Post on 07-Apr-2018
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Out sourcing decisiona
strategic frame work
AMITY
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Out sourcing decisiona strategic
frame work
The nature of out sourcing is divers from:
Core production activities.
In-boundout bound logistics.
Secondary value chain activities. IT, accounting, distribution,HR R&D.
Goal:
Maximizing the net benefits versus in-house provision of
value chain activities.
Risk:
Placing part of its destiny in the hands of others.
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Frame work for assessing benefits
of outsourcing
Cost from the firms perspective:
Specific governance costs associated with
outsourcing:
Three major determents of outsourcing:1. Costs.
2. Product/activity complexity.
3. Contestability and assets specificity.
Set Standards for each potential outsourcing
situations:
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The benefits from outsourcing:
Objective: Create value for share holders.
Lower the purchase price of some inputs taking
advantage of external suppliers lower cost.
Improve the quality of some inputs by purchasing
superior capabilities from an external supplier.
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Cost reducing rationales from
outsourcing
Compare cost with internal production of
activities.
Too low,
inefficient,
large fixed capital costs into variable costs,
New product generations happens quickly atlow cost and greater capacity utilization.
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Cost reducing rationales from
outsourcing
Organizational cost factors:
Large multiunits organizations-internal units
are often price in-efficient.
Govt. laws and regulations.
Agreements with unions.
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Cost reducing rationales from
outsourcing
Firms capabilities that are difficult to imitate
are the key to sustainable competitive
advantage.
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Cost reducing rationales from
outsourcing Direct purchase cost savings or superior
resources may be off-set in increase in
governance costs.(Any cost other than
production & purchase costs).
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Two distinctive type of
governance costs:Bargaining costs.
Contract negotiation costs,
Post contract negotiation costs,
Contract monitoring costs,
Disputes costs.
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Two distinctive type of
governance costs:
Opportunism costs:
Change the agreed terms of a transaction,
(one party acts self-interestingly but in badfaith)
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PRODUCT/ACTIVITY COMPLEXITY:
Complex goods involved uncertainty about the
nature and cost of production process itself.
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ASSETS SPECIFICITY:
Specific asset is one that has much lower value
in any alternative use.
Physical assets ,
Location,
Human assets specificity,
Dedicated assets.
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OUTSOURCING SITUATONS
Outsourcing situations and some possible
strategies:
Action:
Address bargaining and opportunism (during
or post contracting) costs at contracting stage.
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OUTSOURCING SITUATIONS
Various combinations of product complexity:
Low product/activity complexity and low asset
specificity:
This combination provides clearest case of outsourcing. It encompasses many standard products, services and activities required
by the firm.
The outsourcing firm has or easily acquire sufficient knowledge and
information to specify contract terms precisely (as there is low uncertainty
about priceperformance characteristics) with low asset specificity(andresulting high contestability) inefficient and opportunistic external
suppliers can be quickly replaced.
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OUTSOURCING CITUATIONS
Low product/activity complexity and high asset specificity:
Given low complexity ,problems associated with high assets specificity
almost certainly involves high temporal or location specificity.
There are likely to be few efficiency cost arising from high physical assets
specifically when the outsourcing firm makes the specific investmentsitself, as given this ownership it is not costly to replace the external
suppler (given high contestability)
One way of avoiding these problem is for the outsourcing firm to Own
the specific asset and to rent it or lease it to the external firm.
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OUTSOURCING SITUATIONS
High product/activity complexity and low asset
specificity:
This configuration perhaps best characterizes
the supply of wide range of services or
activities that are potentially outsourcable to
professionals.
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OUTSOUCING SITUATIONS
High product/activity complexity and high asset
specificity:
The important different between this situation and the
second case discussed above is that Reliance on arbitration orthird party contract enforcement procedure is more
problematic, because it is more difficult for a judging third
party to identify whether contract breach has occurred.
Solution: Outsourcing firm provides external suppliers with higher than
normal profit that they can expect to earn indefinitely in the
absence of a verified contract breach
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Overall frame work emphasize the
following steps: Formulate consistent expectations about the uncertainties
surrounding the potential transactions at all stages of contract
formulation and implementation.
Identify the potential opportunism at different stages of
contract formulation.
Identify contract provisions to attenuate opportunism and
assess the consequences of the preferred strategies for the
overall efficiency of outsourcing versus internal production.
Implement the relevant strategies prior to initiation of
outsourcing.
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Ranking of cities
The annual survey conducted by the
Datamonitor Group:
Asked 3,100 corporate development leaders,
including more than 400 outsourcing
customers, to indicate their company's
inclination to consider specific offshore
locations for outsourcing (including IToutsourcing and BPO).
