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8/2/2019 1.Operations in Global Business Strategy & Global Sourcing-36
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Operations in Global Business
Strategy & Outsourcing
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Strategic changes required by
Globalisation
• Companies need to compete in several
dimensions
• More opportunities in multiple countries
• Adapt & Integrate their networks of
international operations to create greater
value.
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Major Strategic actions in global operations & strategy
Actions-Multinational Actions-Global Sources of competitive
advantage
Improving performance in
response to competition
Stimulus for improvement
Sourcing sophisticated products
and services
Specialized knowledge and
local experience
Sourcing Commodities Sourcing Commodities Specialized natural and laborresources
Supply from many operations
local to customers
Supply from many operations
local to customers
Scope and proximity
Supply from concentrated
locations distant from
customer
Supply from concentrated
locations distant from customer
Scale and scope economies
N/w Supplying customers Synergies through network for
learning
International pricing and entry in
response to competition
Strategic response to
competition
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Typical Configuration Patterns for IB:
Simple
global
exports
Single one country
International sourcing
Customers
Suppliers
Geographically
dispersed
Geographically
concentrated
Multinational
Geographically
concentrated
Geographically
dispersed
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Configuration and coordination
HQ
LocalOperation
Customers
Flow and influence of
resources
Flow of knowledgeFlow of product
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Global Sourcing
– It is the practice of sourcing from the global
market for goods and services across geopolitical
boundaries.
– It often aims to exploit global efficiencies in thedelivery of a product or service.
– These efficiencies include low cost skilled labor,
low cost raw material and other economic factors
like tax breaks and low trade tariffs.
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Advantages & Disadvantages of Global Sourcing:
Advantages of global sourcing, beyond low cost, include:
• Learning how to do business in a potential market.
• Tapping into skills or resources unavailable domestically.
• Developing alternate supplier/vendor sources to stimulate competition,and increasing total supply capacity.
Disadvantages of global sourcing can include:
• Hidden costs associated with different cultures and time zones.
• Exposure to financial and political risks in countries with (often) emergingeconomies.
• Increased risk of the loss of intellectual property, and increasedmonitoring costs relative to domestic supply.
• For manufactured goods, some key disadvantages include long lead times,the risk of port shutdowns interrupting supply, and the difficulty of monitoring product quality.
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New at Hyde Tools: global sourcing strategyhttp://www.homechannelnews.com/story.aspx?id=159091&menuid=267
• (Dec. 9) Southbridge, Mass.-based Hyde Tools said its pursuit of "right priced, quality, stainless
steel products" has led it to partnerships with product development firm Proteus Design and twoChinese manufacturers. The announcement came as Hyde Tools, which has in the past promoteditself as a "Made in the USA" leader of surface preparation tools, is introducing three new lines ofputty knives and scrapers: "Pro Stainless," "Pro Project" and "Value Series."
• "Everyone knows in order to supply these price points to meet the profit demands of our partners,we must product at the best costs available in the global marketplace," wrote Corey Talbot, VP ofmarketing and product development, in a letter
• Hyde has entered into two joint product development agreements and manufacturing contractswith two Chinese manufacturers. The company described each as having more than 20 yearsexperience in tool production. Proteus Design has worked in product development with clientsincluding 3M, Gillette and Kohler.
• Talbot described the move as part of a new chapter for Hyde, in which it will strive to be "TotalCategory Leader" -- which Hyde believes it has achieved to a large extent. The company's newbrochure for the its new lines of scrapers: "New tools, and better margins for our retail partners."
• The company also shared research on the putty knife and scraper market. It estimates the NorthAmerican market for this product category is about 28.8 million units sold per year. The company'sresearch also shows the vast majority (89%) of professional users are willing to pay more for astainless steel putty knife or scraper than for a standard carbon putty knife.
• According to a Hyde spokeswoman, the company continues to manufacturer a significant amountof products in the United States. For instance, their Black & Silver line of tools are made inSouthbridge, US. But, like most manufacturers, it has been sourcing globally for years. The
company hasn't promoted itself as exclusively "made in America" in about 10 years.
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Global Delivery Model
•Global Delivery Model involves the deployment of resources
from different parts of the world to provide maximally efficient
service delivery.
•Global Delivery Model involves having the right volume of
skills and the right skills mix in the right place at the right time
and the right price point.
•Global Delivery Model gives the advantage of delivery centers
located around the globe as well as a team working close to the
business using consistent processes.
•Most businesses have now come to expect Global Delivery to be
an integral component of the solution offered by the service
provider.
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Evolution of the Global Delivery Model
Simplification Standardization Shared
ServicesOutsourcing Offshore
<--------------Act Local-----------> <-------------Act Regional---------->
Maximum
L e v e l o f B e n e f i t
Minimum
GLOBAL
REGIONAL
LOCAL
What improvements
can be made by
implementing localbest practice?
Can benefits of
standardization
acrossbusinesses and
geography be
achieved?
Can shared service
economies
of scale becaptured?
