Outsourcing Models

Outsourcing Models

There are several types of technology outsourcing models that are employed by CIOs. In a typical IT organization, you could see a combination of these models in operation. The different types of outsourcing models in practice are:

• Governance Based Model
• Pricing Based Model

 

Governance Based Model

IT governance model is based on an optimal division of responsibilities and goes far beyond traditional management models and those that focus on cost provisioning and labor arbitrage. IT governance model allows clients to maintain optimal alignment of strategic IT functions to meet their business needs and increase competitiveness, as well as to apply best practices in order to reduce costs and delivery time for operations and special projects alike. This model is based on the strategy adopted to govern the project or the project organization or the project team. This model has three different types to it –Professional Services or Staff Augmentation, Co-Managed and Managed Services or Fully Outsourced.

• Staff Augmentation
  • In this model, consultants from the outsourcing vendor act as an extension of the client’s project team and they will be supervised by a client manager responsible for that project delivery.
  • This model is typically used when certain skills are not available in-house to execute a project.
  • This model is also widely used when the client team requires additional head-count to tide over a short period of increased work.
• Managed Services Model
  • Managed Services is widely acknowledged as the best model to adopt for technology outsourcing if you have a long term outlook.
  • Managed Services model is an attractive proposition both to vendors as well as the outsourcing organization.
  • Vendor will be responsible for selection of resources as well as take responsibility of managing stakeholder expectations.
  • Vendor also has complete decision making responsibilities in providing the agreed set of deliverable.

Pricing Based Model

As the name itself suggests this model is based on Price, where the defining guideline are the payments to vendors or the pricing of the work order. There are different types of Pricing Models in existence today. These are Time and Material, Managed Capacity and Fixed Price projects

• Time and Material
  • Time and Material or T & M is a pricing based information technology outsourcing model. This model is utilized not only in the information technology industry, but in other industries too.
  • As the name implies, the payments to the vendors or contractors are based on the number of hours of work completed per day.
  • There is an agreed rate per hour between the vendor and the client organization.
  • The number of hours clocked are tracked through a time sheet system, either maintained by the client or by the vendor.
• Managed Capacity
  • In Managed Capacity, the customer buys a certain quantity of person-hours or person-days from the vendor at a pre-negotiated rate.
  • In certain situations, these are also bought as a certain number of seats in a designated development center of the vendor.
  • This model has a maximum limit on the amount that can be charged to the customer

Success Steps for Vendor Management Office

More enterprises are taking a look at establishing a vendor management office (VMO) to make IT sourcing more effective. Companies are creating IT VMOs for reasons including the rapid growth of IT spending within the business, the decentralization of technology purchasing, and increased complexity in vendor pricing and licensing.

There are no hard and fast rules for creating a VMO. Some companies have a very formalized approach with dedicated staffing and clearly defined roles and responsibilities. Others are more loosely organized. In both scenarios, the VMO’s effectiveness relies on the adherence to eight guiding principles. They are as follows:

1. Manage VMO as a business within a business
2. Leverage consolidated purchasing power
3. Continuously manage contractual relationships with suppliers
4. Treat suppliers as an extension of internal resources
5. Use the minimum number of suppliers possible
6. Select the highest value supplier, not the lowest purchase price
7. Negotiate win/win deals with all suppliers that balance risk, speed and performance
8. Actively monitor, manage and improve supplier performance

Regardless of how formally the VMO is executed, these principles act as guideposts to decreasing the IT cost risks within the business and improving vendor performance. Observance enables today’s IT sourcing function to become less transaction-oriented and more strategic; less price-focused and more value-driven. Lastly, it transforms IT sourcing from a reactive function into an advisor function that facilitates the attainment of business and IT goals through strong supplier relationship management.

How to have Successful Vendor Management

A vendor plays an important role in the success of any organization irrespective of their size and type. Although the management of vendors or suppliers is a very difficult and complex task it has to be done for the benefit of the firm. It is a very important thing to keep an easy going and frequent communication with the vendors. By doing this, a lot of cost could be saved and inefficiencies could be curbed which would then result in better customer service.

Vendor management not only involves the vendor to supply to you at low prices or better service but also maintaining a healthy relationship with them and retaining them. The first step in a successful outsourcing project is to implement a quality assurance program. A well-managed list of vendors helps the organization get a competitive edge as well as a cost advantage. There are no two vendors who are the same. Every company has their own set of unique needs and requirements. Choosing the vendor would be on the basis of your company’s culture and the quantity of orders your firm would need. Any organization would have two options with it – keeping an in house vendor management or getting it outsourced.

