Research Work On It Outsourcing In Ireland

Published Date: 02 Nov 2017

Abstract:

Introduction:

The first and formost myth about outsourcing is that it’s something that emerged off late. Actually even in 1970s, the manufacturing companies seeking to improve their efficiency began hiring outside firms to enhance their current processes. It turned out to be a huge sucess.In the current Scenario, most manufacturers outsource 70% to 80% of the content of their finished products. Large companies commonly outsource half of their IT operations. Organizations outsource their entire back office operations, including human resources, payroll and accounting. Companies may soon be more outsourced than "in-sourced," signifying a fundamental reorganization that will affect employees, managers, customers and executives. Consumer choices will increase, product costs will drop and workers’ roles will change.

Today, outsourcing is at a crossroads. Companies no longer outsource only vertical business units. The new cross-functional approach follows a process horizontally throughout an organization — so-called business process outsourcing, or BPO. Now more companies are seeking strategic advantages based on outsource alliances. While the relentless push to operate more efficiently remains the driving force behind outsourcing, it has also become a competitive, strategic marketplace tool, allowing companies to improve response times and develop new products faster than ever. Once focused just on reducing expenses, today’s outsourcing initiatives are likely to help companies do things they previously could not do.

Once technology made it feasible to outsource operations abroad, media attention made outsourcing part of the public lexicon. Intense debate ensued as jobs left domestic boundaries and headed overseas. Opponents often overlook outsourcing’s benefits, such as allowing consumers to buy better products for less money. And, tens of millions of stockholders of major companies benefi ted as the value of outsourcing companies markedly increased.

In general this paper talks about the Outsourcing sectors in Ireland, Key drivers to outsourcing and it's effect on the economic climate of Ireland. We had discussed two case studies in this paper which focuses on the strategies behind outcourcing and benefits derived out of that. We had also touched upon the risks associated with outsourcing.

Why Outsourcing?

Cost savings/cost restructuring – Reducing the overall cost of the service to the business will involve reducing the scope, defining quality levels, repricing, renegotiation and cost restructuring. Outsourcing changes the balance of operating leverage, creating a move from

fixed to variable costs and making variable costs more predictable.

Improved quality – Leveraging the cultural and societal emphasis of process management and quality culture for higher productivity and better results.

Knowledge – Access to wider experience, knowledge and intellectual property.

Operational expertise – Access to operational best practice that would be too difficult or time-consumingto develop in house.

Staffing issues – Access to a larger talent pool and a sustainable source of skills.

Capacity management – Addressing the traditional issue of peaks and troughs in volume by engaging a provider to manage the capacity.

Catalyst for change – An organisationcan use an outsourcing agreement as a catalyst for major step change that cannot be achieved alone. The outsourcer becomes a change agentin the process.

Risk management – An approach to risk management for some types of risk is to partner with an

outsourcer that is better able to provide the mitigation.

Leveraging time zones to create greater service window – A sequential task can be done during normal day shift in different time zones to make it seamlessly available 24/7.

Leveraging time zones to reduce time to market – Using the ‘follow the sun’ principle, engage teams across time zones to speed up the delivery schedule and reduce time to market.

*

Outsourcing in Ireland :

Pictures to be below

Overview of Irishindustry:

Key Activities in Ireland:

The ICT Sector includes an enormous range of technology and activities.

Within Ireland, the ICT sector includes:

• Developing hardware and devices

• Operating systems and software

• Digital Content

• Providing consultancy and services

• Systems Integration

• Outsourcing

• Data Supply

• Storage

Industry Statistics

• 9/10 global ICT companies maintain a presence in Ireland.

• The top 5 software companies have a significant presence in Ireland.

• The total number of ICT enterprises in Ireland is approximately 5,400; 233

of which are foreign owned.

Contribution to the Irish Economy

• The ICT sector is among the top three Irish growth industries.

• The ICT industry is responsible for approximately 25% of Ireland’s total turnover and 1/3 of Ireland’s exports by value.

Employment in the ICT Sector

• According to CSO’s 2010 employment figures, over 74,000 people are employed by ICT companies in Ireland.

• One of the most pressing issues affecting the ICT is the provision of an appropriately educated workforce: Within the ICT Sector, the high-tech manufacturing side is currently xperiencing a 49% gap in technical skills and a 47% gap in "other engineering" skills. The sector is also experiencing significant shortages in the area of IT project management as well as ICT professionals with business management skills. There isalso an ongoing requirement for ICT professionals with foreign language skills.

• Main occupations include: electronics engineer, software engineer, computer/IT consultant, computer analyst/programmer,application developer, database administrator, information systems manager, IT Trainer, multi-media programmer, systems/business analyst, technical support office (IT), information scientist, IT sales

professional, multi-media specialist,

network engineer, technical author.

Trends in the ICT Sector

• In recent years, Ireland’s ICT sector has transformed dramatically. Traditionally, the sector was defined along clear lines: Multinational firms in Ireland were largely concentrated in the area of hardware manufacturing and associated support services. Irish owned firms were concentrated in the software sub-sector. However, in recent years there has been a fundamental shift in the way items are produced, distributed and consumed leading to considerable blurring of these lines.

• With the onset of the global economic crisis, a number of multinational ICT firms located in Ireland have announced job losses; the most notable of which was the relocation of Dell’s manufacturing activity from Limerick to Poland and the resulting 1,900 direct job losses. It is clear that some Irish plants are finding it increasingly diffcult to compete with sister sites in other lower cost countries.

