To reach business partners and customers, every

company had to develop its own communication
infrastructure, a process that led to massive
duplication in infrastructure investment.
The technologies did not interoperate well.
Reliance on proprietary technologies meant that
companies were locked in to specific vendor
technologies.

Companies can share a communication

infrastructure common to all business partners
and customers. Customers and business partners
can interact via common interfaces (usually web
browsers). This seamless interaction dramatically
reduces complexity and confusion.

Because of the open transmission control

protocol/internet protocol (TCP/IP) standard,
communication technologies interoperate well.
Software that bridges systems is simple,
standardized, and inexpensive. In some cases it
can be acquired for free.

Companies are much less locked in to specific

vendor technologies, a fact that creates more
competition among vendors. More competition
leads to lower prices and better-performing
technology.

Purchase
Order
Purchase
Requisition
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Accounts
Payable

Goods Receipt
& Inventory Mgmt.

Schedule/Release

Goods Issue

Order Settlement

Shop Floor

Goods Receipt

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Recruitment
Cost
Planning
&
Reporting

Hiring

Employee Self-Service

Travel Planning
Payroll
Administration

Compensation &
Benefits

Training and
Personnel
Development

Managing Work
Time

Course
Credit

ESSENTIALS OF ENTERPRISE SYSTEMS

AND SUPPLY CHAINS

Incremental Outsourcing
1. Managing the shortage of specialized IT workers
2. Reducing time to market
3. The shift to 24 x 7 operations
4. Favorable cash flow profiles
5. Cost reduction in IT service chains
6. Making applications globally accessible

IT services that are unique to a company and

provide it with significant advantages over
competitors tend not to be outsourced, at least
not to vendors that are trying to sell similar
services to all of their customers.
Such services are so core to a companys business
that an internal capability to manage and extend
them must be maintained.

The exception to this rule arises when companies

find themselves unable to develop a vital
capability internally and must therefore rely on
outsourcing to acquire the capability.
Incremental outsourcing decisions cannot be
taken lightly, because can have serious across the
company implications if there are service
problems.

Selecting Service Partners

1. Descriptive information
2. Financial information
3. Proposed plan for meeting service requirements
4. Mitigation of critical risks
5. Service guarantees
6. Pricing

Relationship Management
1. Relationship with service provider partners require

ongoing attention.
2. Processes must be in place so that partners can share
information and problems in the service chain can be
solved quickly.
3. Procedures and technical interfaces between partner
systems must be properly designed and maintained.

Why companies enter into large-scale

outsourcing relationships?
1. Cost savings
2. Dissatisfaction with existing IT capabilities
3. Desire to focus firm strategy in other areas
4. Forcing major organizational changes
5. Access to skills and talent
6. Other factors

Designing large-scale outsourcing alliances

1. Contract flexibility
2. Standards and control
3. The scope of outsourcing
4. Expected cost savings and rate of technology

renewal and improvement

Managing the alliance

1. The CIO function
2. Performance measurement
3. Relationship interface

1.
2.
3.
4.

Technology problems
Residual process complexity
Local adaptation
Nonstandard data definitions

1.
2.
3.
4.
5.

How are IT investments deployed across

business lines or units?
How are IT assets being used?
Are they being used efficiently?
Are they deployed to maximum business
advantage?
How can we adjust their deployment to create
more value?

What services within our IT infrastructure are

candidates for incremental outsourcing? Are there
opportunities to convert large up-front IT investments
into spread-over-time subscription services?
2. Are our service delivery partners technically and
financially capable of supporting our evolving IT service
needs? Do we have well-define processes for partner
selection to ensure that we will continue to have highly
capable partners?
1.

3.

Do we have detailed service-level agreements in place

with our service providers? Have we made sure that the
SLAs in our service delivery chains interlock and that
incentives are aligned up and down the chain? Do we
have systems in place for virtually integrating with
service delivery partners? Have we specified contract
terms with service providers that preserve our options
for incrementally improving our infrastructure?

Have we retained an internal CIO function to perform

the IT planning and contract monitoring functions that
cannot be delegated? Have we adequately funded and
staffed this internal group?
5. What are our short-term and long-term strategies for
dealing with legacy system issues? What systems
should we replace, and when should we replace them?
4.