Global Strategic Sourcing

Session 2: IT Sourcing Processes and sourcing pyramid

Anveshika Shrivastava 20th November , 2011

Symbiosis Centre for Information Technology

1

GSS

Session Agenda
Strategic IT Sourcing Process Sourcing Pyramid Quality Standards and metrics in sourcing Concept of Outsourcing Threshold

GSS

Recap?

GSS

Recap from last session

Definition:  Strategic Sourcing  Strategic IT Sourcing Concepts of Strategic sourcing Need for Strategic IT sourcing Types of IT sourcing Typical Supplier Structure for a global organization. IT Sourcing Framework Types of suppliers IT Sourcing Process High Level

GSS

Strategic IT Sourcing Process

High Level

IT Sourcing Strategy Formulation

Developing a Sourcing Ecology

Monitoring IT Sourcing

Sustaining the sourcing ecology

Strategic IT Sourcing Process - IT Sourcing Strategy Formulation

Input: Triggered as per defined IT Strategy /Roadmaps /Organizational Stimuli Organizational Assessment  Business Need Assessment  ROI / Business Case Development and formalization  Researching solution domains and recent trends  IT Sourcing Process Formalization
Sourcing classes : IT Services / Hardware etc Sourcing Roles: Procurement Officers / Project leads Sourcing Modes: RFI/RFP/RFQ based procurement Sourcing Process tasks/steps : RFP Process: Budgetary Approvals to SoW Review and approval of sourcing process and internalization

GSS

 Risk Assessment :
In house: Risks associated with Build or internal sourcing External : Risks associated with buying (For e.g. exposing core competency to external service provider)

Output: Procurement brief / RFP

GSS

Strategic IT Sourcing Process - Developing a Sourcing Ecology

Input : Procurement brief / RFP Building a consideration Set : Prospective Suppliers  Short listing suppliers who would respond to the RFP Product/Supplier Evaluation  Conversion of needs into solution/supplier evaluation parameters  Supplier/Product Evaluation Matrix Development : With weightings and evaluation scale  Multiple Intensities of evaluation:
Consulting Vendor based evaluation RFI based evaluation POC/Pilot (Paid) based evaluation

Selection of the final Supplier/product/service/procurement items : based on aggregated scores from various levels of assessment. Output: Selection of Suppliers across categories - with best fitment to organizational needs.

GSS

Strategic IT Sourcing Process - Sustaining the sourcing ecology

Input : Selection of Suppliers across categories - with best fitment to organizational needs. Negotiations : Planned Negotiations for terms of the alliance , special terms, institutionalized discounts, special rates. Relationship Development :  Drawing MSAs / NDAs
Drafting rules of engagement IP Protection Measures Finalizing :
Billing rates by roles, roles definition , T&E Cost

Quality Controls  Setting acceptance criteria for rendered services /solutions  Setting KPIs w.r.t. alliance development  Penalty provisions : For non compliance to SLAs Governance  Identifying key roles (supplier )
Setting an alliance management team , client partner Protocols definition

Output : MSA / Quality Controls / Alliance Governance Teams

8

GSS

Strategic IT Sourcing Process - Monitoring IT Sourcing

Input : MSA / Quality Controls / Alliance Governance Teams Auditing supplier relationships  Conducted on annual /Quarterly basis  Assesses supplier s commitment and performance in assigned projects Metrics report  Project SLA Adherence  KPI : Key Alliance Performance Metrics
Escalations, meeting defined business targets and schedule Quality of resources Best practices generated

Replacement / Changes  Based on unsatisfactory performance  Not meeting organizational SLAs w.r.t. Key Alliance Performance Metrics  Shift in organizational direction: Inability for the vendor to meet the changing demands. Output : Stimuli to the organization

GSS

Sourcing Pyramid and supplier types

Consulting Service Providers

Strategy Formulation

Hardware /Infrastructure Suppliers

Product Sourcing

Optimizing Operations Sustaining Operations

Organizational Process Providers IT Skill / Human Resource Sourcing

IT service Sourcing

Professional Services

IT Service Provider for steady state operations: AVM , Support 10

GSS

Processes : Strategy Formulation: IP Sourcing

Procurement Items Examples : Products / Vendors Organizational Consumers Unit of Price

Syndicated Research, Analyst reports , Taxonomy Reports from analysts such as Gartner, Forrester. Knowledge workers, CXO level leadership IP Unit specific (For e.g. report specific price) Syndication (duration based) Restriction : Usage and distribution

11

Processes : Strategy Formulation: Consulting Service Providers

Procurement Items Examples : Products / Vendors Organizational Consumers Unit of Price Information Architecture, Assessment, Advisory Services (Roadmap creation), Product Evaluation etc Accenture, Fujitsu etc