Key Subsectors

Computer Software Software applications have developed as a mature and significant sub-sector. A large proportion of software companies in Ireland are Irish owned. Their activities are based on strong software engineering skills and well developed processes for the identification, development and implementation of solutions.

Hardware and Systems

This sub-sector, which is dominated by foreign owned companies, traditionally imported mature, proven technologies and replicated them. However, in line with global trends, the sub-sector is changing to produce more advanced emerging technologies. In recent years a trend has emerged for low value added activities (both Irish owned and foreign owned) to be transferred out of Ireland to lower cost locations. Support ServiceIn the past, Ireland was often regarded as having created a nichein the area of support services. This was based on cost competitiveness, skills availability, a suitable time zone, and the ability to effciently support the Europe, Middle East, and Africa (EMEA) region. However the criteria have shifted with cost considerations replacing the emphasis on language, time zones, and regional support, resulting in strong competition from India and other locations. Digital Content

Despite the downturn in the digital content sub-sector, Ireland has performed relatively well and hasrecorded sustained growth. Thereare a large number of small Irish companies in this sub-sector, but oreign owned companies account for the majority of employment. The biggest opportunities within the sector are in games, non-media applications and eLearning.

Microelectronics Design The microelectronics design subsector is relatively new in Ireland

and demonstrates a developing competence and an ability to move up to higher value activity. Strong linkages also exist between the subsector and the research centres in higher education institutions. The critical issue for this sub-sector is the availability of skills.

Cloud Computing

Cloud computing is a major evolving industry. Analysts estimate that Cloud Computing sales by Irish firms could reach €9.5bn per annum by 2014 and provide jobs for approximately 8,600 people. Cloud Computing transforms information technology into a low operating cost rather than an expensive capital investment. This has significant implications for small enterprises across the economy in terms of positive growth. According to IDA, Ireland is well

placed to become a world centre of this important new industry.

Incentives to Invest in ICT in Ireland

• Low corporate tax

• RD&I support for the development of ICT

• High productivity and falling labour costs

• Proven business environment

• ICT policies fostering economic recovery

• A young skilled workforce and a well educated population

Challenges for Growth

• Slow advancement of broadband services in key regional centres has slowed potential growth.

• The cost base in Ireland remains high. Many inputs are necessary,the cost of labour is elatively high compared to emerging economies, and Irish exporters are adverselyaffected by the cost of the Euro.

• The financial condition of the country has resulted in diffculties accessing finance and venture capital.

ICT Ireland is the leading representative body for the technology sector in Ireland and is affliated to the Irish Business Employment Confederation (IBEC). Its membership is made up of the leading players in the Irish technology sector, as well as many early stage hi-tech companies andtelecommunications companies.

The Software Skillnet is a network of companies within the Software and IT services industry in Ireland who engage in the development and delivery of sector specific customised training.

Case study - Analysis

Benefits and Risks of Outsourcing:

Benefits - Wasim

Ireland Outsource helps organisations to realise many key outsourcing benefits, which include, but are not limited to, the following:

Speedy set up to achieve commercial trading enablement and fulfilment capabilities Focus on the core Business Activities that make your Company a Success. Reduce Your Costs and Save Money. Manage Your Costs through Cost Structure Optimisation so they are Consistent, Reasonable and Predictable. Increase Efficiencies and Quality Improvements and achieve greater Operational Control. Eliminate Staffing and Resourcing Issues with access to Specialized, Flexible and Scalable Services. Guarantee Business Continuity & Risk Mitigation through levels of Certainty and Consistency.

Improve Customer Satisfaction and Loyalty with timely delivered, high-Quality Services

Develop Internal Resources with access to Domain Expertise Successful Service Provider and Partner Engagements through Effective Performance and Relationship Management.

Improved infrastructure administration. Increased Server Availability and performance

Reduced Power Consumption, Rack Space, LAN cabling and cooling requirements. Multiple Physical Servers available for reuse (Test/Development)

Benefits of ICT outsourcing highlighted

With over 80% of Irish businesses already using one or more outsourced or managed services, covering all sectors from public service to financial services, outsourcing can prove a key means of gaining a competitive advantage, according to senior representatives from the telecommunications sector. 

"Strategic outsourcing is about striking the balance between quality, economics, flexibility and innovation. With the correct approach and the right partnership, strategic outsourcing can dramatically improve a business," said Tom Carson, MD Corporate & Government Solutions, BT Ireland and the Chair of the Telecommunications and Internet Federation (TIF) Outsourcing Services Industry Group, at a seminar organised by TIF.

"Both the public and private sector today relentlessly pursue operational efficiency and competitive advantage, particularly given the current economic climate. The difference between the leading organisations and other organisations is that they are thinking strategically about outsourcing. It is therefore clear that ICT leaders should collaborate with the industry if they are to deliver on their Boards' expectations," he added.

Mike Davidson Business Development Director, eircom Enterprise Market, emphasised the need for Irish businesses to "Keep what you do best and outsource the rest". Mr Davidson believes that the key to ICT outsourcing is to identify what isn’t a competitive advantage – and get the experts to do it.  This allows you to concentrate scarce resources on activities that deliver competitive advantage to your business." 

