half of all outsourcing agreement fail because of inadequate planning and analysis. I fully agree to this. Planning is the first management function because the success of everything that follows hinges on proper planning. All of us are aware of the four basic management functions of planning, organizing, leading, and controlling (POLC). The 12 steps enumerated in the article can appropriately be spread out among the four functions. The suggested steps are beneficial not only in the case of outsourcing but any activity that entails cost (or investment). The age-old dual business objectives of minimizing costs (or expenses) and maximizing revenues (or income) cut across all business firms regardless of size, ownership and nature of business activity.
Planning is imperative as it is the all-encompassing initial step from which all the other steps enumerated proceed. The questions that follow can serve as preliminary guides when somebody has to present an outsourcing case.
1. Are there immediate opportunities for outsourcing?
2. Where or what part of the business needs outsourcing? Is it about human resource?
Raw materials procurement? Sales agents? Accounting-related operations? etc.
3. What qualitative factors does the presentor have to take into account? Business culture?
Global business trends? Business orientation of the COO or CEO? etc.
Once these preliminaries are sufficiently addressed, the 12 steps may then come into play. Of the 12 steps, I would go first for quantitative data--the cost involved--as this has direct impact on the firm's bottomline; afterwhich I will consider other quantifiable details. This is a combination of Steps 6 and 3, in that order, and I will call this the CORE of my presentation. Putting flesh to the core will the rest of the steps but I will leave out Step 7 because this speaks of the possibility of maintaining the "status quo". After all, the CEO may say, "Is it worth rocking the boat at this time?"
If you as the presentor can convince the CEO that IT IS WORTH ROCKING THE BOAT, then I would say congratulations for a job well done!