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Managing Outsourcing for Sustainable Value-Addressing the Missing Pieces of the Puzzle
• Chief Executive, Business Catalyst International
• Chairman, International Association of
Outsourcing Professionals, Australia
• Member of IAOP Research Committee
This presentation is in 5 parts…This presentation is in 5 parts…
Q & A - Discussion
Achieving Sustainable ValueBy Addressing the Missing Pieces
The Missing Pieces of The Puzzle
Don’t Change The Game, Fix It
The Maturing Outsourcing Framework
This presentation is in 5 parts…This presentation is in 5 parts…
Q & A - Discussion
Achieving Sustainable ValueBy Addressing the Missing Pieces
The Missing Pieces of The Puzzle
Don’t Change The Game, Fix It
The Maturing Outsourcing Framework
Where We’ve Been…Where We’ve Been…
• Complex contracts - Financial engineering
- Asset transfer - Wholesale staff transfer - Large transition cost
• Bundled service offering – opaque economics
• Single vendor or prime vendor
• Long term contracts: 7 to 10 years with some as long as 15 to 20 years
• Commodity Sourcing – low bidder wins?
• Great honeymoon, lousy marriage
• Lost control and flexibility
• Benefits and value escape
• 50% restructure contract
• 30% missed expectations
Traditional Outsourcing Model
Results
Headlines from Previous World Outsourcing Summits…
Headlines from Previous World Outsourcing Summits…
• The traditional legacy outsourcing model failed to deliver sustainable value and has been problematic
Fantasyland benefits for many have not materialized
This presentation is in 5 parts…This presentation is in 5 parts…
Q & A - Discussion
Achieving Sustainable ValueBy Addressing the Missing Pieces
The Missing Pieces of the Puzzle
Don’t Change The Game, Fix It
The Maturing Outsourcing Framework
Key Elements of The Maturing Outsourcing
Management Framework Key Elements of The Maturing Outsourcing
Management Framework
Relationship ManagementContract Management
Governance
Change Management
Service Delivery/Account Management
Performance Management
Commercial Mgt
• Expectation Gaps
• Issue Management
• Blame Game
• Questionable Value
Soundness of the Commercial Deal is Soundness of the Commercial Deal is Fundamental to Success…Fundamental to Success…
Soundness of the Commercial Deal is Soundness of the Commercial Deal is Fundamental to Success…Fundamental to Success…
Proper Due DiligenceProper Due Diligence – deals awarded – deals awarded on sales presentation rather than provider hard on sales presentation rather than provider hard
evaluation…evaluation…
BHP Billiton’s decision to Cancel a large contract
soon after awarding
The Deal is Done, the Delivery Team Struggles…
The Deal is Done, the Delivery Team Struggles…
•Contract
•Value
•Miracles
•Profit
•Client Satisfaction
•Bonus?
Good people start to leave and the vicious cycle starts…
Soundness of the Commercial DealSoundness of the Commercial DealDevelop your own business case independently Develop your own business case independently
before starting the biding processbefore starting the biding process
Soundness of the Commercial DealSoundness of the Commercial DealDevelop your own business case independently Develop your own business case independently
before starting the biding processbefore starting the biding process
Undertake in-depth Undertake in-depth financial analysis of the financial analysis of the deal to assess whether deal to assess whether
business case is realisticbusiness case is realistic
“ “ No one delivers No one delivers outstandingoutstanding value to value to
clients to clients to make a lossmake a loss for for their own business”their own business”
The Fairfax
Case study
The Outsourcing Value Debate DemystifiedThe Outsourcing Value Debate Demystified
LO
Value
Cost
HI
HI
LO
Improvem
ent
Achieved
Outcome Achieved Through Outsourcing
In-house
Outsourcing Promised Target
Expectation Gap destroys the recognition of the value gained / improvement achieved
Expectation Expectation
GapGap
While expectations have not been met,
much real value has been delivered
Former CEO Commonwealth Bank of Australia
“We are a thousand times better off than our previous
in-house function
But……..”