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Ranking of cities
The ranking of cities on various perceived threatsand weaknesses, including :
Geopolitical risk,
Terrorist threats, Climate concerns,
legal maturity,
environmental waste and pollution, IT and telecom infrastructure security,
Crime rates.
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Ranking of cities
The 25 Riskiest Cities for Offshore Outsourcing in 2010
1. Karachi, Pakistan
2. Medellin, Colombia
3. Juarez, Mexico 4. Cali, Columbia
5. Tijuana, Mexico
6. Lahore, Pakistan
7. Jakarta, Indonesia 8. Lagos, Nigeria
9. Dhaka, Bangladesh
10. Chittagong, Bangladesh
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Ranking of cities
11. Amman, Jordan
12. Khulna, Bangladesh
13. Faisalabad, Pakistan
14. Rawalpindi, Pakistan
15. Port-au-Prince Haiti
16. Managua, Nicaragua
17. Chihuahua, Mexico
18. Ljubljana, Slovenia
19. Tashkent, Uzbekistan
20. Bandung, Indonesia
21. Kingston, Jamaica
22. Tel Aviv, Israel 23. Colombo, Sri Lanka
24. Johannesburg, South Africa
25. Accra, Ghana
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Ranking of cities
The 25 Safest Cities for Offshore Outsourcing in 2010
1. Prague, Czech Republic
2. Warsaw, Poland
3. Brno, Czech Republic
4. Krakow, Poland
5. Toronto, Canada
6. Halifax, Canada
7. Singapore, Singapore 8. Dublin, Ireland
9. Kiev, Ukraine
10. Chennai, India
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Ranking of cities
11. Pune, India
12. Wuxi, China
13. Monterrey, Mexico
14. Sao Paolo, Brazil
15. Bangalore, India
16. Beijing, China
17. Santiago, Chile
18. Brasilia, Brazil
19. Mumbai, India
20. Dalian, China
21. Chandigarh, India
22. Rio de Janeiro, Brazil 23. Cebu City, Philippines
24. Kuala Lumpur, Malaysia
25. Kolkata, India
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Outsourcinglessons from
regulators The provision of outsourced business services is not, of course, a regulated
industry.
But many clients of outsourcing service providers are themselves in
regulated industries indeed arguably the greatest take up of outsourced
(and offshore) business process services has been in regulated industries
such as financial services and utilities.
Regulators have therefore taken a keen interest in the implications of
outsourcing and offshoring for their members, particularly with regard to
operational risk and the potential impact on their customers.
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Outsourcinglessons from
regulators
Other industry sectors can learn a great deal
from the way the regulators have addressed
this issue their guidelines are pretty close to
a good practice summary for any outsourcingarrangement in any organisation.
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Outsourcinglessons from
regulators Take the UK Financial Services Authority Handbook which has
recently incorporated additional requirements due to the new
European-wide Markets in Financial Instruments Directive
(MiFid).
This sets out standards that any organisation should meet in
their outsourcing arrangements. A few pertinent examples are
summarised below, with comments in brackets:
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Outsourcinglessons from
regulators
The need for a written contract setting out the
respective rights and obligations of the client
and the service provider (one would hope that
most organisations have understood this bynow.)
Robust governance arrangements in place (the
g word is now of course the current hottopic in the outsourcing world)
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Outsourcinglessons from
regulators
No delegation of senior personnels
responsibility (i.e. outsourcing is a means of
delivering, not an abdication of responsibility)
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Outsourcinglessons from
regulators
Service provider must have the ability and
capacity to perform the services professionally
(and therefore the client is responsible for
carrying out the due diligence to find out ifthey have)
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Outsourcinglessons from
regulators
Client must establish methods for assessing
the standard of performance of the service
provider (so no more SLAs which never get
monitored or even drafted)
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Outsourcinglessons from
regulators
Client must retain the necessary expertise to
supervise the outsourced functions effectively
(which means that the work can not just be
thrown over the fence)
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Outsourcinglessons from
regulators
Client must have the right to terminate where
necessary (note this is a right, which means
it must be addressed in the contract)
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Outsourcinglessons from
regulators
Contingency plans for disaster recovery must
be in place and be periodically tested (no
good just having vague assurances in the
contract).
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Outsourcinglessons from
regulators
And so it goes on. Whether or not these
standards are generally adhered to in the
outsourcing arrangements in place in the
financial services industry is a question forthose organisations, the FSA and other
regulators.
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Outsourcinglessons from
regulators
But regardless of this, the questions these
standards raise apply equally to any significant
outsourcing of what the FSA calls critical and
important functions (which would certainlyinclude IT, Finance and HR) in any industry.
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GLOBAL DELIVERY MODEL
GDM is typically associated with companies
engaged in IT consulting and services delivery
business and using a model of executing a
technology project using a team that isdistributed globally.