Organizing a vendor is a task in itself. The following things should be considered:

• What kind of services or technology is each vendor providing?
• Are any of the vendors overlapping the other?
• Is there any way of consolidating different vendors by any common supplier?

The organization should be clear of what they want. Vendor selection process can be a confusing and complicated process .They need to do their research on the “deal breakers” and “negotiable” as they call them before beginning the actual search. The company should put the most essential or crucial thing under the deal breaker category and the ones that are not essential in the negotiable category.  Having the things categorized or segregated for vendor selection process will save some headaches to the managers.

It is very important to know the target output that an organization needs, while making the list of vendors. This estimation of the output would give an idea about the weekly or monthly delivery schedule for a vendor. Also, the organization must learn from their past experiences with the vendors. They should keep in mind the good things as well as the blunders done by the vendors in the past. Communication is the most vital part in any supplier or vendor management process. There is a chance to lower the possibilities of misunderstandings and problems of any other kind if the vendor is informed as to what is expected out of him prior the deal itself.

It is not an easy process or task to have a good vendor management system in place. It cannot be achieved in a day or month but a long and continuous process. This involves the organization to maintain a good n healthy relation with the vendor and also by having a constant check on its own supply. Thus, if all the above things are done and taken care by an organization it’ll be able to achieve a good vendor management and be successful.

What is Near Shore

What is Near Shore?

 There are many companies who go for outsourcing to meet their operational needs by outsourcing their contact center operations to onshore, offshore, or near shore locations. The decision on which type of outsourcing to choose is based on cost comparisons, proximity to their business location, and language or cultural considerations. It would be helpful to begin by defining the terms “onshore”, “offshore” and “near shore”.

Onshore Outsourcing: Outsourcing operations of the company to another company located in the home country or region. Companies can reduce labor costs somewhat and benefit from highly skilled labor with little or no language or cultural barrier, but the cost of such operations is high compared to offshore or near shore locations.

Offshore Outsourcing: Outsourcing the operations of the company to other companies that are located in a foreign country, and most likely have a different language and culture. Offshore outsourcing offers benefits like higher cost savings and access to highly skilled labor. 

Near Shore Outsourcing: Outsourcing the operations of the company adjacent or nearby country having similar culture and language skills.  Near shore outsourcing offers some cost savings over onshore and has the added benefit of proximity for more frequent site visits, while retaining a highly skilled labor pool.

Near Shore outsourcing is the practice of getting work done or services performed by people in neighboring countries rather than in your own country. There are many companies in the United States who outsource work to Canada and Mexico as they are geographically near to them and they get the resources required from there. The travel and communications are easier and less expensive when geographic proximity is less and there are likely to be at least some similarity between the cultures, and people are more likely to speak the same language.

Near Shore has a great advantage in reduced cost and reduced risk compared to the projects given to the companies in distant foreign countries i.e. offshore outsourcing. Most of the developed countries prefer to provide their outsourcing projects to the organizations in neighboring countries as they find it easier and less expensive. They desire to go for near shoring as the cost effective structures are available nearby than depending on offshore countries for their works done.

The near shore outsourcing has lot of benefits compared to the offshore outsourcing. The Outsourcing solutions provided by the near countries to their clients will not have much difference in their time zones and thus they can provide business process outsourcing services in the same time zone as their customers do. It helps to avoid problems evolve due to language, culture, legal affairs, infrastructure and technology. These benefits represent the most elemental form of value proposition for a near shore offering, since they are seemingly available for every company that establishes in a near shore location, and for a seasoned global sourcing professional can be easily justifiable. Thus, it is understandable to see many players jumping into the near shore bandwagon and claim the near shore value proposition. 

Homeshoring

A number of companies are turning to a new method to meet call center challenges – getting workers to handle calls from their homes.

“Homeshoring” or “Homesourcing” in certain situations can boost productivity while cutting costs. This practice also can avoid a potential pitfall of sending such work overseas.

Companies are turning to homeshoring in response to call center challenges such as the need for superior agent quality, frequent turnover and the seasonal nature of the business. Alpine Access, Aspect Communications, IntelliCare, West, Willow CSN and Working Solutions are companies with “home-based sourcing methods and strategies,”

A number of companies in the technology industry are giving workers more flexibility in the way they do their jobs, including the option of working from home. There are challenges involved in telecommuting arrangements, including data security risks. Also, home workers can feel alienated. But homeshoring can help both agents and companies.