GSS

CXO level leadership, Project Stakeholders, Strategic Input Deliverable based / T&M / Fixed Bid (FB) Milestone specific

12

GSS

Processes : Strategy Formulation: New product partnerships / Technology Partners

Procurement Items Examples : Products / Vendors Organizational Consumers Unit of Price New Alliances, Technology Partnerships Huwaei / Idea , Gold /Silver level partner programs offered by product vendors to S.I. s. R&D , Sales , Product Competencies (System Integrators) Construction Cost / Unit Alliance Development Costs

13

Processes : Strategy Formulation: Strategic IT Service Providers

Procurement Items Examples : Products / Vendors Organizational Consumers Unit of Price CoE , Offshore ODC Any large Indian Tier 1 System Integrator

GSS

Large scale Organization Wide , Intra departmental consumption Deliverable based / T&M / Fixed Bid (FB) Milestone specific

14

Processes : Optimizing Operations : IT service Sourcing

Procurement Items Examples : Products / Vendors Organizational Consumers Unit of Price IT Skilled Architects, Business analysts etc Any large Indian Tier 1 System Integrator

GSS

Organizational Projects T&M / Fixed Bid (FB) Milestone specific

15

Processes : Optimizing Operations : Professional Services

Procurement Items Examples : Products / Vendors Organizational Consumers IT Training Specialists , Ergonomic specialists , test subjects etc Vocus

GSS

Human Resource Department, New Product Development Marketing Administrative Development T&M , Deliverable/Design specific, Workshop specific

Unit of Price

16

Processes : Optimizing Operations : Product Sourcing

Procurement Items Examples : Products / Vendors Organizational Consumers Unit of Price Software Licenses OT - OCC

GSS

Business Functions, Projects Per license cost Consumption based cost (for e.g. imaging licenses )

17

Processes : Optimizing Operations : Hardware /Infrastructure Suppliers

Procurement Items Examples : Products / Vendors Organizational Consumers Unit of Price Hardware Items (Servers / Mainframes / Desktops / Printers etc) Canon

GSS

IT Infrastructure Departments / IT Services Department Unit / Based (Warranty Inclusion etc)

18

Processes : Sustaining Operations : Organizational Process Providers

Procurement Items Examples : Products / Vendors Organizational Consumers Unit of Price Voice services / Knowledge Services KPO / BPO services

GSS

Designated Departments / End Users On the basis of contract / calls

19

Processes : Sustaining Operations : IT Skill / Human Resource Sourcing

Procurement Items Examples : Products / Vendors Organizational Consumers Unit of Price Skilled IT workers IT Staffing solution providers Internal Referrals Recruiting functions / HR department of organizations Profiles / Level based (After completion of certain duration of employment)

GSS

20

GSS Processes : Sustaining Operations : IT Service Provider for steady state operations: AVM , Support

Procurement Items

Support / FTE deployed across shift models Bucket of hours per month / year focused towards L3 Any System Integrators

Examples : Products / Vendors Organizational Consumers Unit of Price

IT Development / Support services / End users / Fixed Bid YoY Quotes

21

GSS

Quality Standards and metrics in sourcing

Vendor Profile  Credentials: Ability to deliver , Financials , Market presence  Key Alliance Performance Metrics
Escalations, meeting defined business targets and schedule Quality of resources Best practices generated

Product Specific:  Product Direction  Technological Standards : Architecture, Integration, Compatibilities  Feature specific standards : OOTB Features Configured Software specific
Application Architecture Practices Coding Practices Application Complexity Documentation Portability Technical & Functional Volume

Commercial  Terms and conditions etc

22

GSS

IT Sourcing Framework - Recap

Explorative IT Sourcing
(Optimization of Processes , Competitive Edge, Growth ) Focus: To explore new areas of optimization New markets Limited in house expertise : For e.g. Social Media/Cloud based Marketing Strategy Needs high intensity supplier evaluation, as not a core business. Calculated risks

Strategic IT Sourcing
Multiyear , Multimillion dollar investments for sustaining competitive edge , expanding market footprint . As part of organizational IT strategy or to sustain changes in business direction Pursued through partnership based models such as Shared Services model / Managed Services Model To spread risk and to have greater ability to execute

Organizational Impact

High

Ad-Hoc IT Sourcing
L3 Support / Enhancement Minor adjustment / developments Preferred Supplier List Mail Order / Virtual Suppliers Sourcing Irritants Focus : to save time. To be dispensed to concentrate on more important sourcing operations.