Also speaking at the seminar John Staunton, Head of Outsourcing in Accenture, acknowledged that the outsourcing market in Ireland, for both IT Outsourcing and Business Process Outsourcing, is at an early but rapidly growing stage of development relative to other countries. "However, this means we can learn from the experience of these countries" he said. "While many initially choose outsourcing in order to reduce costs, there are often numerous benefits such as increased access to skills and expertise, better service, efficiency and reliability," headded.

Paul Conroy IT Service Delivery Manager from the Royal & Sun Alliance Insurance Group plc related their experience of being a company that decided to outsource its IT. He described the outsourcing relationship as "a win win for both parties". 

"This seminar marked the first in a series of morning seminars hosted by the TIF Outsourcing Services Industry group to promote the outsourcing services in Ireland," said Tommy McCabe Director of TIF. He stated that the value of outsourcing industry in Ireland is over €600m and is expected to grow to €700m by 2010.

Risks :

If there were no risks, there would be no need for managers. Risks and uncertainty is what management is all about. If everything were certain, and hence predictable, there would be nothing to manage. Risk is always a factor of every project. Risk assessment takes an aggregate view of the organization and the proposed outsourcing initiative and identifies risk

associated with any project, you must segment the risk into different categories: strategic risks, operational risks, technology risks and financial

risks

Strategic risks

Strategic risks deal with issues of interaction between the organization and the proposed vendor. Key questions include:

• Are the strategies of the two organizations compatible?

• Are the organizations’ strategies in conflict and do they limit or

inhibit the success of the proposed initiative?

• What is the partnering experience of both parties?

• Have they had experience and success in establishing and

managing these types of relationship?

• What is the level of executive commitment? And are the executives

truly supportive of the proposed initiative?

• Are they committed to providing the vision, leadership, resources

and resolve to make the initiative successful?

Industry position leverage objectively assesses the relative strengths and weaknesses of both the client and vendor organizations to determine how the partnership can strengthen the competitive position of the partners. Management expertise assesses the collectivemanagement capabilities and depth of the client and vendor organizations. Seasoned outsourcing management talent is limited today and many companies struggle to attract and retain outsourcing managers. In many cases, organizations are forced to go to outside consulting firms to help them through the process. As outsourcing becomes a strategic element of an organization’s overall business strategy, it will be important to build these capabilities organically in-house. Strategic risks include intellectual property risk, which involves assessing the risk of exposing internal intellectual property to an external services provider. Companies must identify and assess their intellectual property and objectively assess the risk of exposing their property to an external service provider. Although there has been some positive movement globally in the protection of intellectual

property, companies must consider the risk and recourse if their intellectual property rights are breached.

Operational risks

Operational risks address the risk of managing the internal and external operational elements of the proposed outsourcing initiatives. These risks address an array of elements such as defining the roles and responsibilities of the management and operation staff, and determining process, procedure, methodology and mismatch between the buyer and service provider organizations. Other operational risks include staff transition, retention and attrition rates. In India today, staff attrition has increased well over 20 per cent recently in many of the IT services, a rate unheard of a few years ago. Training is a concern and plans need to be put in place to address product, process and technology training requirements. In many cases, cultural issues can be a major obstacle in the success of outsourcing initiatives. It is never easy to integrate different cultures with different norms and values. Both the buyer and service provider must address the potential cross-cultural issues and plan on conducting team building and cross-cultural training.

Technology risks

The technology risk assessment identifies the organization’s technology support attributes. This assessment also exposes potential risks associated with the proposed outsourcing project technology and impact on both the client and vendor organizations. During the technology assessment, the client needs to understand the architectural approach and requirements of the proposed initiative and the impacts of these decisions through the life of the solution. Many decisions will have to be made at this time, including standardization versus customization of the proposed solution as well as regulatory compliance, security, reliability and testability of the design as human-factor considerations. It is also important to consider customer support attributes such as responsiveness, warranty, testing, upgrades, maintenance and repair, training, documentation and the overall product support methodology. This assessment considers all the technology elements that may pose a risk, from cradle to grave. Organizations must consider security issues and determine the products and/or services for which security risk is minimal and most conducive to outsourcing. If the products and/or services to be outsourced are extremely sensitive, adequate security measures must exist to protect intellectual property and data. Also, outsourcing may not be the best option if there is a huge cost associated with bringing the product and/or service back in-house ifoutsourcing does not work. Alternative options should be explored, such as keeping the work in-house.

Financial risks

The financial risk assessment defines and baselines all internal costs and financial system maturity levels. It also identifies all financial risks associated with moving forward with the proposed outsourcing initiative. This can include the financial stability of both the client and potential vendor. The costs of moving forward with the proposed outsourcing initiative must be considered, including internal versus external cost analyses for cost elements such as human resources costs, development costs, production costs, training costs, travel costs, transition costs, communications and management costs. Also, the organization will need to assess its internal financial systems and processes to determine their maturity levels and put together analyses and report costs that address any system or process deficiencies.

