Operations in Global Business Strategy & Outsourcing

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.

Major Strategic actions in global operations & strategy

Actions-Multinational Actions-Global
Improving performance in response to competition
Sourcing sophisticated products and services Sourcing Commodities Sourcing Commodities

Sources of competitive advantage

Stimulus for improvement
Specialized knowledge and local experience Specialized natural and labor resources Scope and proximity

Supply from many operations local to customers Supply from concentrated locations distant from customer

Supply from many operations local to customers Supply from concentrated locations distant from customer N/w Supplying customers International pricing and entry in response to competition

Scale and scope economies

Synergies through network for learning Strategic response to competition

Typical Configuration Patterns for IB:

Geographically dispersed Customers Simple global exports Multinational

Geographically concentrated

Single one country International sourcing Geographically dispersed

Geographically concentrated

Suppliers

Configuration and coordination

HQ
Flow of product Flow of knowledge

Local Operation
Flow and influence of resources

Customers

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 the delivery 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.

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) emerging economies. Increased risk of the loss of intellectual property, and increased monitoring 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.

New at Hyde Tools: global sourcing strategy

http://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 two Chinese manufacturers. The announcement came as Hyde Tools, which has in the past promoted itself as a "Made in the USA" leader of surface preparation tools, is introducing three new lines of putty 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 of marketing and product development, in a letter Hyde has entered into two joint product development agreements and manufacturing contracts with two Chinese manufacturers. The company described each as having more than 20 years experience in tool production. Proteus Design has worked in product development with clients including 3M, Gillette and Kohler. Talbot described the move as part of a new chapter for Hyde, in which it will strive to be "Total Category Leader" -- which Hyde believes it has achieved to a large extent. The company's new brochure 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 North American market for this product category is about 28.8 million units sold per year. The company's research also shows the vast majority (89%) of professional users are willing to pay more for a stainless steel putty knife or scraper than for a standard carbon putty knife. According to a Hyde spokeswoman, the company continues to manufacturer a significant amount of products in the United States. For instance, their Black & Silver line of tools are made in Southbridge, 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.

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.

Evolution of the Global Delivery Model

Maximum

<--------------Act Local----------->

<-------------Act Regional---------->

<-------------Act Global---------->

GLOBAL

REGIONAL

What improvements can be made by implementing local best practice?

LOCAL

Can benefits of standardization across businesses and geography be achieved?

Can shared service economies of scale be captured?

Source from offshore location(captive or vendor) Is outsourcing feasible, beneficial and outweighs additional risk?

Source from multiple locations/vendors across the globe

Minimum

Level of Benefit

Simplification

Standardization

Shared Services

Outsourcing

Offshore

Global Delivery

11

Drivers for Global Delivery

Adoption 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

Capture, Guarantee and Accelerate Savings Transfer to Variable Cost Structure

Improve Service/ Quality

Increase Flexibility /Agility
Access to HighSkilled Labor

Access To Best of Breed Upgrade and Refocus Skills Fix Operational Service Problems

Transfer Risk to Provider

Access to High Talent Resource Needs
Slide 12

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

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
Ireland Canada Eastern Europe U.S.A Jamaica Philippines Mexico India Costa Rica China

Brazil Argentina

South Africa

Established Emerging Shifting 14

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.

Outsourcing
Services
COMPANY OUTSOURCER

Organization Level Agreement

Service Level Agreement

Outsourcing denotes the continuous procurement of services from a third party, making use of highly integrated processes, organization models and information systems.
16

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

Objectives
Ensure highest level of productivity for the corporation Bring greatest value to the end consumer

18

On the origins of Outsourcing

1776 Adam Smith's Wealth of Nations propagates competitive advantage through outsourcing. Term "outsourcing" itself was not in use. 18th and 19th centuries : floating factory ships, the concept of "offshore manufacturing gets a boost Early 20th century Companies like Ford Motors own everything, even forests to make rubber for car tyres! General Motors runs a 2000 people HR and travel desk to cater to its employee needs
19

On the origins of Outsourcing.

1940s ADP(Automatic Data Processing) Inc starts with handling payroll outside companies. Today the $8 billion, 41000 employee payroll expert handles payrolls for 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 started as a captive unit of Cincinnati Bell. Hived off in the late 1990s. 1970 s US companies from oil majors, telecom operators, pharmacy firms to FMCG firms outsource customer care, telemarketing, payroll and other functions.
20

On the origins of Outsourcing

1980- 1990 US and European companies start shifting work to Ireland, Israel and Canada. Ireland particularly benefits as costs are lower and it offers multi 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. The basic lessons of the theory - identify your core competencies, focus on them and get out of everything else. American Express, Swissair, British Airways and General Electric(GE) start captive units in India.
21

On the origins of Outsourcing.