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GDM
GDM focus on the technical skills, process
rigor, tools, methodologies, overall structure
and strategies for seamlessly delivering IT-
enabled services from global locations."
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GDM
This model of delivery to signify one or more
of the following value propositions they bring
to their customers:
A global presence ensures an understanding
of the local language and culture wherever
they may be present, which is seen to be an
advantage when trying to understandcustomer requirements.
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GDM
A global presence implies that the
organization has access to resources of varying
costs that allows it to deliver services to its
customers at an optimal cost, typically a mixof costlier 'on-site' resources combined with
cheaper 'offshore' resources.
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GDM
A global delivery model implies that
potentially, a firm can work round the clock
for its customer, handing off work from one
location to another at the end of the 'dayshift' ('follow the sun' model) - thus providing
twice or even three times the capacity they
would have if they worked in a single location/time-zone only.
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GDM
Global locations also provide some degree of
'risk-proofing' a customer from natural or
man-made disasters such as flooding,
earthquake or political unrest - causingdisruption in one place.
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GDM
In case of such events, a global company could
presumably transfer work to another location
where the situation is normal, thus ensuring
that work did not get delayed for the client.
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Infosys
Infosys pioneered the Global Delivery Model
(GDM) to ensure the distribution of
application and business process lifecycle
activities and resources, while ensuring theirintegration.
The key drivers of our Global Delivery Modelare:
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Infosys
Processes
Our robust process-orientation allows us to
deliver solutions from multiple locations.
Quality
We deliver world-class solutions by
maintaining quality across processes,
interfaces and outputs, in management, core
and support processes.
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Infosys
Tools
We monitor large and complex projects
through a combination of indigenous tools.
Knowledge Management
Our Knowledge Management Services helpyou assess your needs, evaluate technologies
and recommend solutions.
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Infosys
Program Management
Our project management processes address
key aspects across the project life cycle.
Risk Mitigation
The risk management framework of Infosyscovers risk identification, prioritization and
mitigation.
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CLOUD COMPUTING
Cloud computing is a general term for anything thatinvolves delivering hosted services over the Internet.
These services are broadly divided into threecategories: I
Infrastructure-as-a-Service (IaaS),
Platform-as-a-Service (PaaS)
Software-as-a-Service (SaaS).
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CLOUD COMPUTING
The name cloud computing was inspired by
the cloud symbol that's often used to
represent the Internet in flowcharts and
diagrams.
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CLOUD COMPUTING
A cloud service has three distinct characteristics thatdifferentiate it from traditional hosting.
It is sold on demand, typically by the minute or the hour;
it is elastic -- a user can have as much or as little of a serviceas they want at any given time;
The service is fully managed by the provider (the consumerneeds nothing but a personal computer and Internetaccess).
Significant innovations in virtualization and distributed
computing, as well as improved access to high-speedInternet and a weak economy, have accelerated interest incloud computing.
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CLOUD COMPUTING
A cloud can be private or public.
A public cloud sells services to anyone on theInternet. (Currently, Amazon Web Services is
the largest public cloud provider.) A private cloud is a proprietary network or a
data center that supplies hosted services to alimited number of people.
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CLOUD COMPUTING
When a service provider uses public cloud
resources to create their private cloud, the
result is called a virtual private cloud. Private
or public, the goal of cloud computing is toprovide easy, scalable access to computing
resources and IT services.
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CLOUD COMPUTING
Infrastructure-as-a-Service like Amazon Web
Services provides virtual server instances with
unique IP addresses and blocks of storage on
demand.
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CLOUD COMPUTING
Customers use the provider's application
program interface (API) to start, stop, access
and configure their virtual servers and
storage.
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CLOUD COMPUTING
In the enterprise, cloud computing allows a
company to pay for only as much capacity as is
needed, and bring more online as soon as
required.
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CLOUD COMPUTING
Because this pay-for-what-you-use model
resembles the way electricity, fuel and water
are consumed, it's sometimes referred to as
utility computing.
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CLOUD COMPUTING
Platform-as-a-service in the cloud is defined as
a set of software and product development
tools hosted on the provider's infrastructure.
Developers create applications on the
provider's platform over the Internet.
PaaS providers may use APIs, website portals
or gateway software installed on thecustomer's computer.
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CLOUD COMPUTING
In the software-as-a-service cloud model, the
vendor supplies the hardware infrastructure,
the software product and interacts with the
user through a front-end portal.
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CLOUD COMPUTING
SaaS is a very broad market. Services can be
anything from Web-based email to inventory
control and database processing. Because the
service provider hosts both the applicationand the data, the end user is free to use the
service from anywhere.