1 How Do Organizations Need to Structure and Govern IT? Dr. Mary C. Lacity.
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Transcript of 1 How Do Organizations Need to Structure and Govern IT? Dr. Mary C. Lacity.
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How Do Organizations Need to Structure and
Govern IT?
Dr. Mary C. Lacity
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Assigned Readings:
Weill, P., "Don't Just Lead: Govern: How Top Performing Firms Govern IT," MIS Quarterly Executive, Vol, 3, 1, March 2004, pp. 1-17.
Ross, J., Creating a Strategic IT Architecture Competency, MIS Quarterly Executive, Vol. 2,1, March 2003, pp.
Feeny, D. and Willcocks, L., “Core IS Capabilities for exploiting Information Technology, Sloan Management Review, Vol. 39, Spring, 1998, pp. 9-21.
Feeny, Lacity, and Willcocks, "12 Supplier Capabilities," Working Paper, Oxford Institute of Information Management, 2004.
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“Don’t Just Lead, Govern: How Top-Performing Firms Govern IT”
Peter Weill, MISQE, 2004, pp. 1-16
“Top performing enterprises succeed in obtaining value from IT where others fail,in part by implementing effective IT governance to support their strategies andinstitutionalize good practices.”
Survey of 256 enterprises in 23 countries20 detailed case studies
5 Major IT Decisions:Input & Decision:
IT principlesIT architecture
IT infrastructureBusiness Application Needs
IT Investment & Prioritization
6 Governance Archetypes:Business Monarchy
IT MonarchyFeudalFederal
IT DuopolyAnarchy
Performance: 1. IT Governance as assessed by CIOs on scaleof 20-1002. Financial as measured by Return on assets Revenue growth Profit (Industry Adjusted)
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Governance Defined
“IT governance—specifying the framework for decision rights and accountabilities to encourage desirable behavior in the use of IT.” –Weill, MISQE, 2004
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Govern-ance
Arche-
type
Decision DomainIT Principles IT Architecture IT
Infrastructure
Strategies
Business Application
Needs
IT Investment
input decision input decision input decision input decision input decision
Business
Monarchy
IT Monarchy
Feudal
Federal
IT
Duopoly
Anarchy
Don’t Know
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Decision Domain
IT Principles IT Architecture IT Infrastructure
Strategies
Business Application
Needs
IT Investment
High-level statements about how IT is to used in the business
Ex:•Leverage economies of scale•Standardize processes and technologies wherever appropriate•Common tools, i.e. one ERP system•Cost control and operational efficiency•Alignment and responsiveness to negotiated business requirements•Bench-marked lowest total cost of ownership•Rapid deployment of new applications
An integrated set of technical choices to guide the organization in satisfying business needs.
Hardware
Data Dictionary
Operating
Systems
Base foundation of centrally coordinated services such as firm-wide:
communication network services
Messaging services
Disaster recovery
Security
Help desks
Data centers
Business need for purchased or internally developed IT applications
CRM
ERP
KM
SCM
How much and where to invest in IT; Capital budgeting for IT
Project approvals
Prioritization
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Govern-ance
Arche-
type
Decision rights or input rights are held by: CXO
Level
IT
executives
Business unit leaders;
Process owners
Business
MonarchyCXOs; CIOs may be included X
IT Monarchy
IT executives only X
Feudal Business unit leaders or key process owners
Feudal lords maximizing own needs
X
Federal C level executive and at least one other business group; Like country and states working together
Takes a long time; compromises may result in no one happy
X X X
X X
IT
DuopolyIT executives and one other group X X
X X
Anarchy Small group of individual users
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Govern-ance
Arche-
type
Decision DomainIT Principles IT Architecture IT
Infrastructure
Strategies
Business Application
Needs
IT Investment
input decision input decision input decision input decision input decision
Business
Monarchy
0 27 0 6 0 7 1 12 1 30
IT Monarchy
1 18 20 73 10 59 0 8 0 9
Feudal 0 3 0 0 1 2 1 18 0 3
Federal 83 14 46 4 59 6 81 30 93 27
IT
Duopoly
15 36 34 15 30 23 17 27 6 30
Anarchy 0 0 0 1 0 1 0 3 0 1
Don’t Know
1 2 0 1 0 2 0 2 0 0
MOST COMMON GOVERANCE PATTERNS:NOT TIED TO PERFORMANCE
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Govern-ance
Arche-
type
Decision DomainIT Principles IT Architecture IT
Infrastructure
Strategies
Business Application
Needs
IT Investment
Business
Monarchy
IT Monarchy
Feudal
Federal
IT
Duopoly
Anarchy
TOP THREE PERFORMING PATTERNS AS MEASURED BY CIO ASSESSMENT
3 3
3
33
1
1
11
1
2
2
22
2
10
Govern-ance
Arche-
type
Decision DomainIT Principles IT Architecture IT
Infrastructure
Strategies
Business Application
Needs
IT Investment
Business
Monarchy
IT Monarchy
Feudal
Federal
IT
Duopoly
Anarchy
TOP THREE PERFORMING PATTERNS AS MEASURED BY:Asset Utilization (IT coordinates) Growth (Balance needs of entrepreneurial unitsProfit(Largely centralized to control costs) with business wide objectives)
G
G
G
G
G
AAAAA
P
P
PPP
P
No dominant patternOften multipleArchitectures & infrastructures
G
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Eight IT Governance Critical Success Factors