Managing risks

The goal of risk assessment is to make executives aware that outsourcing is a risky business proposition. This is not to say that the risks cannot be managed and mitigated. However, to do this it is important that executives are first aware of the risks and their nature. Once risks are outlined, the next step involves assessing the risks. This includes assigning probabilities to each risk, indicating the likelihood of the risk materializing at all. In addition to the assignment of probabilities,executives must also assign costs that will be incurred if the risk

materializes. Put another way, if the risk were to occur, how much would the organization have to shell out to manage its outcomes and get the business back to normal? Using the list of risks, their probabilities of occurrence, and associated costs, organizations can employ various options to manage risks. First, organizations must ask themselves how much risk they are willing to bear. Answering this question will give a sense of what risks they are even considering managing and what risks they do not want to undertake. For risks that organizations do not want to undertake or manage, they may have to find sources of insurance or hedge these risks or abandon outsourcing as a strategy. To take the example of a

software project, if an organization does not want to undertake risks in terms of technology disruptions, it could choose to run two versions of an information system for a given period, one that is its existing system and one that is created by the vendor. It can continue this until it is satisfied with the quality of the new system and ready to rely on it solely. Second, to manage risks organizations must identify risk mitigation

strategies. These strategies or interventions need to be stated clearly in the outsourcing contract when entering into the agreement. For instance, if loss of data is viewed as a high probability event and one that is costly, the organization should ensure that its vendor has appropriate disaster recovery and backup procedures in place to counter this risk. Finally, a contingency plan or backup solution must be developed. For severe risk, ie risks that have a high probability of occurring and are costly if they occur, contingency plans must be in place. These plans should help organizations decide what actions need to be executed should these risks materialize.

Interview - to be added by Wasim

Core and Non core Tasks- Managing Desktops and IT is not core

- not core to your business

Reason for outsourcing - not core to yourself - outsource to organisation that does it a standardised way.

India, Romania, Poland, Malaysia

Benefits of Outsourcing - commitment around the service level

cost savings, value and innovation - especially larger players bringing emerging trends in IT - where is cloud and mobile computing going, Latest technology in securities.

Three C's

Cost, Capability and Capacity, ITOL - framework for how to deliver IT services and companies like IBM have it automatically. Research with Toyota - Manufacturing of cars, How they do it in a most efficient and effective way.

Risks: T and T (Transition and Transformation)

Isthe company Ready for outsourcing?

Discipline and Rigour - Inhouse to outsourcing - Transition means inhouse to someother place.

Outsourcing - subject to employee protection rules.

people transfer to someother department, use them in different capacity and give them some acceptable package as compensation.

- Advised poorly, wrong selection criteria

Why Particular countries?:

It depends on the type of project, Skill set of that particular country,Cost factors, Government policies.

Never 100% offshore - it can't be, Certain points of control

model - mixture of more standardised tasks, data center and operator monitor 24/7, process very important

Choice from Customer end - It is client's decision

99.9% on time, Service credits will be reduced

Client has to trust the vendor, IBM is no.2 branded company in the world.

Case Study:

Started 2005 - financial services sector, based in Ireland

Change their business model, Present system was not good enough for their IT model,

Cost benefits Analysis

http://accounting-financial-tax.com/2009/06/cost-benefit-analysis-a-general-overview/

Cost-Benefit Analysis [A General Overview]

Cost-benefit analysis is used for determining which alternative is likely to provide the greatest return for a proposed investment. Sometimes referred to as cost-effectiveness analysis, it is relevant to businesses as well as to not-for-profit entities and governmental units. A business might find it helpful to use cost-benefit analysis to determine if additional funds should be invested in a facility in the home country or in another country. A community not-for-profit organization that provides a variety of programs for children might use costbenefit analysis to assist management in determining which activities will provide the most services for the costs specified. A federal governmental agency might use costbenefit analysis to determine which of several projects planned for the national parks is likely to be most used by interested citizens, given the costs. This post gives a general overview of the cost-benefit analysis both for business and non-business analysis.

Because resources such as money and time are limited, an organization usually cannot undertake every project proposed. To decide whether to undertake a project, decision makers weigh the benefits from the project against the cost of the resources it requires, normally approving a project when its benefits exceed its costs. Cost-benefit analysis provides the structure and support for making such decisions.

 

Benefits increase the welfare of the organization. Some benefits are monetary benefits, such as the dollar amount of cash inflows from additional sales of a product or the saving in cash outflows that a project enables. Other benefits are important but harder to quantify. For example, a project may increase customer satisfaction; increased customer satisfaction may increase future sales, but the exact relationship between sales and satisfaction is often hard to specify. Costs are the outlays or expenditures made in order to obtain a benefit. Many costs are measured monetarily, such as the cost of buying a new machine or of hiring an additional employee.

 

Cost-Benefit Analysis In Business

A cost-benefit analysis is straightforward when all costs and benefits are measurable in monetary terms:

Assume that Company A must decide whether to rent an ice cream machine for the summer for $900. The ice cream machine will produce additional cash inflows of $1,000 during the summer. The benefit of additional cash inflows ($1,000) exceeds the additional cost ($900), so the project should be undertaken. Not all cost benefit analyses are this simple, however. If the benefits and costs occur in different time periods, it may be necessary to discount the future cash flows to their current equivalent worth.

In another example, cost savings is a benefit. Assume that Company B makes about 100,000 photocopies a year. Company B does not have its own copy machine and currently pays 4 cents per copy, or $4,000 a year, to outsource copiers. Company B can lease a copy machine for $2,500 a year. It must also pay 2 cents per page for paper for the leased machine, or $2,000. In this example, the cost of leasing the machine and buying paper ($2,500+$2,000=$4,500) exceeds the benefit of saving the $4,000 normally paid to outsource copiers. Company B should continue to use an outsource copiers for its photocopies. However, Company B must have a pretty good estimate of the number of copies it needs to be comfortable with its decision. If Company B needs 150,000 copies this year instead of 100,000, the cost of the leasing the machine and buying paper ($2,500+$3,000=$5,500) is cheaper than the $6,000 (150,000 x $0.04) savings in fees to the outsource copiers.

