Make or Buy midterm assignment - In the Project Open PowerPoint, (beginning on slide 11) there is discussion about an analysis matrix commonly used in Make or Buy outsource decisions (the ?Classical Model?). That is contrasted (on slide 13) with a complementary model known as the ?Internal Skill Model?.

Using your current organization as a data source, or any organization that you are well familiar with, submit a paper of 1,500 to 2,000 words that analyzes the possibility of outsourcing three separate business processes (of your choosing). Define the issues, estimate the financial ramifications, use both the Classical and Internal Skill Model to characterize the action options, and express a clear opinion on what action you would recommend to management and the board for each of the three processes.

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Translation Workflow - Make or Buy? 2005-10-22 Make or Buy? Internal Efficiency Rumors, Hype, Fashion Examples/ Cases Contents IT-Dept? Provider Relationship Customer Relationship IT Provider & Evaluation Which Parts/ Functionality? Organizational Change Skills & Resources? Do we really need this? ROI What to do? Explain & define Workflow\" Cases How to do it? Why do it? What's in for me? Strategic or not? Make or Buy textbook Make case Buy case Adapt case Workflow Scoping Source: ]project-open[, own elaboration, BizProcs Workflow Design Resources Eval Matrix "Make" vs. "Buy" Sourcing Options Sourcing Options Overview The case for "Pure Make" The case for "Pure Buy" The case for "Adaptation" Sourcing Options Overview "Pure Make" "Pure Make" (100% in-house) "Make" with external consultants "Make" with subcontracted functions "Make", followed by spin-of "Buy" from provider and customize in-house "Buy" from provider, with financial investment in the provider "Buy" from provider, but "nurture" provider with partnership and long-term contract "Pure Buy" (100% external) ... "Pure Buy" Source: ]project-open[, own elaboration, The Case for "Pure Make" Ownership Project Mgmt. Project 1 Project 2 Project 3 Customer CEO ... ... Operations Development IT Test Customer Organization Finance & Admin 100% of the functionality is developed in-house Advantages Tailored solutions for in-house needs Critical knowledge is kept in-house Disadvantages Lack of knowledge of building and maintaining state-of-the-art IT systems. Difficulties of keeping the IT staf busy after the end of the implementation phase Difficulty of retaining good IT staf Source: ]project-open[, own elaboration, The Case for "Pure Buy" Finance & Admin Customer CEO ... Operations IT Customer Organization Ownership 100% of "the" functionality is developed by a provider Advantages Project Mgmt. Project 1 Project 2 Project 3 Provider CEO ... Development Test Provider Organization Ownership "Economies of Scale": Provider can occupy resources with projects from other customers and share development and maintenance costs among customers. Provider may provide additional knowledge, gained from other companies in the sector The customer can profit from continuous development of functionality Disadvantages Provider interests may not fit fully with customer interests (roadmap development, functionality, ...) The application software is more complex if it needs to fit more than one customer Source: ]project-open[, own elaboration, The Case for "Adaptation" Customer CEO ... Finance & Admin Project Mgmt. Operations ... IT Operations Project 1 Ownership Project Mgmt. Project 1 Project 2 Provider CEO ... Development Test Customer Organization Provider Organization Ownership Buy a portion of the functionality and make the remaining extensions Advantages Critical knowledge is kept in-house In-house staf is able to react rapidly to company's needs Bulk of non-strategic functionality is outsourced with more efficient provider Fits with "Strategic or Not" section (see below) Disadvantages Difficulty to manage the partnership In-house developers need to learn the provider's software architecture Project 3 Source: ]project-open[, own elaboration, / How to Decide? Summary of Decision Factors Example of Decision Factors The decisions depends on many factors: "Value" or "Impact": How much $$$ is involved in the sourcing decision Relative efectiveness: How efficient is your company in building the goods, compared with a provider? Ease of sourcing: Is it easy for you to find another provider? Relative sourcing position: Is it easier for you to find a provider than for your competition? Strategic or Not: Does the sourcing decision influence the possibility to build/lose sustainable competitive advantage? Integrated or Modular: How tightly are the sourced goods integrated with the company? Source: ]project-open[, own elaboration Pr se odu rv c t ic Pr e or 1 se odu rv c t ic o Pr e 2 r s e o du rv ct ic o e r Pr 3 o s e du rv ct ic o e r 4 Summary Decision Factors M St at er Tr and ia an a l r sl d M at a i Tr rk on a n et sl ing at io W n or kfl ow Decision Factors Example How much $$$ is involved in the sourcing decision Relative efectiveness: How efficient is you company compared with a provider? Ease of sourcing: The company creates "value", by training it's in-house staf in translations. tomarketing build the goods, Freelance translators with these skills are very expensive. Is it easy for you to find another Freelance translators with these skills are very provider? difficult to find. Strategic or Not: High High High Very low OK Goo d Bad Easy Easy Dif Dif Same Good MedBad Bad Not Not StraMed tegic Mod Mod Med Integ Big translation agencies Does the sourcing decision influence to maythe havepossibility better access to build/loose sustainable competitive theadvantage? skilled resources Low Relative