Strategic Global Outsourcing and Offshoring
biggie
Week2-Sourcingmodelsandsourcingdecisions1.pptxSourcing models & sourcing decisions
BNM748 Strategic Global Outsourcing and Offshoring
Dr. Aleksandre Asatiani
Learning objectives
Understand the various sourcing models available for clients and suppliers
Be able to decide on relevant factors that should be considered when making a decision about outsourcing/offshoring
Be able to evaluate activities and business processes to assess their suitability for outsourcing/offshoring
Challenges of modern sourcing
Make vs Buy decision is becoming more complicated as new sourcing business models emerge
Emergence of new Internet-enabled sourcing models
Basic sourcing models
| Third party | Insourcing Staff augmentation | Onshore outsourcing Domestic supplier, ‘rural sourcing’ | Offshore / nearshore outsourcing Foreign supplier |
| Joint venture | Co-sourcing | Offshore / nearshore development centre Build-operate-transfer | |
| In-house | Internal delivery | Shared services | Captive centre (e.g., R&D); Captive shared services |
| On-site | Onshore (same country) | Nearshore / Offshore |
Ownership
Buy
Hybrid
Make
Location
Off-site
On-site
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Basic sourcing models
| Third party | Insourcing Staff augmentation | Onshore outsourcing Domestic supplier, ‘rural sourcing’ | Offshore / nearshore outsourcing Foreign supplier |
| Joint venture | Co-sourcing | Offshore / nearshore development centre Build-operate-transfer | |
| In-house | Internal delivery | Shared services | Captive centre (e.g., R&D); Captive shared services |
| On-site | Onshore (same country) | Nearshore / Offshore |
Ownership
Buy
Hybrid
Make
Location
Off-site
On-site
Cloud computing & crowdsourcing
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What is cloud computing?
The evolution of a service-based perspective on computing based on innovations in shared computing provision that improve simplicity, scalability, and efficiency.
Willcocks, Venters & Whitley (2014) "Moving to the Cloud Corporation"
Cloud-based services everywhere
Properties of cloud
On-demand service
Broadband network access
Dynamically scalable resources
No upfront investment*
Measured service/pay-per-use
Cloud service models
Software
Platform
Infrastructure
Software
Platform
Infrastructure
Software
Platform
Infrastructure
Software
Platform
Infrastructure
IaaS
Infrastructure as as Service
PaaS
Platform as as Service
SaaS
Software as as Service
IT
Client
Provider
Infrastructure
Deployment models
Public
Hosted on shared servers of a provider
Examples: Amazon EC2, Google Cloud
Private
Hosted by the client organization
Example: Owncloud
Hybrid
Hosted on both private and public clouds
‘Cloud’ element implies level of automation and virtualisation that hides the complexities associated with scaling usage up and down.
Issues: security, access, data placement geographically, poorly defined Service Level Agreements, complicated pricing models
Crowdsourcing
Crowdsourcing is the act of taking a job traditionally performed by employees and outsourcing it to an undefined, generally large group of people in the form of an open call (Howe, 2008).
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Wisdom of crowds
Crowdsourcing traditional example
Example: Amazon Mechanical Turk
Crowdsourcing business model
Example: NASA Space poop challenge
Crowdsourcing business model: open innovation
Sourcing decisions
The maturation of offshore sourcing work
20Car
(Source: Carmel and Agarwal, 2002)
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Key drivers of outsourcing
Costs savings
Reduce operating costs
Access ad-hoc technologies without capital investment
Reduce permanent staffing level
Access to skills and resources
Access global talent and specialised resources
Free internal resources to focus on key competency
Focus on core business
Improve effectiveness (time to market)
Standardisation and access to innovative processes and practices
Consolidation
Process optimisation
What to outsource?
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Example: Lenovo
How much to outsource?
Outsourcing decision is not simply in-house vs outsourced
Business functions -> processes -> tasks
Business and IT services value chain
Source: Center on Globalization, Governance & Competitiveness – Gereffi and Fernandez-Stark (2010)
Transaction Cost Economy
Ronald Coase
The nature of the firm (1937)
Oliver E. Williamson
The economic institutions of capitalism (1985)
Transaction Cost Economy
Transaction
A whole exchange process and its legal and contract environment; a transaction between parties and the contract covering it
Transaction costs
Friction of the economic system
Goal
A structure of industries and companies where the sum of the transaction and production costs is minimized
Underlying concepts of TCE
Bounded rationality
Cognitive assumption on which TCE relies
Economic actors are assumed to be ”intendedly rational, but only limitedly so”
Opportunism
Self-interest seeking with guile
Both ex ante and ex post types of opportunism are included in TCE
Main dimensions of transactions
Key dimensions in TCE
Uncertainty
Without uncertainty, external sourcing would be easy (buy)
Asset specificity
Specific investments that are hard to take into alternative uses or to sell
Frequency
Frequency of transactions
Coordination through hierarchy
Internal coordination costs
Agency costs
Monitoring costs
Bonding costs
Residual costs
Decision information costs
Information processing costs
Communication
Documentation
Opportunity costs due to poor information
Coordination through market
External coordination costs or market transaction costs
Operational
Search costs
Transportation costs
Inventory holding costs
Communications costs
Contractual
Costs of writing contracts
Costs of enforcing contracts
Key questions to consider
Before you start making sourcing decisions, define your (strategic) goals:
Ask: Why do we (out)source?
“A sourcing strategy needs to consider not only present circumstances but also future alternative scenarios…”
(Gottfredson et al. 2005, p. 135)
Q&A