A third example involves a project with benefits that are difficult to quantify. Assume that Company C is deciding whether to give a picnic costing $50,000 for its employees. Company C would receive the benefit of increased employee morale from the picnic. Better employee morale might cause employees to work harder, increasing profits. However, the link between increased morale and increased monetary profits is tenuous. The decision maker must use his or her judgment to compare the nonmonetary benefit to the monetary cost, possibly deciding that increased employee morale is worth the $50,000 cost but would not be worth a $100,000 cost.

 

In the preceding examples, cost-benefit analysis provided a framework for decision making. The range of objectivity related to measurement of the factors is typical. Techniques used in business as a basis for determining costs and benefits, such as return on investment, are generally quantifiable and thus appear to be objective. However, it is not uncommon for qualitative factors to enter into the decision-making process. For example, providing a product that individuals with limited incomes will be able to purchase may not provide the highest monetary return on investment in the short run, but might prove to be a successful long-term investment. Careful decision makers attempt to deal with a difficult-to-quantify factor in as objective a manner as possible. However, cost-benefit analysis in most situations continues to introduce measurement problems.

 

Cost-Benefit Analysis In Non-business Entities

Cost-benefit analyses are also common in nonbusiness entities. Boards of not-for-profit organizations establish priorities for their programs, and such priorities often specify desired program outputs. For example, assume a not-for-profit organization is interested in reducing the level of illiteracy among the citizens of a rural community in a state that has one of the lowest per-capita incomes in the United States. As alternative programs for those who need to learn to read are considered, there will be costbenefit analyses that focus on a number of factors, including the extent to which a particular program can attract those who are illiterate. A program in the downtown area of a small town might be considered because a facility is available there at low cost, and that low cost is appealing.

Focus on cost is not sufficient, however. When benefits are considered, it might become clear that those who are eager for such a program do not have cars and that there is no public transportation from where they reside to the center of the small town. Further consideration of relevant factors and of alternatives, undertaken in good faith, should result in cost-benefit analyses that provide valuable information as the agency makes decisions.

At all levels of government in the United States, costbenefit analyses are used as a basis for allocating resources for the public good to those programs, projects, and services that will meet the expectations of citizens. For example, decision makers at the federal level who have policy responsibility for environmental standards, air-quality rules, or services to the elderly often find information from cost-benefit analyses to be critical to the decisionmaking task.

As possibilities for the use of funds increase, there is motivation for better measurement of both costs and benefits as well as for speedier ways of accomplishing analyses for alternatives that are appealing. All types of entities, including businesses, not-for-profit organizations, and governmental units, strive to improve the measurements used in cost-benefit analyses. The capabilities of electronic equipment provide promising assistance in accumulating data relevant for analyses. Wise use of resources is an important goal in every organization; cost-benefit analyses make a key contribution to this goal. Therefore, attention is given to improving both the effectiveness and efficiency of such analyses.

First Element - engagement and due diligence

Engagement - What is d scope, What they expect from us?

Due Diligence - understand the present business model of the company and then, how many servers has, how many end users put in attending calls, volume of calls attended and you need employee numbers, ttransition and how long they expect the ttransition to be

contract signed

Global agreement signed from the company

Scope, T and T,

Transformation -move to standardised service, Standard desk side platform,in formal Service desk - change in to formal service desk, monitor call waiting time,

employees are involved- some are transferred to IBM ans some stayed within the company, voulantary package and choose to go else where - hugely complex process

Business steady stage in parallel there is transformation program

Operational Transformation - Service management - Most organization has a change board

Ex- Ulster bank - application - dont change it, it continues to work- upgradation needs a controlled way -

Change board - tested performance, pre production environment,

Operational Transformation - Formal method of running IT services - 1 year

onsite to the client

Establish governance -

1) operational or delivery service changes in expectation of business from technology example: organization needing a diff operating system ( from 2005 to 2013 present- keeps on happening)

2) Business Governance - Relationship, Stake holder Management,

3) Strategic Governance - Visibility of their Strategic plan, what their investments are, their values

budget recycles - delivery value within budget -

This is bcoz we might deliver services in a way which is contradictory to the way the business going forward

Executive management - transformation executive within the client - retail (client) - largest org - reports to CEO and board,

Model - Program Management

People involved

Commercial management - back office type of work - invoices, contract interpratation

Program executive - rerlationship, financial run everything including the commercial

1) Customer relationship and Customer satisfaction - not 100% satisfied

2) Delivery and Support - probably virtual - people in India - excellence

3) People management - happy people - work best

4) Win - win - internal health - vendor making profit as well providing best system for the client, customer gets value, controlled way or structured way

5) Growth or change - going forward or backwatds - bring change, new ideas, innovation centre, how to add more value

Diificulties (Process):

Project management practice

Prince, Project definition workshop, project manager

Early notification about change - they changed office locatio in 2007, we involved in 2005, program managers involved, everything was known and hence was managed

Mind set and approach

organizational change mgmt

Management of Resources:

Client Organization -

single focus points -

business governance

executive mgmt governance

Cost Benefit

achieve value - no analysis on value

Right people - on their side and vendor side

Irish Business:

Effective for IRish Business, Everybody from small, medium and large org does outsourcing

two banks, most telecommunication companies are outsourced, public sector - semi sate, private retail - they all outsourced, insurance - IT managed by somebody else to some extent but not fully

Some work - offshore

people moved to higher values and roles

more effectively and efficiently offshore - others are doing and u got to do it to compete

Case Study analysis:

This bank is one of Spain’s leading banking institutions, with a network of more than 5,000 branches, nearly 8,000 automated teller machines (ATMs) and more than 10 million customers. It is also an important

shareholder in leading Spanish services and utility companies.