1. Transparency to all managers
2. Governance should be actively designed
3. Governance should be infrequently redesigned—takes 6 months to define one!
4. Educate managers to understand and use IT governance
5. Simplicity—based on small number of performance objectives
6. An exception handling process (UPS)
7. Governance should be designed at multiple organizational levels (enterprise/ division/geographic, business unit) 8. Align incentives
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Architecture Maturity
ModularRationalized Data
Standardized Technology
Application Silo
Local CustomizationsNon-core Business Needs
Local Knowledge Worker Support
Specific Business Needs
Strategic Choices
Process Optimization
IT EfficiencyLocal/Functional Optimization
Strategic Implications of IT
Data Center
Technology Standardization
Core Process Integration
Wired Business Core
Creating a Strategy IT Architecture Competency
“An enterprise architecture is the organizing logic for applications, data, and infra-Structure technologies, as captured in a set of policies and technical choices, Intended to enable the firm’s business strategy.” Ross, MISQE, 2003, p. 32
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Silo Standardized Rationalized Modular
Practice facilitating reusability.
Standardization and exception management.
Strategic Agility.ROI of standardization.
Create opportunities for new business models.
React to enterprise-wide needs
Components of technology, data & code; middleware provide access to shared data.
Firm-wide technology standards; centralized or federal IT organization; data warehouse for shared data.
Infrastructure includes core transaction processing; data integration for cross-functional processes.
Silos of applications with a data center for efficient transaction processing.
Create opportunities for core business support.
React to local needs.
Process integration for customer responsiveness.
Technology-enabled change management.
Speed to market.ROI of applications.
IT Capability Approach to Alignment Business Case for Architecture Key Learning
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Lessons: 1. Focus architecture on key business processes, not all processes
2. Don’t skip or rush through stages
3. Recognize that complex organizations have multiple architectures which may be at different stages
4. Institutionalize learning about architecture in appropriate governance mechanisms
5.Continue the Dialog
6. Keep an architecture capability in-house
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Core IT Capabilities
First developed by David Feeny and Leslie Willcocks:
Feeny, D. and Willcocks, L., “Core IS Capabilities for exploitingInformation Technology, Sloan Management Review, Vol. 39,Spring, 1998, pp. 9-21.
Updated in:
Lacity, M., and Willcocks, L., Global IT Outsourcing: Searchfor Business Advantage, Chichester, Wiley, 2000.
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Enduring Challenges in ITExploitation
Core IS Capabilities
Delivery of ISService
Design of IT Architecture
Business &IT
Vision
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Business and IT Vision
Delivery of IS Service
Design of IT Architecture
Business SystemsThinking
ContractFacilitation
ArchitecturePlanning
ContractMonitoring
VendorDevelopment
Making technology
work
RelationshipBuilder IS
Leadership;InformedBuying
Feeny & Willcocks: IT Capabilities
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•Fosters relationships with senior management
"I went to the city, I usually had one or two things to do. I made it a point when I went in, I went up to the chairman's office and many times his secretary was there when I'd get there. I'd say, 'tell the chairman and CEO, tell Harry I'm in the building. Could I talk to him? I'm available.' I went right down the hall to the president, who at the time was Michael, and said, 'I'm in town for a week if you have any questions about computing, I'd be happy to talk to you about it.' I would also visit every senior vice president on the executive floor. I would stick my head in the door and say, 'hey I'm in town, what can I do to help?'" -- VP of IS, PETRO2
IS Leadership
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• What are the characteristics of good CIOs?
