n.varachiu_aries_honeywell

Smartsourcing Adding Innovation to the

“Cost Cutting” Outsourcing

Dr. Nicolae VarachiuAcquis Technical Officer, ARIES

Business Development Coordinator, Honeywell

20.02.08 Dr. N. Varachiu 2

If he's so smart, how come he's dead?- Homer Simpson


The most profound impact of…

…the 20th-century enterprise was the way we moved workers to where the work was.

Thomas M. Koulopoulos, Tom Roloff, Smartsourcing – Driving Innovation and Growth Through Outsourcing, Platinum Press, 2006

…the 21st-century enterprise will be the way we move work to where the workers are.


Sourcing

= a number of procurement practices, aimed at:

• finding,

• evaluating and

• engaging

suppliers of goods and services

http://en.wikipedia.org/wiki/


Outsourcing

= subcontracting a process, such as product design or manufacturing, to a third-party company

http://en.wikipedia.org/wiki

= a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.

http://financial-dictionary.thefreedictionary.com/


Business segments typically outsourced:

• information technology • human resources • facilities and real estate management • accounting• customer support and call center• telemarketing / market research, • manufacturing • engineering



Multisourcing

= large (predominantly IT) outsourcing agreements.

Multisourcing is a framework to enable different parts of the client business to be sourced from different suppliers.



Offshore

• Offshoring describes the relocation of business processes from one country to another.

This includes any business process such as production, manufacturing, or services.

http://en.wikipedia.org/wiki/Offshoring


Nearshoring

= means sourcing service activities to a foreign, lower-wage country that is relatively close in distance or time zone (or both).

Examples of nearshoring: • American clients nearshoring to Mexico, • Austrian clients nearshoring to Slovakia, • Japanese clients nearshoring to China.



Offshore & Outsourcing

Outsourcing involves contracting with a supplier, which may or may not involve some degree of offshoring.

Offshoring is the transfer of an organizational function to another country, regardless of whether the work is outsourced or stays within the same corporation



Reasons for outsourcing: • Cost savings• Cost restructuring• Improve quality Knowledge

Contract Operational expertise Staffing issues Capacity management Catalyst for change Reduce time to market Risk management Time zone Customer pressure.



First reasons for outsourcing: • Cost savings

The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels. Access to lower cost economies through offshoring.

• Cost restructuring Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.



Smartsourcing . . . …is not about …is about economy of scale economy of scope

just technology competency

ownership partnership

cost cutting innovation

cheap labor smart, educated workers

episodic here to stay

just outsourcing outsourcing is only one facet

T. Koulopoulos, T. Roloff, Smartsourcing . . ..


CENTER FOR GLOBAL OUTSOURCING http://www.outsourceglobal.org/

6th Annual Int'l Smart-Sourcing Conference, Atlantic City, NJ,USA on Sept. 6-7, 2007

7th Annual Int’l Smart-Sourcing Conference, to be held in Hyderabad City, India from August 8-9, 2008


```

Pareto Principle or the 80-20 rule applied to organizations:

non-core functions/ competency

core functions/

competency

areas that define the

organization’s mission


Take advantage from diversity! ! !

• All policemen are British• All cooks are French• All mechanics are German• All lovers are Italians• And everything is organized by Swiss


Take advantage from diversity? ? ?

• All policemen are German• All cooks are British• All mechanics are French• All lovers are Swiss• And everything is organized by Italians


Take advantage from diversity? ? ?

• All policemen are German• All cooks are British• All mechanics are French• All lovers are Swiss• And everything is organized by Romanians


Smartsourcing

• Increases innovation in processes, from core to non-core and let the organization to:– Focus on their most critical areas of differentiation, customer value and competency– Achieve high level of innovation in non-core operations


Outsourcing Smartsourcing ?• Focusing more on

costs & replicating the status quo

• No interest on concurrent innovation initiative


• Improving process excellence & promoting innovation …

…among organization’s core process initiatives

• Strong relationship between organization and its service partner


Outsourcing Smartsourcing ?

“The key in the case of Smartsourcing is that you need to be as diligent and critical of defining and understanding the value of your core competencies as you are in defining and understanding the value of the processes you outsource and then creating innovation across the spectrum.”

T. Koulopoulos, http://www.itbusinessedge.com/item/?ci=14270


Low

Low

Low

HighCompetency

Dif

fere

nti

ati

on

Customer value


Outsourcing

Low

Low

Low

HighCompetency

Dif

fere

nti

ati

on

Customer value


Smartsourcing

Low

Low

Low

HighCompetency

Dif

fere

nti

ati

on

Customer value


Smartsourcing

Low

Low

Low

HighCompetency

Dif

fere

nti

ati

on

Customer value

Push Towards

Higher Value,

Differentiation,

and Innovations


Smartsourcing simple questions

1. Do you know what your core competencies are so that you can focus and prioritize your energies on them?

2. Can you define your processes and your work so that you can transport them easily to partners?

3. Are you able to measure innovation and its impact in all aspects of your business?



Smartsourcing DashboardExcellent

Poor

How important is the process to your competitive position?

Non-Core Core

Segment 3: Process Outsourcing

Segment 4: Process Offshoring

Segment 1: Process Optimization

Segment 2: Process Re-engineering

Ho

w g

oo

d is

yo

ur

per

form

ance

?



Segment 1: Process Optimization

• Core processes you execute well are sources of long-term competitive advantage and differentiation

• Continually optimize these processes to maintain competitive advantages


Segment 2: Process Re-engineering

• Processes you consider the core of your business but which perform poorly leave you vulnerable to competitive disadvantage

• Define a plan to fix these processes but keep them in-house and migrate them to Segment 1 as soon as possible


Segment 3: Process Outsourcing

• Processes that do not differentiate you in the market and are not executed well could leverage best in-class operation from a third party

• Keeping these processes in-house may be unnecessarily expensive but they are not likely mature enough to offshore


Segment 4: Process Offshoring

• Processes that offer not competitive advantage but are operating above industry average performance levels can be moved offshore

• Offshore providers will replicate existing process performance at a much lower cost


Thank you for your attention!Va multumesc pentru atentie!

36Dr. N. Varachiu20.02.08

Team working


Hammer principle


Smartsourcing

n.varachiu_aries_honeywell

Documents