Accessing high-quality agents is not limited to those within commuting distance, and agents can be contacted when needed instead of occupying call centers during periods of very little call activity.

So, the next customer service agent you get on the phone may be sitting in slippers and a bathrobe.

Vendor stratification

Vendor stratification is proposed as a framework for understanding the evolution of preferred vendor programs. Vendor stratification refers to a hierarchical division of a company’s set of qualified vendors into distinct groups. We should be able to recognize important difference between the qualified vendors and use the differences to establish hierarchical rankings of the vendor.

Companies implement preferred supplier programs to reduce their vendor relationships to a reasonable few. Consequently, vendors who do not effectively manage their customer-based relationships are strong candidates for deletion from a customer’s list of long-term suppliers.

Vendor stratification can be done by analyzing the past performance of vendors existing with the company and future expectations from them. One methodology is to look at the share of the sourcing organization’s procurement value, in currency terms, that the vendor has and vendor’s strength based on the expectation of the organization.

The stratification of vendors into different quadrants helps the organization to plan their activities towards the different sets of vendors.

Strategic Relationship

Vendors exhibiting high business strength and having a higher share of business of the sourcing organization fall in the strategic vendor category. The past performance of such vendors is good and therefore the organization gives more business to them while future expectations are also in line with the sourcing organization’s requirement. 

Develop/Maintain Vendor

Vendors exhibiting high business strength yet having low share of business of the sourcing organization, fall in the category of vendors who should be developed or maintained. The future expectations from such vendors are in line with the sourcing organization’s requirement.

Develop Vendor or Develop Alternate Source

These are vendors exhibiting low business strength, yet having a high share of business of the sourcing organization. The past performance of these vendors may not be to the expectation of the sourcing organization but the share of business may be high.

Eliminate Vendor

Vendors exhibiting low business strength and having low share of sourcing organization’s business fall in this category. These are ideal candidates for elimination.

Where vendor stratification won’t work?

New Vendor Inclusion

Organizations may have to induct new vendors depending on the business needs, like new technology requirement and special processes. 

New Technology Adoption

If vendors are expected to adopt new technology as per the sourcing organization’s requirement, then the early stages of adoption may see vendors’ performance fall and then improve based on the learning curve.

Vendor Management Office

A vendor management office (VMO) is an internal unit within an enterprise that is charged with evaluating third-party providers of goods and services, supervising day-to-day interactions and managing longer-term relationships.

In some cases, an IT vendor management office is established to create and monitor vendor relationships with regard to IT, including establishing the organization’s proper mix of IT outsourcing and insourcing opportunities and setting vendor risk management policies.

Vendor management typically involves numerous oversight duties for a CIO or IT executive, including negotiating and then monitoring the length and substance of contracts; keeping tabs on new technologies; maintaining contact with current vendors and reaching out to vendors with which the organization has not yet worked.

For those organizations not prepared to leap into a full-scale VMO, it’s also possible to establish an IT governance or standards body of employees from across the company to oversee purchasing policies and assess new vendor technologies and other offerings.

When assembling either a VMO or a standards body, it’s vital to have broad representation from procurement, legal services, IT and business units. It can help to involve individuals who have backgrounds in project management as they are often more comfortable in supervisory roles. It’s also important to include people who have a far-reaching view of the organization and who, above all else, understand the importance of good relationships with vendors.

Vendor management allows you to build a relationship with your suppliers and service providers that will strengthen both businesses. Vendor management is constantly working with your vendors to come to agreements that will mutually benefit both companies.

While there is debate on the detailed aspects of IT VMO implementation, including demarcation of responsibilities between procurement and vendor management, and the precedence of the functions, the overall benefits to the enterprise outweigh any internal risks or downsides associated with the VMO model.

IT Resource Management

IT Resource Management allows organizations to analyze, monitor and anticipate the utilization and performance of the IT infrastructure by providing an enterprise wide view of IT services and resources. The solution ensures delivery of IT services and resources in an efficient, cost-effective manner while demonstrating measurable value to business incentives.

Benefits

Make faster, better decisions aligning IT and business.  IT Resource Management provides fast, self-service access to IT resource performance reports and analysis, as well as the ability to answer questions related to IT resource utilization and future investments. This, in addition to demonstrating how IT is aligned with each business unit, helps ensure that IT is a driving force behind the organization’s success. The intuitive, point-and-click administration environment makes it easy to build, execute, maintain and reuse processes that manipulate IT performance data.