Facing the challenges of an economic crisis

The ongoing European financial crisis has hit southern Europe—Spain, Italy and Greece in particular—especially hard. The crisis has literally changed the face of banking in Spain dramatically through a significant reduction in the number of banks—from more than 40 to approximately 12—creating a chaotic period of mergers and acquisitions in the Spanish financial industry. To compete and survive, the Spanish bank took the bold strategic position to grow through mergers and acquisitions not only within Spain but internationally as well. The Spanish bank has always taken pride in its willingness to embrace innovative, new technologies and in the ability of its IT department to implement and manage them. Long considered a differentiator because of its use of new technologies, the bank was one of the first banks in Spain to offer Internet banking and has been a recognized leader in social and mobile computing. But with no IT epartments outside of Spain, an innovative international growth strategy, and the need to improve its reporting and auditing to address regulatory compliance requirements, the bank began looking for a sourcing provider that would enable it to maintain its technology leadership position and would provide the global presence it would need to integrate new acquisitions rapidly.

Overview

The need

A Spanish bank needed to evolve to a flexible IT services model to support its expansion strategy, improve its cost structure and liquidity position, and ensure IT excellence and innovation.

The solution

IBM will provide technology, application and infrastructure services; data entry management; and access to innovative technologies to reinforce the bank’s position as a technology leader.

The benefits

IBM’s alliance with the Spanish bank is expected to save EUR400 million over the 10-year contract and provided a global

presence that enabled rapid integration of new banks outside Spain.

Teaming for growth

IBM has been a provider of technology and services to the bank for almost 50 years. In January of 2012, the bank entered into a 10-year strategic services relationship in which IBM and the bank’s internal IT department would jointly manage the bank’s infrastructure technology budget of more than EUR2 billion. IBM will provide technology, operations, applications and infrastructure services and will also assume management of the bank’s data processing centers. "For the last 50 years, IBM has been the privileged

technology partner of the bank, and today the bank renewed its confidence in IBM," says Juan A. Zufiria, general manager of IBM Spain, Portugal, Greece and Israel. "With this strategic alliance, we open up our

capacity, experience and talent to the bank to support their growth plans." The new strategic alliance is expected to save the bank EUR400 million over the term of the agreement. The contract will provide access to new technologies and innovations to enhance the bank’s business development in Spain and the global marketplace and position the bank as one of the leaders in using new technologies—such as mobility, social media and cloud computing—in the financial sector. The decision to source Business and IT services from IBM was based on what the bank felt were five key differentiators.

• Effciency: The bank felt that with its expansion strategy, sourcing many of its IT functions to IBM would create effciencies that would increase internal productivity.

• Reduction of operational costs: The bank believed that the EUR400 million it expected to save over the term of the agreement would enable it to invest that capital in growth.

• International expansion: With no IT presence outside of Spain, the bank believed that a global technology provider such as IBM would offer the international presence and expertise that would help it realize its international expansion goals.

"Working with one of the

most recognized technology

leaders in the world

is very important to us.

This agreement allows

us to offer better services

to our clients and obtain

competitive advantages

in a sector in which

innovation and new

technologies are key to

realizing growth."

—General manager, Spanish bank

• Innovation: The bank knew that IBM could deliver the innovative social, mobile, cloud and analytics technologies that had long been among the bank’s key differentiators.

• A true alliance: The bank believed that by teaming with IBM, not only would the proficiency and effectiveness of the bank’s internal IT department improve and evolve, but a culture of innovation would be created that would ensure that it remained a technology leader in the industry.

Continuing a legacy of innovation

Although creating operational effciencies and executing on its global growth strategy were key factors in teaming with IBM for IT management and administration, the Spanish bank was also intent on retaining its position as a technology innovation leader. The strategic sourcing agreement with IBM included a collaborative relationship with IBM’research and development centers in Spain to provide the latest technologies, research capabilities and innovations in business processes smarter banking, mobility, social media and cloud computing. "Working with one of the most recognized technology leaders in the world very important to us," says the general manager of the Spanish bank. "This agreement allows us to offer better services to our clients and obtain competitive advantages in a sector in which innovation and new technologies are key to realizing growth."

Creating a global value chain

Today, many businesses are differentiating themselves by creating global value chains—an integrated chain of best-in-class partnerships that can provide global presence with a local footprint. The Spanish bank, looking for more than just cost cutting, wanted a relationship that would help it better leverage IT into its business objectives to stimulate growth and prepare for the future. By tightly weaving together business insights and its industry-leading software portfolio, world-class technology research and operations expertise, IBM is redefining what it means to design, deploy and deliver IT services on a global scale. As a result, IBM Global Services is enabling clients such as the Spanish bank to create IT effciencies, integrate global acquisitions rapidly, collaborate on new technologies and free up resources to focus on innovative projects.