Is outsourcing
feasible,
beneficial and
outweighs
additional risk?
Source from
offshore
location-
(captive or
vendor)
Global Delivery
Source from
multiple
locations/vendors
across the globe
<-------------Act Global---------->
11
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Drivers for Global DeliveryAdoption of the Global Delivery Model creates competitive advantages that enables businesses to
fundamentally manage cost, improve services/quality, increase flexibility, access to high skilled
labor, focus on core competencies and react quickly to market change.
Manage
Cost
Improve
Service/
Quality
Increase
Flexibility
/Agility
Capture, Guarantee and Accelerate Savings
Transfer to Variable Cost Structure
Upgrade and Refocus Skills
Access to High Talent Resource Needs
Fix Operational Service ProblemsTransfer Risk to Provider
Access To Best of Breed
Access to
High-
Skilled
Labor
Slide 12
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Benefits of Global Service Delivery:
• Reduced cost of ownership
• Ready availability of resources & flexibility of
deployment
• Risk minimization for critical operations
• Improved time to market
•
World class quality leveraged
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Global Delivery Vendor Landscape North American & European Vendors are expanding their near shore and offshore presence, while Asia based
vendors are increasing their onshore and near shore presence
Established
Emerging
Shifting
Mexico
Ireland
India
Philippines
China
Jamaica
Brazil
Costa Rica
South Africa
Eastern Europe
Canada
Argentina
U.S.A
14
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Offshoring
• Offshoring is defined as the movement of a
business process done at a company in one
country to the same or another company in
another, different country
• A company moving an internal business unit
from one country to another would be
offshoring or physical restructuring, but not
outsourcing.
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Outsourcing
16
Outsourcing denotes the continuous
procurement of services from a third party,making use of highly integrated processes,
organization models and information systems.
OUTSOURCERCOMPANYServices
Organization
Level
Agreement
Service
Level
Agreement
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Why do outsourcing?
• Access best in class
business processes
• Harness leading
technologies
• Increase efficiencies• Enhance capabilities
• Expand service
• Free up management time
• Decrease operating costs
Acquire new skill Acquire Better mgt
Focus on Strategy
Focus on core function
Avoid major investments
Assist a fast growth situation
Handle overflow situation
Improve flexibility
Enhance credibility
Jump on Bandwagon
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Objectives
18
• Ensure highest level of productivity for
the corporation
•Bring greatest value to the end consumer
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On the origins of Outsourcing
19
• 1776 Adam Smith's Wealth of Nations propagatescompetitive advantage through outsourcing.Term "outsourcing" itself was not in use.
•
18th and 19th centuries : floating factory ships,the concept of "offshore manufacturing gets aboost Early
• 20th century Companies like Ford Motors own
everything, even forests to make rubber for cartyres! General Motors runs a 2000 people HR andtravel desk to cater to its employee needs
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On the origins of Outsourcing….
20
1940s ADP(Automatic Data Processing) Inc starts withhandling payroll outside companies. Today the $8billion, 41000 employee payroll expert handles payrollsfor one in six US workers and recently opened office in
India. 1960s Hundreds of call centers spring up in the US and
UK. Convergys, the largest call centre company startedas a captive unit of Cincinnati Bell. Hived off in the late1990s.
1970 s US companies from oil majors, telecomoperators, pharmacy firms to FMCG firms outsourcecustomer care, telemarketing, payroll and otherfunctions.
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On the origins of Outsourcing…
21
1980- 1990 US and European companies startshifting work to Ireland, Israel and Canada. Irelandparticularly benefits as costs are lower and it offersmulti language capability. At their peak the over 100
call centers in Ireland employ over 300,000 staff 1990-1999 C. K. Prahalad's core competency theory
expounded in a Harvard Business School paper. Thebasic lessons of the theory - identify your corecompetencies, focus on them and get out of
everything else. American Express, Swissair, BritishAirways and General Electric(GE) start captive unitsin India.
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On the origins of Outsourcing….
22
1999 The New Telecom Policy of 1999 ended the statemonopoly on international calling facilities. Thoughoutsourcing of business processes like data processing,billing, and customer support began towards the end of
the 1990s when MNCs established wholly ownedsubsidiaries.
2000 Third Party players spring up in India. By 2005end, over 300 open shop in India and beyond. Some of
them even set up operations outside. About 45 globaldestinations BPOs bandwagon and are now competingto get a slice of the annual $300 billion outsourcing pie.
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Types of Outsourcing
23
Business
processes
Application Development
and Maintenance
IT-infrastructure
BPO: Business Process Outsourcing
ASP: Application Service Provider
DBRO: Design, Build, Run & Operate
ADM: Application Develop. & Maintenance
ITO: IT Infrastructure & service
hosting Outsourcing
Administrative
processesAPO: Administrative Process Outsourcing
Outsourcing models:
BPO
AMO
SDO
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24
Business Process Outsourcing (BPO)
The delegation of a significant portion of a company’s back office and technology-enabled operations. BPO is often an updated, re-
incarnation of business process reengineering.