Dynamically size your IT infrastructure and reduce risks.  IT Resource Management can help you predict when you might exceed resource capacity so you can plan for the additional resources needed to meet changing business requirements. Concise reporting of IT resource performance data helps identify underutilized IT resources that can be repurposed and brings insights to infrastructure consolidation or virtualization projects without negatively affecting the quality of IT service and business continuity.

Reduce IT costs through better use of resources. With a fact-based approach to managing your IT infrastructure, IT Resource Management delivers the utilization, availability and performance information required to know and forecast IT resource needs. These facts enable efficient IT procurement processes, deployment planning and operational activities that are needed to deliver IT services to the business units. The information made available through IT Resource Management allows IT organizations to uncover bottlenecks and address poor service delivery. Personnel, facilities, hardware and general IT operating costs can be reduced with the effective use of IT information and proper planning.

Measure and manage all IT resources and services.  IT Resource Management is designed to gather and consolidate the IT resource data available throughout the IT infrastructure. It stages, standardizes, transforms, aggregates and delivers analysis and report-ready IT resource performance data from virtually any data source. It produces reports and delivers a Web-based application to enable easy distribution and consumption of the resulting IT intelligence. Using one platform to manage all IT-related data reduces costs, saves time, shortens learning curves and facilitates the development and use of common analysis methodologies throughout the IT organization. In the end, it gives decision makers the information they need for quick and accurate analysis of IT resources.

Selecting Metrics for an SLA

What is an SLA?

A service-level agreement (SLA) is a document that defines the right of two or more parties under a contract for work. The most important purpose of an SLA is to imply the level of service that will be provided under the agreement. 

Why is it important to have an SLA?
It is important to have an SLA as it is to have a SOW for business provision of all types — because it includes a single document that contains the terms of the agreement which will be mutually agreed by both the parties. With all the point in place in the SLA, it is much more difficult for either party to declare unawareness if the agreement breaks down

What points should be considered when selecting metrics for a SLA?

Choose measurements that stimulate the accurate behavior. The first goal of any metric is to motivate the appropriate behavior on behalf of the client and the service provider. First, focus on the behavior that you want to encourage. Then, test your metrics by putting yourself in the place of the other side.

Choose measurements that are effortlessly collected. Stabilize the influence of a preferred metric against its ease of gathering. Preferably, the SLA metrics will be captured involuntarily, in the background, with minimal overhead, but this purpose may not be possible for all desired metrics. When in suspicion, compromise in favor of easy collection; no one is going to spend the effort to collect metrics manually.

Less is more. Regardless of the appeal to manage as many factors as possible, avoid selecting an disproportionate number of metrics or metrics that make a huge sum of data that no one will have time to evaluate.

Set a proper baseline. To be valuable, the metrics must be set to rational, realistic performance levels.

Sourcing Readiness Assessment (SRA)

Sourcing decision for any organization is a critical one. For any sourcing transaction (outsourcing, co-sourcing or in-house capability) to be successful, you need to have the right plan, necessary competencies, practical experience, background information, knowledge and resources in place. Without these, there is always a risk of failure of the outsourcing relationship and realizing expected benefits.

Sourcing Readiness Assessment (SRA) helps an organization to evaluate exactly that and take the right decision. This broadly includes a detailed evaluation of your outsourcing strategy, an opportunity analysis, a risk assessment and an overall viability assessment of your company’s readiness to outsource. At the end of the assessment, which typically takes three weeks, a gap analysis and an executive presentation are provided.

Following are the areas covered by the assessment:

• Projects Assessment
• Application development Assessment
• Service Management Assessment
• Infrastructure Assessment

The SRA can help an organization in following manner:

• It helps determine if outsourcing is a viable option for the organization at that point in time or in future
• Benefit from an independent assessment of potential outsourcing opportunities and models
• Provide input to the business case for outsourcing to offset preparation investment against expected benefits
• Identify potential benefits i.e. cost savings / productivity gains  that may be realized from outsourcing
• Validate if strategic objectives of the organization are aligned to outsourcing opportunities
• Provide a roadmap to achieve “outsourcing readiness”.
• Provide practical recommendations to improve readiness to execute the transaction, realize outsourcing return on investment (ROI) and measure the performance of the outsourcing relationship

Conclusion:

Sourcing Readiness Assessment plays a pivotal role and a stepping stone for a successful outsourcing strategy for an organization. It not only helps reveal any obstacles in the way of attaining the benefits but also help identify areas for improvement.