BOUNDARY CHOICES
Agenda
• System and boundaries
• externalization and outsourcing
•
•
•
•
Reasons and risks
Outsourcing as a process
The types of sourcing
Exercises
– The Lavazza case
– The London Stock Exchange case (next class)
The system and its boundaries
ENVIRONMENT
Reasons
• Practical
• Employ skills (without being involved in their
training), methodologies and resources, experiences
that the external supplier has acquired by working
with different customers, in different realities, dealing
with multiple problems
• Economic
• Cost containment (not always TRUE!)
• Strategic
• Re-directing resources towards strategic activities
• Access to "world class capabilities"
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Risks
•
•
•
•
•
Reduction of autonomy
Loss of control of a critical variable
Risk of cost underestimation
Incorrect evaluation of the timing
Possibility of running into an irreversible process due to exit
barriers
• Possibility of receiving poor quality service
• Sharing confidential information with third parties
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Outsourcing as a process
•
•
•
•
Preliminary phase (internal analysis and evaluation)
Selection of the activities to be outsourced
RFPs (Request for Proposal) and choice of the supplier/s
Definition of the relationship with the supplier/s
– contract
• Management of the relationship and benchmarking of the service
offered vs received (SLAs)
Sourcing
• Total outsourcing
• Multiple-supplier sourcing
• Insourcing
insourcing
smartsourcing
outsourcing
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Total outsourcing
• Development of "partnership" with a single supplier
• Long-term contracts
• In-house retention of strategic control
– The relevance of Service Level Agreements (SLAs)
Allied Worldwide
https://www.alliedworldwide.com/it-solutions/global-it-outsourcing-solutions/
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Allied Worldwide
practical reasons
advantages
mission
Multiple-supplier sourcing
• Standardization
/ coordination
of operations *
• Formulation of
prototype
agreements
• Contracts
shortly with
suppliers
V= vendor/outsourcer ; S= subcontractor
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*Contractual relationships
The straight lines (A)
represent the formal
bi-lateral contracts
between the client
and its vendors. The
dotted lines (B) show
the informal
operational
agreements between
the vendors.
*Information and K exchange
All parties exchange
information and knowledge.
The straight lines indicate that
each party is involved in
sending and receiving
information and knowledge to
support the delivery of the
services.
Insourcing
• Function seen as strictly connected to the core
business (synergies)
• High level of in-house skills
• Unsatisfactory market condition/ suppliers
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