Lecture Business management information system - Lecture 19: Managing operations. This chapter presents the following content: Managing outsourcing, organizational structure, governance, day-to-day working, supplier development, eastman kodak company,...
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# EASTMAN KODAK COMPANY
Case Example: Managing Outsourcing #m HONDA MOTOR COMPANY
Case Example: Supplier Development = Offshoring
# EXULT
Case Example — Offshoring
Trang 4mẻ DŠ — lls Managing Outsourcing: 1 Organizational Structure = Managing outsourcing Is different from managing internal Staff
One reason = it Is a joint effort between parties that
may not have the same goals
= Typically, parties establish layers of joint teams Top-level team: final word in conflict resolution
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Managing Outsourcing: 1 Organizational Structure
Joint special purpose teams: created from time to time to solve pressing issues
Committees: oversee the use of formal change management procedures
Relationship Manager(s): look after the ‘relationship’
# Skills = different to those of e.g a data center
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EASTMAN KODAK COMPANY
Case Example: Managing Outsourcing
M First IS outsourcing by a ‘good shop’
‘| “Shocked the IS world”
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EASTMAN KODAK COMPANY
Case Example: Managing Outsourcing cont
Mi = Management structure:
Management Board
= Meets twice a year, includes senior management
from both companies — Focus on strategic issues The Advisory Council
=" Meets monthly, 15 members- handles technical
Trang 8EASTMAN KODAK COMPANY
Case Example: Managing Outsourcing cont
3 The Supplier and Alliance Management Group
= Manages long term outsourcing relationships & contracts with large IT suppliers
4 The Relationship Manager
=" Focal point between Itself and service provider —
Trang 9EASTMAN KODAK COMPANY
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EASTMAN KODAK COMPANY
Case Example: Managing Outsourcing cont
Mi Kodak needs all these forms of co-ordination for
effective supplier management
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Managing Outsourcing:
2 Governance
= The foundations of governing an outsourcing relationship are laid in the (LARGE) contract(s)
# Service Level Agreement (SLA)
Responsibilities, performance requirements, penalties, bonuses
# Another important component of SLAs is metrics An SLA
needs to be measurable to be of use
# |t is only when trust in one another breaks down that they
Trang 13FIGURE 8-4 Examples of Outsourcing Governance Rules
e Service levels must stay in the top 25 percent as benchmarked against the client’s peers
e Escalation of problems becomes more painful as it goes higher to encourage early resolution e The supplier is the grand project manager and is responsible for managing multiple vendors e Work style is based on respect and confidence; there should be no personalization of problems e Add significant value
e Aim to operate in an “open book” manner, sharing key operating information with each other e New services can be put out for bid
e No exclusive agreements e Meet our standards
e Let us know about potential problems before they happen e Spend our money as if it were your own
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mẻ DŠ — lls
Managing Outsourcing: 3 Day-to-Day Working
Mi Recommendations to manage day-to-day interactions:
Manage expectations, not staff
# Facilitation becomes the mode of working Rather
than say “do this”, the approach becomes “how
can we solve this together”
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Managing Outsourcing: 3 Day-to-Day Working
Integration of the two staffs requires explicit actions =" Does not happen naturally
Trang 16m _D "nén Managing Outsourcing: 3 Day-to-Day Working Don't unduly restrict outsourcing staff access Joint celebrations
Invite each other to meetings
The best way to manage day-to-day is communicate
frequently
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Managing Outsourcing: 4 Supplier Development
= Topic that is receiving increased attention
= Buying parts and services that go into one’s own products and services
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HONDA MOTOR COMPANY
Case Example: Supplier Development
= Not an IT related example (manufacturing) but a good
one!
= This automobile manufacturer conducted pioneering
work in improving suppliers’ capabilities by pairing Honda
engineers with a supplier’s engineers to drastically lower the cost of one part supplied to Honda
Trang 19Offshoring
= To round out our discussion of outsourcing, we turn to a topic receiving much attention today: sending work offshore
Now = a big political issue
= Late 1990s — Offshore outsourcing
Started when labor markets were especially tight due to Y2K
Companies turn to offshore outsourcing because labor costs are lower and there is ample supply of
educated people
Trang 21Offshoring
m The trickle In the late '90s has turned into a steady
stream of white-collar work going offshore
Application maintenance and development Call centers Customer service Back office processing BPO Claims processing Etc
= Manufacturers have faced international competition,
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Offshoring cont
= Offshore outsourcing differs in some unique ways from domestic outsourcing
Some areas to be considered:
1 Offshoring options are broadening
2 Both parties need cultural training to bridge cultural differences
Clients = cultural integration programs
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Offshoring cont
= Offshore outsourcing differs from domestic
Some areas to be considered cont
3 Communication issues need to be addressed from the outset
“Yas”
- Asia = “| hear what you are saying’
Trang 24m _D_D_` tts Offshoring cont Tips - Avoid colloquialisms such as sporting analogies - Use short, concise sentences with common words
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Offshoring cont
- Get all commitments in writing
Trang 26mẻ _ÏÖỂ_— ảnh EXULT
Case Example - Offshoring
= Provides full-service HR outsourcing to Global 500 companies
Mature in outsourcing relationships because
outsourcing Is its primary business
= 2 Indian companies maintain its core HR computer
systems (SAP & Peoplesoft)
Chose 2 Vs 1 to ensure resources could be scaled
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mẻ D_— nh EXULT
Case Example - Offshoring
= In choosing the providers used consultants to do the
detailed review and content (neolT) and to structure the contract (TPI)
Aim = for best deal Needed to understand the Indian
Trang 29mẻ _ÏÖỂ_— ảnh EXULT
Case Example - Offshoring
= Current split of maintenance work 70% Indian
15% provider employees ‘onshore’
15% Exult ‘onshore’
= Requires us buyers to work within the highly disciplined Indian maintenance processes rather than to try to
change them
Applies to all outsourcing!