1999 The New Telecom Policy of 1999 ended the state monopoly on international calling facilities. Though outsourcing of business processes like data processing, billing, and customer support began towards the end of the 1990s when MNCs established wholly owned subsidiaries. 2000 Third Party players spring up in India. By 2005 end, over 300 open shop in India and beyond. Some of them even set up operations outside. About 45 global destinations BPOs bandwagon and are now competing to get a slice of the annual $300 billion outsourcing pie.
22

Types of Outsourcing

Outsourcing models:

BPO

Business processes Administrative processes

BPO: Business Process Outsourcing

APO: Administrative Process Outsourcing

ASP: Application Service Provider

AMO

Application Development and Maintenance IT-infrastructure

DBRO: Design, Build, Run & Operate

ADM: Application Develop. & Maintenance ITO: IT Infrastructure & service hosting Outsourcing

SDO

23

Business Process Outsourcing (BPO) The delegation of a significant portion of a companys back office and technology-enabled operations. BPO is often an updated, reincarnation of business process reengineering. Application Development & Maintenance Outsourcing (ADM) The delegation of a significant portion of a companys Application Development and Maintenance work Information Technology Outsourcing (ITO) The delegation of a significant portion of a companys IT operations

24

BPO Levels
Customized Industrialized

One-to-one

One-to-many

low

medium

high

Degree of industrialization
Custom designed services leveraging know-how but little else- traditional outsourcers such as IBM Similar services delivered to multiple clients -payroll providers such as ADP and Paychex; Navitaire

Single service delivered to multiple clients simultaneouslypayments processors such as First Data.
25

AMO

26

Accenture provides a flexible spectrum of services and arrangementsfrom simple to complete end-to-end IT responsibilityand from immediate to well into the future. Starting with a standard approach, we build on the basics and structure our projects to achieve specific business results for our clients, carefully considering their 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/fix support) 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 clients changing business needs. 2: Breadth of Applications Outsourcing arrangements can specify a single critical application, a group of related applications, or an entire portfolio of software applications. Accenture will manage custom or packaged software, including enterprise solutions such as SAP, Oracle, PeopleSoft and Siebel. Accentures Application Outsourcing services are tailored to our clients needs. Our flexibility is demonstrated by the fact that we manage hundreds of arrangements that involve less than 100 peopleand many with more than 1,000 people.

SDO Service Delivery Outsourcing

Client Operations Management
Delivery capabilities
Security Data Centers Technical Support Network Desktop Services Mgmt. & Mobility Supplier Mgmt.

Security - End-to-end security services including firewall management, intrusion detection, identity management and security 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

Sales Support and Mobilization Hosting Technical Support Services Network Management Security Operations Desktop Management & Mobility Messaging & Collaboration

Supplier Management - Identifying, qualifying, contracting and managing strategic suppliers

28

Sourcing of Outsourcing
Off-Site Local service providers
Near Shore Proximity cross-border service providers

Off-Shore Remote Cross-border service providers

29

RUNNING OUTSOURCING Framework

Key Principles Common Objectives & Goals Delivery Model is based on several key components Common objectives & goals End-to-End governance structure

Governance
Methods, Standards, and Tools
Projects Reporting & Status Tracking

Multi-level team organisation

Common Processes

LOCAL

Leveraged core competencies and skills

Contract

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

NEAR-SHORE

OFF-SHORE

Client

Outsourcing company

Skill Pool

Technical Support

Establishes a single point of responsibility for entire relationship. 30

Verticals in India

31

Levels of Outsourcing: Tactical, Strategic & Transformational

Tactical Outsourcing:
Specific problem of firm Troubles like : lack of finances, inadequate internal managerial competencies, talent crunch, desire to reduce headcount Done for corporate restructuring Benefits: Generate immediate cost savings, eliminate need for future investments, realize cash infusion from sale of assets, relieve burden of staffing The prime focus is constructing the Right Contract with the vendor or service provider.
32

Strategic Outsourcing
Building long term values Get the job done in a strategic model Managerial mindset matured for relationships From buyer & supplier to business partners

33

Transformational outsourcing
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
34

Transformational vs Traditional
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

35