"For the last 50 years, We have been the privileged technology partner. With this strategic alliance, we open up our capacity, experience and talent to the bank to support their growth plans."

— General manager of IT company

Case Study 2 - Pending

Dark Side of IT Outsourcing:

Outsourcing Problems and Disadvantages Revisited

Outsourcing:  Time for a look at the problems and disadvantages

Outsourcing and offshoring are big business and are expanding at an almost exponential rate and it's time therefore to look at the problems and disadvantages of outsourcing and offshoring in detail.  The Economist Intelligence Unit for example notes that whilst some 34% of firms outsourced all or part of their IT in 1997 this percentage is expected to rise to nearly 60% in the next six years. It looks as if this outsourcing forecast may be an understatement - India's business process outsourcing industry is growing at a rate of over 50% per annum.

Let there be no mistake, outsourcing can deliver benefits to an organisation that are beyond its internal capabilities. Some of the most frequently cited benefits from outsourcing include:

- Increased focus upon the core business

- Access to lower process costs

- The restructuring of internal business areas that have resisted change

- Higher value adding and more flexible services than internal sources can offer

- Access to best in the world knowledge sources to enhance innovation

- The achievement of better cross process co-ordination than traditional organisational structures can deliver.

However, recent surveys point to the fact that outsourcing may not be delivering and outsourcing disadvantages need to be explored. Research indicates that nearly 80% of managers who have outsourced an IT function have terminated the contract early. Another survey conducted by the American Management Association reveals that 75% of managers thought that outsourcing failed to live up to their expectations. End customers don't seem to have much confidence in the process either and see outsourcing disadvantages with in one survey 81% feeling that the financial benefits of outsourcing won't be passed onto the customer. Others feel that outsourcing may be just another management fad or cure-all.

So the time is ripe to take a cold look at the potential problems, disadvantages and downsides of outsourcing.

Specifically, there are four questions that I would like to address in this article:

1. Are there hidden disadvantages in outsourcing?

2. What can we learn from downsizing - the last management cure-all deployed extensively in the 1990s - to reap the advantages of outsourcing but avoid the disadvanatges?

3. Should we enhance traditional methods of assessing outsourcing benefits and risks?

4. How well will outsourcing allow an organisation to deliver 21st century strategies?

 

Outsourcing and 21st century strategies

I would like to start by answering the last question first. Strategy is changing and an appreciation of this should be at the heart of the outsourcing decision.

Competing in the opening decades of the 21st century will be different to the 1990s in four ways.

Firstly, as Professor Michael Porter of Harvard Business School predicts, the cost reduction train is about to hit the buffers. Throughout the 1990s we have had a pre-occupation with cost reduction. Cost minimisation has been at the heart of many organisations' competitive strategies. But it's a train going nowhere. As all organisations gravitate to the same cost base, there's no unique source of competitive advantage left. Operating using efficient processes is a fact of life. It won't be an approach that will successfully differentiate one competitor from another.

One of the defining characteristics of 21st century strategy will be a shift from costs and products to relationships as the primary focal point of strategy. In the 1980s products were the primary focal point of an organisation's strategy.

Do we provide a commodity product? Do we offer a product with many add ons? Do we supply products to a broad or narrow customer segment? These were the questions that drove the shape of competitive strategy in the 1980s. In the 1990s we have had a pre-occupation with BPR, downsizing and cost reduction.

In the 21st century it's going to be different. A combination of freedom of information, open standards and the outsourcing of product development functions means just one thing. Product development lead times, the tradition bastion against new entrants, have been slashed. As Palm found out, a new rival Handspring could make use of outsourced product developers and open standards to produce a rival product in a matter of months, not years.

This example is becoming the norm and organisations are starting to turn to relationships particularly with end customers as new sources of enduring competitive advantage. This change in strategic focus will demand a new organisational competency set - more of this later.

Innovation is therefore back in. As I have observed, the cost reduction train is about to hit the buffers. To stay ahead managers must focus upon innovation in three core areas - products, processes and relationships.

Finally, we have uncertainty. We thought that life in the 1990s competitive arena was uncertain. Now, managers have to cope with both economic and global uncertainty making it impossible to predict the exact trading environment one year out, let alone three or five. In response, organisations are making more use of scenario planning - multiple views of a future environment and a response strategy for each. This technique was pioneered by Shell and enabled it to move rapidly when the oil crisis of the 1970s unfolded.

Each of these four characteristics of competitive life must be factored into the outsourcing evaluation process - an issue that I will return to at the end of this article.

 

Outsourcing:  The hidden problems and disadvantages

There are many reports of drawbacks in the outsourcing process, most focusing upon outright failure of outsourcing arrangements, selecting the wrong vendor, poor contract construction and the costs of exit. I would like to look here at the costs or risks in outsourcing that have potentially a far deeper and longer-lasting impact for the organisation. These are:

- Negative Innovation Impact.

- Strategic Inflexibility.

- The HR Dimension

- Negative Environmental Response.

Outsourcing problems and risk factors

Negative Innovation Impact.