Better Off…Better Off…
So we are better off in most cases…but
nowhere near optimal…
This presentation is in 5 parts…This presentation is in 5 parts…
Q & A - Discussion
Achieving Sustainable ValueBy Addressing the Missing Pieces
The Missing Pieces Of The Puzzle
Don’t Change the Game, Fix It
The Maturing Outsourcing Framework
The Missing Pieces of the Puzzle
Managing Outsourcing For Sustainable Value
The Missing Pieces…The Missing Pieces…
Power of Alignment Not Fully Harnessed in Outsourcing
Power of Alignment Not Fully Harnessed in Outsourcing
Company 1
Company 2
Only through alignment can you achieve long term success
Traditionally alignment has not been achieved in most outsourced operations
AlignmentStrategy
People
CustomersProcess
100 -
80 -
60 -
40 -
20 -
Gap Analysis
0 : No Gap
100 : Maximum Gap
This presentation is in 5 parts…This presentation is in 5 parts…
Q & A - Discussion
Achieving Sustainable Value By Addressing the Missing Pieces
The Missing Pieces of The Puzzle
Don’t Change The Game, Fix It
The Maturing Outsourcing Framework
Lateral LeadershipLateral Leadership
• Ability to think strategically
• Deal making
• Govern partnerships
• Change management
… internal and external resources and competencies to
deliver results / outcomes to internal and external customers
Key Attributes of Lateral Leadership Critical for Outsourcing Executives and Managers
Key Attributes of Lateral Leadership Critical for Outsourcing Executives and Managers
Envisioning capabilities
Desire to manage / lead, not to do
Strong communication skills
Strong negotiating skills with a commitment to deliver for all
parties
Project management and multidisciplinary team management
skills
Marketing / selling ideas
Ability to earn cross-functional credibility and trust
Win-win mentality
Integrated Business Planning Integrated Business Planning FrameworkFramework
Integrated Business Planning Integrated Business Planning FrameworkFramework
Outsourcing is often managed as a contract Outsourcing is often managed as a contract management exercise rather than a business management exercise rather than a business
operation(s) requiring unique leadership, operation(s) requiring unique leadership, management focus and processesmanagement focus and processes
The The “Outsourcing Business Plan” is key to “Outsourcing Business Plan” is key to adopting adopting
a true business management approacha true business management approachPURPOSE: Provide means of dealing with the
evolving business needs and expectation management between the provider and the client, at
strategic and operational levels
Outsourcing BusinessOutsourcing BusinessPlan StructurePlan Structure
StrategyStrategy
FinancialFinancialss
OperationsOperations
Human Human resourceresource
CommunicationCommunicationss
Objectives, tactics, targets
Profitability, ROI, savings
Key Projects, timeline, service levels, KPI’s
State of the partnership, HR needs
Means of communicationBell CanadaBell Canada
Create Responsive Business Plans Create Responsive Business Plans
Plans need to Plans need to recogniserecognise both parties both parties need to maintain profitability over need to maintain profitability over the the long termlong term
Align business objectives between parties Align business objectives between parties – integrate these into the strategic – integrate these into the strategic business plansbusiness plans
The client needs to be involved in the The client needs to be involved in the provider’s business planning cycle – input provider’s business planning cycle – input into scope, timing, review processinto scope, timing, review process
Focus the team to pick up change signals Focus the team to pick up change signals early early - revise plans as things change- revise plans as things change
Create Responsive Business Plans Create Responsive Business Plans
Build “improvement initiatives” into Build “improvement initiatives” into planning, ensure customer feedback into planning, ensure customer feedback into planning cycleplanning cycle
Interactive process - as plans change, Interactive process - as plans change, adjust measures and rewardsadjust measures and rewards
The plan is a mechanism to reflect The plan is a mechanism to reflect changes in the business contextchanges in the business context
Ensure performance measures & SLAs Ensure performance measures & SLAs tightly support each other and are tightly support each other and are
linked to business outcomeslinked to business outcomes
The Missing Pieces…The Missing Pieces…
Partnership vs Contractual Partnership vs Contractual RelationshipRelationship
Partnership vs Contractual Partnership vs Contractual RelationshipRelationship
Contractual AgreementA zero-sum game
Contractual AgreementA zero-sum game
ServiceProvider
A B
Partnership vs Contractual RelationshipPartnership vs Contractual Relationship
ServicesServices
Acquisition of servicesAcquisition of services
Provision of services
Provision of services
Client’s Customer Base
PartnershipA non-zero sum game of increasing value
PartnershipA non-zero sum game of increasing value
Partnership
ServicesServices PaymentPayment
PaymentPaymentClient
Both of these are operative at different aspects of an outsourcing relationship
