Translation Workflow – Make or Buy?
Textbook IT Sourcing Strategy
for Localization Companies
frank.bergmann@project-open.com
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?
Organization
al
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
BizProcs
Workflow
Design
Resources
Workflow
Eval Matrix
Scoping
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
Contents
 "Make" vs. "Buy" Sourcing
Options
–
–
–
–
Sourcing
The case
The case
The case
Options Overview
for "Pure Make"
for "Pure Buy"
for "Adaptation"
 How to Decide
– Summary of Decision Factors
– Example of Decision Factors
 Textbook Theory
– "Classical" – Value vs. Risk
– "Skills" - Skills vs. Strategic
Importance
– "IT Depts." - Strategic vs. Efficiency
– "Integration" - Modular vs. Dependent
– "Ford Motor Company" Case
Suggestions
– "Resource Dependence Theory"
 Strategic or Not?
–
–
–
–
–
–
–
What is "Strategic"
IT is not "Strategic"
Translation Workflow Benefits
Translation Workflow Extensions
How to Differentiate?
Sample ERP Architecture
Strategic Modules
 Summary
– "Classical" – Value vs. Risk
– "Skills" - Skills vs. Strategic
Importance
"Make" vs. "Buy"
Sourcing Options




Sourcing
The case
The case
The case
Options Overview
for "Pure Make"
for "Pure Buy"
for "Adaptation"
Sourcing Options Overview
"Pure Make"

"Pure Make" (100% in-house)

"Make" with external consultants

"Make" with subcontracted functions

"Make", followed by spin-off

"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, http://www.project-open.com/whitepapers/
The Case for "Pure Make"
Ownership
Project
Mgmt.
Project 1
Project 2
...
...
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 staff busy after
the end of the implementation phase
Difficulty of retaining good IT staff
Project 3
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
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, http://www.project-open.com/whitepapers/
The Case for "Adaptation"
Finance &
Admin
...
Project
Mgmt.
Customer CEO
Operations
...
IT
Operations
Project 1
Ownership
Project
Mgmt.
Project 1
Project 2
Provider CEO
...
Development
Test
Customer Organization Provider Organization
Ownership
Buy 90% of the functionality and make
10% extensions
Advantages




Critical knowledge is kept in-house
In-house staff 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, http://www.project-open.com/whitepapers/
How to Decide
 Summary of Decision Factors
 Example of Decision Factors
Decision Process
Factors:

Bla bla bla

Bla bla bla

Bla bla bla

Bla bla bla
Cor
e
Market
Test
Insour
ce
Outsourc
e
Smart
Source
Commodity
Anxie
ties
Decision
Factors
Satisfa
ction
Theory
Recommendation
Summary Decision Factors
The decisions depends on many factors:
 "Value" or "Impact":
How much $$$ is involved in the sourcing decision

Relative effectiveness:

Ease of sourcing:

Relative sourcing position:

Strategic or Not:

Integrated or Modular:
How efficient is your company in building the goods,
compared with a provider?
Is it easy for you to find another provider?
Is it easier for you to find a provider than for your
competition?
Does the sourcing decision influence the possibility to
build/lose sustainable competitive advantage?
How tightly are the sourced goods integrated with the
company?
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
This example uses a fictitious MLV translation agency
with 20 employees, specialized on marketing
material. Should they "make" their translation inhouse? What should they do with the workflow?
The decisions depends on many factors:
 „Value" or „ Impact":
How much $$$ is involved in the sourcing decision
The company creates "value", by
training it’s in-house staff in
marketing translations.
Freelance translators with these
company
to build the goods,
skills are very expensive.