Business and People skills are more important than technical skills:
“My advice to CEOs is this: Your IT function should be run by a great general manager, not by a traditional technology manager…More and more, business considerations rather than technical ones drive investments in IT. Our businesses are asking, “Why not buy solutions rather than build them? and “How can IT serve the critical needs of the business rather than those narrowly defined by accounting and human resources?” Far too many IT professionals don’t know how to frame questions like these, much less answer them.” -- Gene Batchelder, CFO, GPM Gas
IS Leadership
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In a survey of 64 CIOs, Applegate and Elam found that 30% had only a technical background; 33% had only a business background, and 37 had a “hybrid background”.
Practice often prescribed:
Have the CIO report to the CEO to ensure the CIO has enoughauthority and power to be effective.
IS Leadership• What are the characteristics of good CIOs?
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Business Systems Thinker
• Envisioning the business processes which technology makes possible• Focus on business process improvement rather than just IS improvement
“To serve customers well in 1995, companies need to be proficient in half a dozen key areas: reduced cycle times, reduced asset levels, faster development of new products, improved customer service, increasing empowerment of employees, and increased knowledge sharing and learning. Information technology is a key resource for accomplishing those goals” John Rockart, MIT
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Proven practices include:
IT representation on major business initiatives:• Business Strategic Planning• Operating Committees• Capital Budgeting Committees
Educate senior managers on IT capabilities:"We'd make it a point that every one of our executives attended that four day class. Every time we got as many as ten or fifteen people at the general manager level who had not taken the course. I'd call to schedule the course. And we'd schedule it and we'd get the CEO's signature saying, 'You've been selected to attend a computer concepts class. Please be at the homestead on four o'clock on Sunday, signed, Harry Thompson, CEO." -- VP of IS, PETRO2
Business Systems Thinker
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User-Business Relationship Builder
• Getting the business constructively engaged in IS/IT issues.
•Focus on ability to speak “business” language to gain credibility
• Working with business community to understand cost/service trade-offs,•what technology can and cannot do
When a unit manager requested a new system that would save$250,000, IT manager had to explain it would cost $500,000to build.
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Architect Planning
•Defining architecture standards•Centralized computing environment•Distributed computing environment•Technology renewal (n, n-1, n-2?)•Technology replacement•Security•Disaster recovery management
Creating the coherent blueprint for a technical platform that responds to currentAnd future business needs.
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Technical Doer:Making Technology Work
• Rapidly Troubleshoot Problems• Technical work-arounds• Bypass political bureaucracy
What are the stereotypical characteristics ofa technical doer?
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Outsourcing Roles
Business and IT Vision
Delivery of IS Service
Design of IT Architecture
ContractFacilitation
ContractMonitoring
VendorDevelopment
InformedBuying
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Informed Buying
•Develops a sourcing strategy•Analyzes external market for IT/IS services•Leadership of the tendering, contract, and service management processes
“If you are a senior manager in the company and you want something done, you come to me and I will go outside, select the vendor, and draw up the contract with the outsourcer, and if anything goes wrong it’s my butt that gets kicked by you.”
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Informed Buying
Proven practices include:
• Joint senior executive/IT manager development of IT sourcing strategy
• Creating RFP and inviting internal & external bids
• Short term contracts
• Detailed contracts
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Contract Facilitation
• Provide one-stop shopping for the business user• Develop user guides to the contract• Help manage user expectations of the contract• Assess and prioritize user demands• Determine if user demands will trigger contract excess fees• Determine if users are demanding too little
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Contract Monitoring
• Monitor vendor performance (service)• Review monthly bills (cost) • Solve disputes with vendor• Refine performance measures as needed• Benchmark existing contract against developing market capability• Escalation procedures • Negotiate detailed amendments
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Vendor Development
• Identifies opportunities for added-value:1. Business value-added, in which the supplier applies their expertise to help the customer exploit IT for business advantage.2. Capacity value-added, in which the supplier infuses new skills and technologies in an effective manner.3. Utility value-added, in which the supplier provides cheaper IT services.
• Focus on innovation and exploiting opportunities • Explores potential for new vendor services
“Yes, [the vendor] can achieve all the things that were proposed---but where is this famous "added-value" service? We are not getting anything over-and-above what any old outsourcer could provide.” -- IT Services Director, Aerospace Company
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Conclusion
Most critically, the core IS capability model implies migration to a relatively small ISfunction, staffed by highly able people.