Transactional IT sourcing
Transactional processes / functional i.e. Payroll / Entry/Mid Level IT Recruitment Focus: to save money , resources Significant out sourcing Almost all standard , medium severity support processes.

Low

Low

High

Commitment of Resources
( Investment , FTE, Time )
23

GSS

Concept of Outsourcing Threshold

Outsourcing threshold is a conceptual state of a work package , when it can be effectively and profitably outsourced. Work package : Collection of organizational functions and processes
Process is Outsourced, leading to Cost advantages Productivity improvements through enhancements

Commitment of Resources

Process is Standardized , repetitive Demand grows exponentially , Does not justify investment Saps more human intervention Cant be fully automated

Evolves into a resource consuming transactional process Evolution of a work package

Work package grows in terms of automation , usage

Outsourced to optimize resource utilization

Outsourcing threshold

Genesis of a work package

Recognized as an organizational necessity

Maturity of a work package

24

GSS

Example of Outsourcing Threshold

Commitment of Resources

Process is Standardized , repetitive Consumes HRs time , which is to be used to Industrial relations Not a core function

Process is Outsourced, leading to Cost advantages Stable consumption of clients resources (limited to profile briefings and final recruitment)

IT Recruitment department grows. IT Recruitment facilitated by systems such as referrals , portals etc IT Recruitment process begins
As processes are automated, need for IT resources grows. Process moves towards standardization.

Outsourced to specialist IT Recruitment firms

Outsourcing threshold

One of the functions of a HR department for a manufacturing firm, taken by an individual

Maturity of a work package

25

Group Activity # 2 (20/11/2011) : Topic Fall of Iridium Back ground

GSS

Company back ground :  Created by Motorola.  Built first affordable car radios in the 1930s and robust army walky-talkies  In 1987 , to counter limited coverage of then analog cell phones, 3 engineers conceptualized an orbital coverage of 66 Low Earth orbit (LEO) satellites to provide planet wide line of sight , global mobile coverage.  Competition then: Agency which had a handful of Geo sat satellites at 36 k large handsets and 0.25 second delays. Iridium Program : beginnings  Target market: Explorers , jet set executives , government agencies  Challenges:
Launching 66 satellites Switching Softwares : Due to high orbital speed of LEO sats Connections to terrestrial telephone networks , gateways

 After initial skepticism, the project was approved. Initial project cost estimates: 5 billion USD.  In 1991, Motorola carved out Iridium LLC, as holding entity.  Motorola helped in Satellite design , launch, system oeprations and maintenance.  Motorola retained involvement and financial stake in the project to have a pie 26 in projected financial success.

GSS

Fall of Iridium

How it transpired

Vision: To constantly innovate, develop technological alliances to boost competitive edge and to create a market dominance. IRIDIUM LLC s initiation  Iridium IPO : 20 USD per share June 1997  Stock rocketed to 72 USD per share April 1998  Total market cap as of December, 98: USD 6 billion approximately. Project beginnings  Flawless launch of all 66 satellites to LEO  Global cell phone telephone services in November December, 1998
7 years after carved out of Motorola

Problems  1.4 Kg handset @ USD 2.9-3 K  Call charges USD 6 (Approx) per minute  Line of sight (outdoor) connections - Good for explorers but not for executives  Primary customer segment increasingly switched to email / cell phones (with inter service provider roaming) less expensive and more convenient. The END: August 1999 Defaulted on 1.5 billion USD loan and on August 12, 1999, filed for Chapter 11 bankruptcy plea.
27

GSS

Fall of Iridium

Aftermath

Technological Prowess  Cutting edge technology developed

Hardware /Software rerouting/switching telephone calls through the sat constellation and terrestrial networks Managed interdependencies between programs and vendors successfully. Were on schedule and within the budget.

Team s dedication: Long hours were put in Vicious Circle: Commitment trap  Motorola s interest
Limited / minimal technology partnerships with emerging technology players

 Political Implications  Known issues with technology and the market.  Weak retail chain and customer services

28

GSS

GSS

GA - 2 (20/11/2011) : Topic

From an IT/Technology Sourcing perspective, analyze the gaps in sourcing strategy at Iridium. Recommend a sourcing strategy , you would you have recommended for Iridium, to salvage the situation, prior to its bankruptcy? What kind of out sourcing thresholds , you foresee w.r.t. Iridium functions?

Direction: Discuss in your groups and prepare/make a presentation highlighting points above. Total Duration for internal discussion: 10 minutes Duration for presentation: 10 minutes + 5 minutes for Q&A All team members should participate in the presentation. Q& A : handled by the entire group

29

GSS

No individual assignment for today!

30

GSS

End of GSS S2

31