Sourcing

1. Sourcing Dr Hugo Velthuijsen, Lector New Business & ICT

2. Contents • Background • The Offshoring process • Sourcing Strategy • Communication • The SME Culture • Trust • Conclusions New Business & ICT

3. Global economy Trends • “SHIFT happens”: 3 bn new capatalists • New professionals in the BRIC countries: • Well educated • More eager • Much cheaper • Impact of Information and Communication Technology • Global village • Decrease transaction costs → decrease economies of scale • Extreme competition • Companies need to focus on what they are doing best • Everything else should be sourced: role for purchasing! New Business & ICT

4. New Business & ICT

5. Examples Sourcing & purchasing • Sourcing production to China • Sourcing ship building to Turkey • Sourcing IT development and maintenance to India • Sourcing reception desks to Pakistan • Sourcing innovation to crowdsourcing communities • Sourcing medical diagnostics to the USA New Business & ICT

6. Sourcing process New Business & ICT

7. Adapted Kraljic model Tool for classifying systems & processes high Added value II service management I workstation management data centers communication low standard specific specificity New Business & ICT

8. Sourcing strategy Example Kraljic analysis Strategic/ leverage Routine/ bottleneck Depen-dency Specifica-tions Specific Not specific Clear Not clear Performan-ce/ capacity Risk profile / maturity Low High Complexity Immature Mature Containable Not containable Collaborate DIY Standardise Outsource Source: Confidential New Business & ICT

9. Maturing offshoring relationships Different systems & processes may be in different phases Source: Rottman, Lacity, Offshore outsourcing of IT work, Palgrave Macmillan, New York, 2008 New Business & ICT

10. Relationshipstyles Style differentiation according to type of relationship New Business & ICT

11. Key sucess factors offshoring Communication is a key aspect External • Continuous controlling • Continuous communication • Detailed contracting • Clear project goals • Detailed project specification • Generic • Language abilities • Project team • Continuous communication • Quality employees • Cultural awareness • Thinking beyond cost savings • Top management commitment • Effective risk management NB: Cultural awareness is a key part of effective communication Internal Source: based on Remus, Wiener, Critical success factors for managing offshore software development projects, Journal of Global Information Technology Management 12(1), 2009 and Gupta, Raval, Critical success factors for anchoring offshore projects, Information Strategy: the executive’s journal, 1999 New Business & ICT

12. Communication Avoid intermediaries – large companies at a disadvantage Company Outsourcing Offshoring Purchasing Business department IT department Business owner IT demand IT supply IT proc Acc mgmt IT proc Acc mgmt IT ops New Business & ICT

13. Communication Cannot be covered by formal communication alone Source: Willcocks, Cullen, The outsorucing enterprise, the power of relationships, Logica, 2010 New Business & ICT

14. Communication Communication attributes Attributes of Communication quality Current exchange Feedback or future exchange • Technologicalfactor: • Quality medium Common understanding Offshore BPO success Common understanding between the vendor and its Western client • Quantitative factor: • Timeliness • Flexibility • Price • Profitability • Quality • Qualitative factors • Accuracy • Completeness • Consistency • Credibility • Interpretation differences Antecedents Communication processes Outcomes Source: Knol, A., The influence of communication quality on offshore business process outsourcing success, Master Thesis, RUG, Groningen, 2009 New Business & ICT

15. Development of Trust New Business & ICT

16. Building trust in the literature Source: Mathrani, A., Goel, G., Parsons, D., 2007. Building Trust Across Virtual Social Spaces: the Software Vendors’ Perspectives [Online] Available at: http://aisel.aisnet.org/acis2007/17/ New Business & ICT

17. Model derived for SMEs Key difference in “informal working methods” Source: Oksanen, A., The cornerstone of Trust between a client SME and on offshore service provider, Bachelor’s thesis, Hanze Univeristy of Applied Science, 2011 New Business & ICT

18. SMEs& Sourcing Relevant for big AND small organisations • SMEs lack internal capabilities compared to large companies • SMEs should use partnering-based methods of negotiating and preparation • SMEs can benefit from the supplier’s personnel by coordinated HR management to minimize consequences of lack of internal skills • The most distinctive hurdles for SMEs are: • Internal offshore readiness • Capability to define an appropriate strategy • Contract facilitation • HR management • BUT, SMEs may be better at managing therelationship Source: Uimonen, A., Key capabilities in SME IT Offshoring, Bachelor Thesis, Hanze University of Applied Science, 2011 New Business & ICT

19. Conclusions Sourcing and purchasing management • Sourcing requires a non-traditional purchasing approach • The sourcing decision is extremely strategic: it should coincide with the decision of what your company is all about • Managing a sourcing relationship is about communication • Managing a sourcing relationship is about managing trust • Purchasing should be able to think strategic, to manage communication, and to manage trust and to have intercultural awareness New Business & ICT

20. Questions? >>> Just Ask! Dr Hugo Velthuijsen Professor Business & IT Leading Professor CARI Entrepreneurship Institute of Information & Communication Technology Hanze University Groningen, University of Applied Sciences Tel: 0031-50-595 4551 Mail: h.velthuijsen@pl.hanze.nl New Business & ICT

21. Thank you!