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Offshoring cont
= Use Offshoring to Advantage
A major criticism is that it decreases skills and
know-how of its client’s IS organization
= This need not be so
= Redefine Services Using Offshoring Understand customers
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Offshoring cont
Stay in touch with customers
Offer end-to-end service Dominate the screen
= As information moves online, companies are vying to control “the screen” = where the
Trang 32m D_—è nh Offshoring IS Activities
= Outsourcing was caused by the emphasis on
organizations sticking to their core competencies,
offshoring was caused by scarce resources
= Offshore outsourcing occurs when products and services are procured from locations in other countries Offshore out-sourcing of information systems services Is,
Trang 33Offshorin American ING IS been vi IS Activities cS their back-office
processing services in India since 1994
GE Capital opened its GE Capital International
Services (GECIS) in India in 1997
Trang 34Offshoring IS Activities
™ Many of these outsourcing vendors are “offshore” in large part because of the lower costs that can be
attained outside of countries in the industrialized West = This exploitation of international cost differentials has
been termed “global arbitrage,” as it is an extension of
Trang 35SS Offshoring Factors
Bandwidth growth and telecommunication
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Offshoring Factors
= Offshore outsourcing of information systems activities Is
broadly accomplished In one of two ways:
First, the client or offshoring organization sets up units in other countries and hires local talent to develop,
maintain, and provide services
In this case,the company maintains responsibility for
training, Supervision, quality control, and the like
These responsibilities can be managed locally or
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Offshoring Factors
= Second, the client or offshoring organization contracts
out services to providers in locations in other countries
In this case, responsibility for hiring, training,
Trang 38"mm Offshoring Factors Describes six varieties of work related to information systems: 1 Programming, software testing, and software maintenance;
2 Information systems research and development;
3 high-end jobs such as software architecture, product
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Offshoring Factors
4 Physical product manufacturing—semiconductors, computer components, computers;
5 Business process outsourcing/IT enabled services
Insurance claim processing, medical billing,
accounting, bookkeeping, medical transcription,
digitization of engineering drawings, desktop publishing, and high-end IT enabled services such as financial
analysis and the reading of X-rays;
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Controlling information systems
# Controlling information systems development and
maintenance costs Is necessary for an organization in general and the information systems function In
particular
= Inthe early days of computers, investment in hardware,
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Risks in Offshore Outsourcing IS Activities
= Any business decision involves risks, and that risk Is
greater in situations when there Is increased change or
uncertainty
= The best option, however, is not to avoid decisions or to wait and see what might happen elsewhere
= The pressure on CEOs and ClOs to reduce costs Is real, and there Is no sign that it will be lifted any time soon
= Good management practice suggests careful
Trang 42Risks in Offshore Outsourcing IS Activities
Although offshore outsourcing of information systems services has been going on for some time now, our
understanding of Its impact Is still evolving
The trend in offshoring has been rapid, and there Is little
doubt that it will continue in the foreseeable future
It is critical that offshored projects are carefully studied and costbenefit analyses are carried out to make
sure benefits overweigh costs beyond a margin Only significant cost benefits will warrant offshore outsourcing of information systems services
With only a marginal cost benefit of say 10-15%, most organizations are better off retaining their
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Risks in Offshore Outsourcing IS Activities
= The offshore outsourcing of information systems activities is primarily based on transaction cost economics
= That rationale is narrowed down to the cost of labor toa
large extent
= There is an extant discourse among academics,
professionals, and business leaders as to the exact
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Risks in Offshore Outsourcing IS Activities
# Risk in:
(a) overestimating the cost saving,
(b) underestimating the overhead costs that are necessary to get to the cost saving stage
(Cc) discounting non-cost factors that influence offshore outsourcing outcome
The tangible transaction-cost economics of
offshore outsourcing is more readily measured by economics and cost accounting models
The intangible costs or benefits of offshore
outsourcing include issues of organization,
behavior, morale, social, strategy, and the like, and
Trang 45Risks of Offshore Outsourcing
= Decline in employee morale
= Loss of innovation and know-how
= Public reaction to corporate citizenship
= Regional instability of host country = Quality control and standards
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The Management of Offshore Information Systems Projects
= Offshore outsourcing of information systems services
has added new dimensions to duties and responsibilities of project managers
= Systems that are developed at remote sites in different countries are more difficult to manage due to differences
in culture,language, time zone, labor law, work habits,
and the like
= These issues are relevant even to cases when a firm
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The Management of Offshore Information Systems Projects
Project managers are often involved with negotiation and management of contract with international vendors for
the delivery of information systems services
Many firms have their legal division draw and finalize
these offshore contracts
Project managers often interact directly with offshore
vendors to negotiate and clarify responsibilities
Communication skills and clear understanding of the