Many supporters of outsourcing hold that outsourcing can greatly enhance the innovative capability of the organisation - and in the right setting it can. However, it's important to understand the innovation trail of your organisation and how outsourcing might affect it. When I talk about the innovation trail I mean the path that starts from idea generation and ends up with a successfully launched new product or service.

Many of the organisations that have increased their innovative capability through outsourcing have innovation trails that start in the R & D area - drug companies are a good example. Research develops ideas. In many organisations, particularly service industries, the innovation trail starts with the end customer - it's the end customers' comments and ideas that really kick-start and drive innovation.

Instead of outsourcing customer contact some organisations are starting to use "innomediaries" or partners to leverage up the collection, analysis and use of customer contact information. Elly Lilly's approach in this area - its Innocenter has become so successful that it is now a self-contained subsidiary offering mediated innovation services to a range of organisations. On a final note it's interesting to observe that one of the leaders in the outsourcing arena - Dell - has announced that it is to bring home its overseas customer facing call centre operations.

The important point is to understand where in your organisation the innovation trail starts. If you're in an industry where the innovation trail starts with the customer, beware outsourcing customer contact activities - you just might cut yourself off from future winning ideas.

Strategic Inflexibility.

I have two messages here.

My first message is don't follow a trend in your industry. Take insurance. If all competitors outsourced their call centres to the same outsourcer the scope for differentiation is greatly reduced. Insurers will have effectively excised their capacity to be different and driven themselves into a position where they are suppliers of pure commodity products. Remember that organisations like Procter and Gamble are careful to insource both the development of processes and products to build competitive advantage not competitive parity. This issue of outsourcing the capability of an organisation to be different is seen my me and others as being one of the major downsides in the outsourcing process.

The second message is to remember that strategy - how organisations gain competitive advantage - will change. I predict that there will be greater focus on end customer relationships and less focus upon cost reduction than we have seen in past decades. Of course everyone is careful not to outsource "core" processes - processes that really make the organisation different. My point is however that tomorrow's core processes may be very different from those we use today.

This last message is compounded by the fact that the 21st century business environment is an incredibly uncertain environment. The capacity for an organisation to be strategically flexible should be an essential part of the outsourcing risk assessment process. The strategic risks associated with outsourcing any process or activity should be tested against not just today's competitive environment but multiple views of tomorrow's possible environment. Unfortunately, research tells us that the competitive environment is not yet at the forefront of managers' minds when the outsourcing decision is made. The most important criterion would still appear to be the scope for cost reduction.

The HR Dimension This is the big risk factor.

Users of performance measurement concepts such as the Balanced Scorecard will realise that people are the true performance-driving dimension. People are the ultimate drivers of corporate excellence.

Assessing the HR risk is more than just ensuring that critical employees aren't outsourced. Just as strategy is changing so is the employment contract. By the employment contract I mean what employees expect and what motivates them. And this is a changing dimension as well. In addition to economic rewards (the pay cheque), to be motivated employees expect fair treatment, a degree of security, rewarding relationships with fellow workers and most importantly the support of the organisation in developing a skill and experience set that will help them survive in an uncertain environment. Research again shows us that if this contract is broken or threatened, neither promotions nor pay rises will repair the damage.

The effect of the outsourcing decision upon the motivation and retention of employees is a central risk factor. Remember, that employees across the organisation generally react to an outsourcing announcement by thinking that management under-estimate their skills and contribution. To successfully manage the HR dimension the organisation must:

- Identify and retain employees with the skills and knowledge that provide the organisation with the flexibility to excel in an uncertain environment. This requires the delivery of a clear vision of how retained staff will contribute to the organisation's success in the long-term.

- Retain a cadre of employees with a deep firm specific knowledge of the outsourced processes to (i) effectively manage the bridge between the organisation / outsourcer and (ii) if all fails, to manage the backsourcing process.

- Deliver an enhanced employment contract to outsourced employees. Remember that the treatment of outsourced employees is a powerful advert to core retained staff. It's important that retained staff see their former colleagues receiving better opportunities and support than they had received in the past.

Negative Environmental Response

This is the unknown issue.

Is outsourcing an "acceptable" management practice?

Well, the jury is out. Currently, the threat of a political backlash is high on the strategic agendas of overseas outsourcers. Judge your core customers' reaction carefully.

Downsizing: What Can We Learn?

Arguably, downsizing was the panacea or cure all of the 1990s. Again, it's had a mixed track record. Commonly reported post downsizing problems are:

- Decreases in employee motivation and commitment to the organisation.

- Decreased levels of work effort on the part of surviving employees.

- Working atmospheres or "cultures" characterised by low levels of trust and high levels of insecurity.

- The appearance of the "survivor sickness syndrome" whose symptoms include decreased creativity, increased fatigue and importantly extreme risk aversion.

Most worrying of all is the loss of the experience that really made the organisation different. Only now are some organisations learning that middle managers really did play a valuable role - being repositories of organisational memories - what went right and wrong in the past.

If we look back at the downsizing experience and learn a lesson it should be the management of the HR dimension. The HR dimension is the primary risk factor.

Research Work on Outsourcing in Irish IT Industry. An analysis of a Company in Ireland and the effects of Outsourcing on the Organization (Pro's and con's, Selection of Countries and why?, Difficulties in outsourcing, Way ahead)

Outsourcing strategies of the company? Why outsourcing?Pros's and Con's of Outsourcing?Failures of outsourcing , Lessons learnt from that? Way ahead?