Both of these are operative at different aspects of an outsourcing relationship
ServiceProviderA B
Client
Both of these are operative at different aspects of an outsourcing relationship
Operational / IT StrategiesOperational / IT StrategiesVision - Solution DesignVision - Solution Design
Professional ServicesProfessional ServicesStrategic Advice / InnovationStrategic Advice / Innovation
CIO / One-team Concept
Service DeliveryService Delivery
Projects & End-to-End Projects & End-to-End Service ManagementService Management
Professional ServicesProfessional ServicesManagement PartnershipsManagement Partnerships
Contractual AgreementsContractual AgreementsSLA’sSLA’s
In-house In-house ServicesServices
Third Party Third Party ServicesServices
OutsourcerOutsourcerServicesServices
Managing Outsourcing Integrated Team Approach
CEO & Executives
Business PartnershipBusiness PartnershipRelationship ManagementRelationship Management
ClientClient OutsourcerOutsourcer
CEO & Acct Executives
Strategic Intent & Value Strategic Intent & Value PropositionProposition
Some Practical ExamplesSome Practical Examples
Integrating IT strategy development process with the business planning process in a major Bank- from 2 separate process to one integrated process Achieved competitive edge Business managers engaged in technology decision like never
before – revolutionised the way business thought about IT
Outsourcing Account Executives to be part of the company’s leadership team attending CEO weekly meetings – NZ Energy CEO initiative
The Missing Pieces…The Missing Pieces…
What are the Intangibles that go Missing When You Move to Outsourcing?
What are the Intangibles that go Missing When You Move to Outsourcing?
Business planning participation is significantly reduced – it’s not the same with outsiders
As relationships move from internal to external the collegial team approach is lost
Two separate cultures that need normalisation
Deep business insights are difficult to gain by the service provider
Intangibles still take a lot of organisational time and create hidden costs that are not accounted for, hence not budgeted for in most outsourcing deals
What it Takes to Operate an Optimal Business OperationWhat it Takes to Operate an Optimal Business Operation
The value of intangible activities is greatly underestimated
In-house
Business Unit
Operation
Outsourced
Operation
Tangible & Intangible
Warm & Fuzzy
Business Operations
Model
Very Tangible
Clinical, Service
Delivery Model
Organisational theory will tell you that clinical, cold operations are not conducive to:
Organisational theory will tell you that clinical, cold operations are not conducive to:
Creating value Innovation Bringing out the best in people Teamwork
The impact of the intangibles on the success of outsourcing is great
Outsourcing Can Drive Innovation to an Advanced Level
Outsourcing Can Drive Innovation to an Advanced Level
““No No organisationorganisation on its own can on its own can out–innovate all of its competitors, potential out–innovate all of its competitors, potential
competitors, suppliers, and external knowledge competitors, suppliers, and external knowledge sources”sources”
--Professor James Brian QuinnProfessor James Brian QuinnOutsourcing Innovation – The New Engine of GrowthOutsourcing Innovation – The New Engine of Growth
““No No organisationorganisation on its own can on its own can out–innovate all of its competitors, potential out–innovate all of its competitors, potential
competitors, suppliers, and external knowledge competitors, suppliers, and external knowledge sources”sources”
--Professor James Brian QuinnProfessor James Brian QuinnOutsourcing Innovation – The New Engine of GrowthOutsourcing Innovation – The New Engine of Growth
““In an information intensive business environment, In an information intensive business environment, constant innovation is the only sustainable constant innovation is the only sustainable
competitive advantage.”competitive advantage.”-Michael Corbett-Michael Corbett
““In an information intensive business environment, In an information intensive business environment, constant innovation is the only sustainable constant innovation is the only sustainable
competitive advantage.”competitive advantage.”-Michael Corbett-Michael Corbett
Outsourcing Can Substantially Enhance Your Innovation Capabilities & Outcomes
Outsourcing Can Substantially Enhance Your Innovation Capabilities & Outcomes
Innovation does not happen automatically- outsourcing or not
Need to formalise innovation program and engage your service provider(s)
Invest in the program- create a joint vision and agree on a reward structure with your strategic partners (service providers)
Amazing value is being derived from external partners by innovation-smart organisations
GM Initiative in outsourcing
business support services
Critical Success Factors
Business Case / Rationale Strategy
Vision
Alignment
This presentation is in 5 parts…This presentation is in 5 parts…
Q & A - Discussion
Achieving Sustainable ValueBy Addressing the Missing Pieces
The Missing Pieces of The Puzzle
Don’t Change The Game, Fix It
The Maturing Outsourcing Framework