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The Capabilities Your Suppliers Need to Make Outsourcing Work
Mary C. LacityProfessor of IS
Leslie Willcocks David Feeny
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RESOURCES
CAPABILITIES
COMPETENCIES
12 Capabilities to evaluate in your supplier
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Relationship Competency
TransformationCompetency
DeliveryCompetency
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management
12 Capabilities to evaluate in your supplier
ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
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Delivery
Delivery Competency is based on capabilities which determine the extent
to which a supplier can respond to a customer’s day-to-day operational services
minimum requirement that customers seek in all suppliers
includes supplier’s domain expertise, business management capabilities, etc.
a supplier’s delivery competency--although crucial for success--may not serve to meaningfully distinguish suppliers.
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Transformation Competency is based on capabilities which determine the extent to which
a supplier is equipped to delivery radically improved services in terms of cost and quality
vitally important if the customer is seeking radical transformation of its back office from the outsourcing relationship.
includes the supplier's capabilities to exploit technology, redesign business processes, and empower staff to a customer-focused culture.
transformation capabilities must be exploited for the customer's benefit, not just to increase the supplier's margin.
Transformation
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Relationship Competency is based on capabilities which determine the extent to which a supplier is willing and able to align with the
customer's needs and goals
The relationship competency uses innovative plans, aligned contracts, and governance structures and processes to ensure the promise of win/win relationships.
This is the most difficult competency to find in a partner.
Size of deal important factor
Relationship
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Leadership:the capability to identify, communicate,
and deliver the balance of delivery, transformation, and relationship
activities to achieve present and future success for both client and provider.
Requires individuals who have the vision, experience, ability, and clout to serve as "CEO" of the relationship.
76 case studies of EDS, IBM, CSC, Accenture with similar contracts found customer/supplier leadership as main explanator of customer satisfaction
Every customer expects the supplier’s A team
Often customer demands a change in leadership with first few months—on both sides!
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
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Domain Expertise:the capability to apply and retain
sufficient professional knowledge of the process domain to meet user
requirements
Customer wants the supplier to manage transitioned staff to eliminate poor performers, adjust capacity, leverage untapped potential of best people
For body-shop outsourcing in which the customer hires suppliers for specific tasks, the customer should retain most of the domain expertise.
For outsourcing relationships where the supplier has more responsibility, it may be more economical and effective for the supplier to employ most of the domain experts.
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
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Business Management:the capability to consistently deliver against both customer service level
agreements and suppliers’ own required business plans
Savvy customers know that it is in their best interest to protect and ensure the supplier's financial health
Savvy suppliers are upfront about their margin requirements
Supplier
Winner's Curse
12 Cases
3 Cases
No Curse 19 Cases
51 Cases
Negative Outcome
Positive Outcome
Customer
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
42
Behavior Management:the capability to motivate and
manage people to deliver service with a “front office” mindset
How do suppliers orient new employees to their culture?
How do suppliers reward and incent desired behaviors?
S2Tech, an Indian offshore supplier, hires only Indians with a minimum six years experience living in the U.S. & sets their hours as 1:00 to 10:00 to minimize time zone effects
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
43
Sourcing:the capability to access whatever resources are required to deliver
service targets
Customer wants to benefit from supplier’s access to:
economies of scale lower unit labor costs from supplier’s offshore operations scarce professional skills superior infrastructure
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
44
Process Improvement:the capability to design and implement changes to services processes to meet
improvement targets
Six Sigma, CMM, ISO certifications are only indicants of process improvement capability
Customers complain certifications benefit suppliers more than customers
Indian suppliers were all at level4 or 5
U.S. customers were all at level2 or below
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
45
Questionable Value/Cost:
"the overhead costs of documenting some of the projects exceeded the value of the deliverables." – Pam, Global Team Leader member, Biotech
"You ask for one button to be moved and the supplier has to first do a twenty page impact analysis--we are paying for all this documentation we don't need." – Project Manager, Financial Services
“Mistakes upstream replicate downstream” -- Retail
“Certification is no substitute for experience” -- Everybody
Process Improvement:the capability to design and implement changes to services processes to meet
improvement targets
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
46
Process CompetencyGoal is to redesign business processes to reduce costs and to improve quality through Six Sigma quality improvementdiscipline.