Relative effectiveness:

Ease of sourcing:

translation agencies
Relative sourcing position: Big
may have better access to

Strategic or Not:

Integrated or Modular:
How efficient is you
compared with a provider?
Is it easy for you to find another
Freelance translators with
these skills are very
provider?
difficult to find.
Is it easier for you to find a provider
for your
the then
skilled resources
competition?
Big translation agencies
may have better access to
influence
the possibility
to
the skilled
resources
Does the sourcing decision
build/loose sustainable competitive advantage?
How tightly are the sourced
company?
A new translator has to
learn a lot of knowledge
goodsupon
integrated
the
joining thewith
company
Decision Factors
Example
Low
Very
low
High High High
OK
Easy Easy
Same Good
Good Bad
Diff
Diff
MedBad
Bad
Not
Not
StraMed
tegic
Mod
Mod
Med Integ
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
Textbook
Theory






"Classical" – Value vs. Risk
"Skills" - Skills vs. Strategic Importance
"IT Depts." - Strategic vs. Efficiency
"Integration" - Modular vs. Dependent
"Ford Motor Company" Case Suggestions
"Resource Dependence Theory"
"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
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
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



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
Strategic Items



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"
"Classical" – Value vs. Risk


-
Covers the global sourcing
situation of a company
The classic 2x2 sourcing
matrix
Being tought in all MBA
sourcing classes
Critical
Very generic
Most major IT systems are
located in the "Strategic" sector.
Strategic
Ex: Very unique and "over specified" items
Ex: Components that make a competitive edge in marketplace
Goal: Reduce or eliminate
Goal: Form strategic alliances, partnerships, limited global
sourcing
Risk or Exposure

Routine
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
 There are few conclusions for IT sourcing concerning
"Make" or "Buy", except that we have to keep digging.
Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II"
H
"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

Generic matrix, not
only for IT outsourcing
decisions
The 2x2 is used for
large corporations. It's
not clear how it relates
to SME's
Strategic
Importance

Company’s Skills Related to Best External Source
Equal
High
Low
High
Strategic
Alliances
Buy/
Outsource
Tend to
make
Make
Make or Buy/
Outsource
Tend to
make
Low
Source: T. Rands: A framework for managing software make or buy. EJoIS, 1993, pp. 273-282.
"IT Depts." - Strategic vs. Efficiency
Core
Business
Value of IT
Market
Test
Outsource
Commodity
Insource
Smart
Source
Anxieties
Satisfaction
Operational Performance of IT
Source: Adam Murray: Costing, Outsourcing and Contracts
"IT Depts." - Strategic vs. Efficiency
When to Outsource
 reduce head count
 service a "commodity"
 can’t afford time, $ for new tech
 can’t keep good staff
 don’t have good staff
 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 Depts." - Strategic vs. Efficiency

-
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

Core
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
ITEM IS
INTEGRAL
ITEM IS
MODULAR
"Integration" - Modular vs. Dependent
Dependent for
Knowledge &
Capacity
Dependent for
Capacity only
Independent for
Knowledge &
capacity
A POTENTIAL
OUTSOURCING
TRAP
BEST
OUTSOURCING
OPPORTUNITY
OVERKILL IN
VERTICAL
INTEGRATION
CAN LIVE WITH
OUTSOURCING
BEST
INSOURCING
SITUATION
WORST
OUTSOURCING
SITUATION
Source: Fine & Whitney, "Is the Make/Buy Decision Process a Core Competence?"

Focuses on "modularity"
of the product or service
Captures the "dependency"
of other systems in the
product‘s company.
Dependent for
Capacity only
Independent for
Knowledge &
capacity
ITEM IS
MODULAR