sourcing position: Big translation agencies Is it easier for you to find a provider then your may have for better access to the skilled resources competition? O The decisions depends on many factors: Value" or Impact": ffi ce This example uses a fictitious MLV translation agency with 20 employees, specialized on marketing material. Should they "make" their translation inhouse? What should they do with the workflow? Integrated or Modular: new translatorwith has tothe How tightly are the sourced goodsAintegrated learn a lot of knowledge company? upon joining the company Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/ "Classical Analysis" - Value vs. Risk Critical High Strategic Ex: Components that represent a competitive edge in marketplace Goal: Reduce or eliminate Goal: Form strategic alliances, partnerships, limited global sourcing Risk Ex: Very unique and "over specified" items Routine Low Leverage Ex. Office supplies, MRO, Administrative Ex. Basic Production materials, packaging Goal: Reduce activity, minimize transactions, supplier managed inventory Goal: Maximize leverage, standardize, consolidate volumes, reduce transaction costs Low Value Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II" High "Classical" - Value vs. Risk Routine Items Routine items are low-value activities which contribute little to the strategic direction of the firm Implement streamlining in the acquisition process Purchasing goal: Reduce the time spent by personnel in the firm on the acquisition, delivery, stock-keeping, and payment of these items Critical Items Strategic Items Leverage Items Leverage items are high-value activities Focus on short-term contracts and pursue a proactive supply strategy to find new substitute products Purchasing Goal: Increase profit margin, use competitive purchasing practices to increase profitability Critical items are low-value activities with high exposure/risk Strategic items are high-value activities with high risk/exposure Purchasing Goal: Evaluate them for elimination Require the highest level of purchasing competence; consider long-term contracts. Total cost of acquisition must be monitored and controlled Purchasing Goal: Maximize competitive advantage - Earlier time to market, Superior Product Quality, Rapid Innovations Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II" \"Internal Skill Model" - Skills vs. Strategic Importance Company's Skills Related to Best External Source Low Equal High Strategic Importance High Strategic Alliances Tend to make Buy/Outsource Make or Buy/ Outsource Make Tend to make Low Source: T. Rands: A framework for managing software make or buy. EJoIS, 1993, pp. 273-282. "IT Outsource Model" - Strategic vs. Efficiency When to Outsource reduce head count service a "commodity" can't aford time, $ for new tech can't keep good staf don't have good staf small project When to Insource function is mission critical is a core competency cannot identify any cost savings not clear that vendor is any better vendor cannot be "controlled" Source: Adam Murray, Costing, Outsourcing and Contracts "IT Model" - Strategic vs. Efficiency - Core Focuses on the experience that an in-house IT department doesn't fully satisfy expectations. The 2x2 is being used Commodity in generic IT outsourcing decisions in large corporations. Business Value of IT Market Test Outsource Anxieties Insource Smart Source Satisfaction Operational Performance of IT The "Operational Performance of IT" measure depends on the track record of the IT department in a given area. This may be difficult to measure in the case of complex software development Source: Adam Murray, Costing, Outsourcing and Contracts Summary "Classical" - Value vs. Risk "Skills" - Skills vs. Strategic Importance "Classical" - Value vs. Risk Critical High Strategic Ex: Components that represent a competitive edge in marketplace Goal: Reduce or eliminate Goal: Form strategic alliances, partnerships, limited global sourcing Risk Ex: Very unique and "over specified" items Routine Low Leverage Ex. Office supplies, MRO, Administrative Ex. Basic production materials, packaging Goal: Reduce activity, minimize transactions, supplier-managed inventory Goal: Maximize leverage, standardize, consolidate volumes, reduce transaction costs Low Value Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II" High "Classical" - Value vs. Risk Critical High Ex: Very unique and "over specified" items Risk Goal: Reduce or eliminate Routine Low Strategic Most IT decisions are Goal: Form strategic alliances, high-risk and partnerships, limited global sourcing high-value. Ex: Components that make a competitive edge in marketplace Leverage Ex. Office supplies, MRO, Administrative Ex. Basic Production materials, packaging Goal: Reduce activity, minimize transactions, supplier managed inventory Goal: Maximize leverage, standardize, consolidate volumes, reduce transaction costs Low Value Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II" High "Skills" - Skills vs. Strategic Importance Company's Skills Related to Best External Source Low Equal High Strategic Importance High Strategic Alliances Tend to make Buy/Outsource Make or Buy/ Outsource Make Tend to make Low Source: T. Rands: A framework for managing software make or buy. EJoIS, 1993, pp. 273-282. "Skills" - Skills vs. Strategic Importance Company's Skills Related to Best External Source Low Strategic Importance High Strategic Alliances Buy/Outsource Equal High Do you have Tend togood make IT really guys in-house? Make or Buy/ Outsource Make Tend to make Low Source: T. Rands: A framework for managing software make or buy. EJoIS, 1993, pp. 273-282. Summary: Two Relevant Factors Strategic or Not? How good is your IT team? (Compare with the best external source) End