DPMO
6 3.4 99.99966%
5 233 99.9770%
3 66,807 93.3%
ProcessCapability
Defects Per Million YieldOpportunities
%
4 6,210 99.37%
2 308,000 69.2%
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Process Competency
Redesigning Processes such as Senior Leader Peer Review
Old process: 640 senior leaders did paper-based peer reviews, assisted face-to-face by HR personnel
New process: e-hr online peer review
"What would have happened before, thirty people would have happily expanded a task to fill three months and as it is now, eight people have been busy for a month--bang! Done." -- Mike Margetts, Head of Implementation, Xchanging HR Services
48
Technology Exploitationthe capability to swiftly and effectively deploy technology in support of critical
service improvement targets
Technology is expensive and must be the master, not the servant
e-HR to implement standardization, shared services, and self-service CGI co-develops annual technology plan with customer and supplier Customer verses supplier investment
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
49
Program management:the capability to prioritize,
coordinate, ready the organization, and deliver across a series of inter-
related change projects
Multi-phased approaches
Short cycles Balance paradox
of rigorous project management with flexible pragmatism
OperationalCritical activity
Preparation
Service
Set-Up
Process
People
Technology
Sourcing
Environment
Preparation
RealignmentStreamliningContinuous Improvement
2-3mths 3-6mths 6-9mths
Source: Xchanging
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
50
Customer Development:the capability to transition users of an
internally provided service to customers who make informed decisions
about service levels, functionality, and costs
Requires aggressive communication and dissemination of the meaning of the partnership to all budget holders in the customer organization.
To avoid excess costs caused by runaway user demand, customer development requires customer stakeholders to understand the financial consequences of their demands.
Customer satisfaction monitoring and reporting
Allows customers to define services, service levels
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
51
Planning and Contracting:the capability to develop and
contract for business plans which deliver ‘win/win’ results for
customer and supplier over time.
One supplier quipped, "If the customer says win/win, they really mean, the customer wins twice.“
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
52
Planning and Contracting
Fee-for-service contracts are suitable when customers' requirements are definable and when customers are primarily seeking modest cost reductions, variable spend, and the ability to focus on more value-added activities
Previous strategic partnerships falsely assumed the customer had exploitable world-class back offices.
Newer partnerships focus upon the customer's back office transformation first, commercial exploitation second.
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Organizational Design:the capability to design and implement organizational
arrangements to realize plans and contracts
?
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
54
Organizational Design: Offshore
Onsite SupplierEngagement Manager
OffshoreSupplierDelivery
Team
LocalBusiness
Units
Architects/DBAs/etc.
ProjectManagers
OffshoreSupplierDelivery
Team
OffshoreSupplierDelivery
Team
PMO
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Onsite SupplierProject Managers
OffshoreSupplierDelivery
Team
OffshoreSupplierDelivery
Team
OffshoreSupplierDelivery
Team
Onsite SupplierProject Managers
OffshoreSupplierDelivery
Team
OffshoreSupplierDelivery
Team
OffshoreSupplierDelivery
Team
Architects/DBAs/etc.
ProjectManagers
PMO
LocalBusiness
Units
Organizational Design: Offshore
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VP IS
Team Lead
Project Manager
Director
DevelopmentStaff
Team Lead
DevelopmentStaff
RelationshipManager
Team Lead
Anchor
Anchor
DevelopmentStaff
Team Lead
DevelopmentStaff
Kaiser & Hawk, 2004
Organizational Design: Offshore
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Governance:capability to define, track, assess
and fix performance
Joint Boards of Directors can create a managerial schizophrenia
Multiple Joint Boards help provide checks and balances among competing objectives
Joint Board of DirectorsJoint Service Review BoardJoint Technology Review Board
Planning &Contracting
Organization Design
CustomerDevelopment
BehaviorManagement
Governance
Leadership;Program
Management ProcessRe-engineering
TechnologyExploitationSourcing
BusinessManagement
DomainExpertise
Example of Strategic/Enterprise Partnerships
58
Prioritize supplier’s competencies based on your outsourcing objective
Main Customer Objective:
Supplier’s
Delivery
Competency
Supplier’s Transformation Competency
Supplier’s
Relationship Competency
Lower costs on baseline services
1st 3rd 2nd
Transformation of back office processes
2nd 1st 3rd
New business development
3rd 2nd 1st
ETC…
59
Supplier Perspectives on Client
PotentialGrowthValue
of Client
Present Revenue Valueof Client
HIGH
LOW
HIGHLOW
Develop Re-commit
De-commitReap
and Retain