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Sourcing
Dr Hugo Velthuijsen, Lector New Business & ICT
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■ Background
■ The Offshoring process
■ Sourcing Strategy
■ Communication
■ The SME Culture
■ Trust
■ Conclusions
Contents
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■ “SHIFT happens”: 3 bn new capatalists
■ New professionals in the BRIC countries:
■ Well educated
■ More eager
■ Much cheaper
■ Impact of Information and Communication Technology
■ Global village
■ Decrease transaction costs → decrease economies of scale
■ Extreme competition
■ Companies need to focus on what they are doing best
■ Everything else should be sourced: role for purchasing!
Global economy
Trends
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■ Sourcing production to China
■ Sourcing ship building to Turkey
■ Sourcing IT development and maintenance to India
■ Sourcing reception desks to Pakistan
■ Sourcing innovation to crowdsourcing communities
■ Sourcing medical diagnostics to the USA
Examples
Sourcing & purchasing
6
Sourcing process
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specificity
standard specific
Ad
de
d v
alu
e
hig
hlo
w
workstation management
communication
service management
I
II
data centers
Adapted Kraljic model
Tool for classifying systems & processes
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8
Sourcing strategy
Source: Confidential
Example
Kraljic
analysis
Specifica-
tions
Depen-
dency
Performan-
ce/ capacity
Complexity
Risk profile /
maturity
Standardise OutsourceCollaborate DIY
Strategic/
leverage
Routine/
bottleneck
Not clear Clear
MatureImmature
Not specificSpecific
HighLow
ContainableNot containable
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9
Maturing offshoring relationships
Source: Rottman, Lacity, Offshore outsourcing of IT work, Palgrave Macmillan, New York, 2008
Different systems & processes may be in different phases
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10
Relationship styles
Style differentiation according to type of relationship
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11
Key sucess factors offshoring
Source: based on Remus, Wiener, Critical success factors for managing offshore software development projects, Journal of Global
Information Technology Management 12(1), 2009 and
Gupta, Raval, Critical success factors for anchoring offshore projects, Information Strategy: the executive’s journal, 1999
NB: Cultural awareness is a
key part of effective
communication
Communication is a key aspect
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External
Internal
• Continuous controlling
• Continuous communication
• Detailed contracting
• Clear project goals
• Detailed project
specification
• Thinking beyond cost savings
• Top management commitment
• Effective risk management
Generic• Language abilities
• Project team
• Continuous
communication
• Quality employees
• Cultural awareness
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Communication
Business
department
Business
ownerIT demand
IT department
Company
IT supply IT proc
Outsourcing Offshoring
Acc
mgmtIT proc
Acc
mgmtIT ops
Avoid intermediaries – large companies at a disadvantage
Pu
rch
as
ing
13
Communication
Source: Willcocks, Cullen, The outsorucing enterprise, the power of relationships, Logica, 2010
Cannot be covered by formal communication alone
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14
Communication
Source: Knol, A., The influence of communication quality on offshore business process outsourcing success, Master Thesis, RUG,
Groningen, 2009
Communication attributes
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Common
understanding
between the
vendor and its
Western client
• Flexibility
• Price
• Profitability
• Quality
Offshore BPO success
Common understanding
Qualitative factors
• Accuracy
• Completeness
• Consistency
• Credibility
• Interpretation differences
Quantitative factor:
• Timeliness
Technologicalfactor:
• Quality medium
Attributes of
Communication quality
OutcomesCommunication
processesAntecedents
Current exchange
Feedback or future exchange
15
Development of Trust
Pre-contract phase Post-contract phase
initial trust mutual trust
Contract life cycle
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Building trust in the literature
Source: Mathrani, A., Goel, G., Parsons, D., 2007. Building Trust Across Virtual Social Spaces: the Software Vendors’
Perspectives [Online] Available at: http://aisel.aisnet.org/acis2007/17/
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Model derived for SMEs
Mutual (existing) trust
Initial trust
TransparencyInvolving in
HR
Interpersonal
relationships
Informal
working
methods
CO
RNER
STONES O
F TRUST
FOR C
LIENT S
ME
CO
MM
UN
ICA
TIO
N
ST
AT
E O
F M
IND
UNDERSTANDING CULTURAL DIFFERENCES
KNOWLEDGE SHARE
Key difference in “informal working methods”
Source: Oksanen, A., The cornerstone of Trust between a client SME and on offshore service provider, Bachelor’s thesis, Hanze
Univeristy of Applied Science, 2011
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SMEs & Sourcing
Relevant for big AND small organisations
■ SMEs lack internal capabilities compared to large companies
■ SMEs should use partnering-based methods of negotiating and
preparation
■ SMEs can benefit from the supplier’s personnel by coordinated HR
management to minimize consequences of lack of internal skills
■ The most distinctive hurdles for SMEs are:
■ Internal offshore readiness
■ Capability to define an appropriate strategy
■ Contract facilitation
■ HR management
■ BUT, SMEs may be better at managing the
relationship
Source: Uimonen, A., Key capabilities in SME IT Offshoring, Bachelor Thesis, Hanze University of Applied Science, 2011
Client Supplier
Partnering-based
contracting
HR management
capability
Lack of internal
skillsSkills available
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■ Sourcing requires a non-traditional purchasing approach
■ The sourcing decision is extremely strategic: it should coincide
with the decision of what your company is all about
■ Managing a sourcing relationship is about communication
■ Managing a sourcing relationship is about managing trust
■ Purchasing should be able to think strategic, to manage
communication, and to manage trust and to have intercultural
awareness
Conclusions
Sourcing and purchasing management
20
Questions?
>>> Just Ask!
Dr Hugo Velthuijsen
Professor Business & IT
Leading Professor CARI Entrepreneurship
Institute of Information & Communication Technology
Hanze University Groningen,
University of Applied Sciences
Tel: 0031-50-595 4551
Mail: [email protected]
8-5-2014 New Business & ICT
Thank you!