Dependent for
Knowledge &
Capacity
A POTENTIAL
OUTSOURCING
TRAP
BEST
OUTSOURCING
OPPORTUNITY
OVERKILL IN
VERTICAL
INTEGRATION
ITEM IS
INTEGRAL
"Integration" - Modular vs. Dependent
WORST
OUTSOURCING
SITUATION
CAN LIVE WITH
OUTSOURCING
BEST
INSOURCING
SITUATION
 May apply more to the decison
of how to source part of a
product than to the IT "make or buy" decision. Also, the
author further elaborates on the concept of "clockspeed"
in the corresponding market which doesn't apply to IT
sourcing decisions.
Source: Fine & Whitney, "Is the Make/Buy Decision Process a Core Competence?"
"Ford Motor Company" Case
Suggestions
High
Inhouse
solution
Need for
tailor-made
support
Cost sharing or strategic
alliance/
Selective outsourcing
True spin-Off
or
outsourcing
Low
Low
High
Market Potential to provide the support
Source: Ford Motor Company Case: Supply Chain Strategy
"Resource Dependence Theory"
High
Degree of
Resource
Dependence
Low
Inhouse
solution
Cost sharing or
strategic
alliance
Outsource
True spin-Off or
outsourcing
Low
High
Degree of volatility
Source: Strategic Choice Framework for the IT Professional Resource
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)







Strategic
or Not?
What is "Strategic"
IT is not "Strategic"
Translation Workflow Benefits
Translation Workflow Extensions
How to Differentiate?
Sample ERP Architecture
Strategic Modules
What is "Strategic"
A strategy is a long term plan of action
designed to achieve a particular goal [...].
Wikipedia
 Goal:
Sustainable competitive advantage
Sustainable superior margins
 Examples that are known to work:
– Size: Be the biggest
– Price: Be the cheapest
– Specialization: Be the best in a very specific field
IT is not "Strategic"
Michael Porter claims IT doesn't provide
companies with a competitive advantage:
 To gain competitive advantage using IS and IT usually
needs an element of surprise; the system needs to be
out in the market place before competitors make a start
in copying the idea
 Sustaining that competitive advantage requires either:
– Converting the technical advantage into brand advantage
– Sustaining the technical lead by continuous product and
service development
Source: "Strategy and the Internet", Michael Porter, Harvard Business Review March 2001
Translation Workflow Benefits
Strategic for you?
 Improved general efficiency by 20%
 Demonstrate sophistication to customers
 Improve quality (process standardization)
 Take more informed project staffing decisions
no
no
no
no
 Generic Translation Workflow is not
"strategic" (according to Porter)...
You may need it anyway to match or
exceed your competitor's "operational
efficiency".
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
How do you compete?
Sales/
Channel
Specialization/
Niche
Price
Service
...(?)



Brand
Salesforce ("presence")
Proximity




Specialization on field, industry
sector, value chain position,...
Linguistic Resources
Upward Integration
High Quality


Price
Size / economies of scale




Capability to execute /Company Size
Execution Speed
Customer Service
One-Stop shop