Application Development & Maintenance Outsourcing (ADM)The delegation of a significant portion of a company’s Application
Development and Maintenance work
Information Technology Outsourcing (ITO)The delegation of a significant portion of a company’s IT operations
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BPO –Levels
25
Degree of industrialization
medium highlow
Customized Industrialized
Single service deliveredto multiple clients
simultaneously-
payments processors
such as First Data.
Similar servicesdelivered to multiple
clients -payroll
providers such as ADP
and Paychex; Navitaire
Custom designedservices leveraging
know-how but little
else- traditional
outsourcers such as
IBM
One-to-one One-to-many
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AMO
26
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• Accenture provides a flexible spectrum of services and arrangements…fromsimple to complete end-to-end IT responsibility…and from immediate to well intothe future.
• Starting with a standard approach, we build on the basics and structure our
projects to achieve specific business results for our clients, carefully consideringtheir size and complexity.
• the extent of our collaboration through two dimensions:
1: Scope of Services
Companies can select basic application management services (such as break/fixsupport) or broaden the responsibility to include application enhancements,
upgrades or comprehensive application development. Over the course of time,Accenture will adjust service levels to meet the client’s changing business needs.
2: Breadth of Applications
Outsourcing arrangements can specify a single critical application, a group of relatedapplications, or an entire portfolio of software applications. Accenture willmanage custom or packaged software, including enterprise solutions such as SAP,Oracle, PeopleSoft and Siebel.
• Accenture’s Application Outsourcing services are tailored to our client’s needs.Our flexibility is demonstrated by the fact that we manage hundreds of arrangements that involve less than 100 people…and many with more than 1,000people.
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SDO – Service Delivery Outsourcing
28
• Security- End-to-end security services including
firewall management, intrusiondetection, identity management andsecurity policy
• Data Centers- Remote and on-site managed server
hosting- Data centers
• Technical Support- Help desk, desk-side and self-service
support- Global hubs
• Network Services- Managing data and voice networks
• Desktop Management and Mobility- PC, laptop, hand-held, distributed
• Supplier Management- Identifying, qualifying, contracting and
managing strategic suppliers
Services
Data
Centers
Desktop
Mgmt.
&
Mobility
Technical
Support
Network
Services
Security Supplier
Mgmt.
Client Operations Management
Messaging & Collaboration
Technical Support
Desktop Management & Mobility
Network Management
Hosting
Sales Support and Mobilization
Security Operations
Delivery
capabilities
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Sourcing of Outsourcing
29
• Off-Site –Local service providers
•
Near Shore –Proximity cross-border serviceproviders
• Off-Shore – Remote Cross-border service
providers
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RUNNING OUTSOURCING Framework
30
Delivery Model is based on several key
components
• Common objectives & goals
• End-to-End governance structure
• Multi-level team organisation
• Leveraged core competencies and
skills
• Formalised SLAs, OLAs,
• Forum for engaging multiple sources
in the key processes of
communication, coordination and
integration
• Optimize global resources
• Encourage collaborative working
• Leverage technology to enable
business strategy
• Establishes a single point of
responsibility for entire relationship.
Key Principles
ClientOutsourcing
companySkill Pool Technical Support + …
OFF-SHORE
NEAR-SHORE
LOCAL
P r o j e c t s R e p o r t i n g & S t a t u s T r a c k i n g
Common Objectives & Goals
M e t h o d s , S t
a n d a r d s , a n d T o o l s
C o m m o n P r o c e s s e s
C o n t r a c t
Governance
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Verticals in India
31
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Levels of Outsourcing:
Tactical, Strategic & Transformational
32
Tactical Outsourcing:
– Specific problem of firm
– Troubles like : lack of finances, inadequate internalmanagerial competencies, talent crunch, desire toreduce headcount
– Done for corporate restructuring
– Benefits: Generate immediate cost savings, eliminateneed for future investments, realize cash infusionfrom sale of assets, relieve burden of staffing
– The prime focus is constructing the “Right Contract”with the vendor or service provider.
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Strategic Outsourcing
33
• Building long term values
• Get the job done in a strategic model
• Managerial mindset matured for relationships
• From buyer & supplier to business partners
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Transformational outsourcing
34
• 3rd generation outsourcing
• This 3rd Stage uses outsourcing for redefining the
business
• To survive economically today, Organizations
must transform themselves and their markets to
redefine the business world before it redefines
them.• Its real power lies in the innovations that outside
specialist bring to customer ‘s business
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Transformational vs Traditional
35
• Business focus• Centered on creating value
• Assist in managing uncertainty
• Harmonize with strategic goal
• Based on fashioning a network
of partnership in the
connected global economy
• Business cost and
reengineering facilitate
perpetual value creation
• Operational focus• Centered on cutting cost
• Assist in establishing control
• Aligns with basically
unchanged business process
• Based on external specialists
realizing higher performance
for the client than internal non
specialist resource
• Remove noncore functions
from the business to provide a
one time discharge of capital