...
Translation Workflow Extensions
Strategic for you?
 Support for specialized processes?
 Managing knowledge in order to allow for
synergies in very big company
 Special way to manage quality
maybe
maybe
 Attract better freelancers
 Manage existing knowledge
...
maybe
maybe
...
maybe
You may have to extend your IT application
using proprietary functionality in order to
gain a sustained competitive advantage.
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
How to Differentiate?
Differentiation / Strategic value
High
Make
???
(Minimize Cost)
???
(Maximize Value)
Buy
Low
Low
Cost of (Re)-Development
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
High
How to Differentiate?
Sample Modules from ]project-open[
Differentiation / Strategic value
High
Support for
specialized
process
Query
Workflow
Make
L10n
Workflow
SkillDB
Translation
Workflow
Customer
Portal
Data
Warehouse
(Config)
???
Support for
specialized
(Maximize Value)
process
CRM
Knowledge
Mgmt. Recruiting
Workflow
Project
Mgmt
Financial
Controlling
Reporting
???
(Minimize Cost)
Timesheet
Mgmt.
Pay
roll
Content
Mgmt.
Reporting
Engine
Accounting
Workflow
Engine
Buy!
Data
Warehouse
Engine
Search
Engine
Data
base
Web
Server
Low
Low
Cost of (Re)-Development
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
High
Payroll
HR
Skill
Database
Recruiting
Workflow
Application
Modules
Application
Services
Platform
Services
Web
Server
Project
Project &
Mgmt.
Subprojects
Project
Controlling
Timesheet
Mgmt.
Collaboration,
File
Calendar Content & KM
storage
Online
Wiki
Chat
Discussions
Mail Server WebDAV
Incident
Integration
Workflow
Content
Management
CMS
Blog
Full-Text
Search
Workflow
Engine
Reporting
Engine
Portal &
Components
Localization
Framework
OO
OO
Frame
Model
Object
Metadata
DynField
Object
Extensions
SOAP &
XML-RPC
DB-API
AOLServer
Search
Engine
TSearch2
Oracle Intermedia/Text
Database
PostgreSQL
Oracle 8i, 9i, 10g
Operating
System
Windows
+ CygWin
Linux
Solaris
Room
Reservation
ECommerce
BSD
Mac OS
Other
Surveys
Web-Mail
Finance
Finance
Base
Controlling
Quotes &
Invoice
Freelance
Invoicing
Payments
Timesheet
Financial
Invoicing
Reporting
Software
Package
Development
Manager
Profiling &
Templates
Performance
Debugging
Automatic
Automatic System
Testing
Software
Form
Updates
Builder
TCL
TransTranslation
lation
Workflow
TM
Integration
Automatic
Invoicing
Glossary
Sample
ERP
Architectur
e
CRM
Contact
Mgmt.
Customer
Web Reg.
Marketing
Campaigns
CRM
Tracking
Mail Server
Integration
ISDN Tel
Integration
Security
OpenACS
Permission
Page
Basic
Contracts
Authentication
SQL
LDAP
Templates
Authentication
Automatic
Audits
Pound
Revers Proxy
BigBrother
Sys Mgmt.
Database
Replication
CVS
System
Mondrian
DataWarehouse
Postfix/
Sendmail
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
Payroll
HR
Skill
Database
Recruiting
Workflow
Application
Modules
Application
Services
Platform
Services
Web
Server
Project
Project &
Mgmt.
Subprojects
Project
Controlling
Timesheet
Mgmt.
Collaboration,
File
Calendar Content & KM
storage
Online
Wiki
Chat
Discussions
Mail Server WebDAV
Incident
Integration
Workflow
Content
Management
CMS
Blog
Full-Text
Search
Workflow
Engine
TransTranslation
lation
Workflow
TM
Integration
Automatic
Invoicing
Glossary
TCL
Localization
Framework
OO
OO
Frame
Model
Object
Metadata
DynField
Object
Extensions
SOAP &
XML-RPC
DB-API
AOLServer
TSearch2
Oracle Intermedia/Text
Database
PostgreSQL
Oracle 8i, 9i, 10g
Linux
Solaris
BSD
Mac OS
Strategic
Modules
CRM
Contact
Mgmt.
Customer
Web Reg.
Marketing
Campaigns
CRM
Tracking
Nothing but
Headaches
Portal &
Components
Software
Package
Development
Manager
Profiling &
Templates
Performance
Debugging
Automatic
Automatic System
Testing
Software
Form
Updates
Builder
Windows
+ CygWin
Surveys
Web-Mail
Finance
Finance
Base
Controlling
Quotes &
Invoice
Freelance
Invoicing
Payments
Timesheet
Financial
Invoicing
Reporting
Reporting
Engine
Other
Possibly(!)
Strategic
Search
Engine
Operating
System
Room
Reservation
ECommerce
Mail Server
Integration
ISDN Tel
Integration
Security
OpenACS
Permission
Page
Basic
Contracts
Authentication
SQL
LDAP
Templates
Authentication
Automatic
Audits
Pound
Revers Proxy
BigBrother
Sys Mgmt.
Database
Replication
CVS
System
Mondrian
DataWarehouse
Postfix/
Sendmail
Source: ]project-open[, own elaboration, http://www.project-open.com/whitepapers/
End
Frank Bergmann
frank.bergmann@project-open.com
www.project-open.com