Smartsourcing Adding Innovation to the “Cost Cutting” Outsourcing Dr. Nicolae Varachiu Acquis Technical Officer, ARIES Business Development Coordinator, Honeywell

Dr. N. Varachiu2 If he's so smart, how come he's dead? - Homer Simpson

Dr. N. Varachiu3 The most profound impact of… … the 20 th -century enterprise was the way we moved workers to where the work was. Thomas M. Koulopoulos, Tom Roloff, Smartsourcing – Driving Innovation and Growth Through Outsourcing, Platinum Press, 2006 … the 21 st -century enterprise will be the way we move work to where the workers are.

Dr. N. Varachiu4 Sourcing = a number of procurement practices, aimed at: finding, evaluating and engaging suppliers of goods and services

Dr. N. Varachiu5 Outsourcing = subcontracting a process, such as product design or manufacturing, to a third-party company = a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.

Dr. N. Varachiu6 Business segments typically outsourced: information technology human resources facilities and real estate management accounting customer support and call center telemarketing / market research, manufacturing engineering

Dr. N. Varachiu7 Multisourcing = large (predominantly IT) outsourcing agreements. Multisourcing is a framework to enable different parts of the client business to be sourced from different suppliers.

Dr. N. Varachiu8 Offshore Offshoring describes the relocation of business processes from one country to another. This includes any business process such as production, manufacturing, or services.

Dr. N. Varachiu9 Nearshoring = means sourcing service activities to a foreign, lower-wage country that is relatively close in distance or time zone (or both). Examples of nearshoring: American clients nearshoring to Mexico, Austrian clients nearshoring to Slovakia, Japanese clients nearshoring to China.

Dr. N. Varachiu10 Offshore & Outsourcing Outsourcing involves contracting with a supplier, which may or may not involve some degree of offshoring. Offshoring is the transfer of an organizational function to another country, regardless of whether the work is outsourced or stays within the same corporation

Dr. N. Varachiu11 Reasons for outsourcing: C ost savings C ost restructuring I mprove quality K nowledge C ontract O perational expertise S taffing issues C apacity management C atalyst for change R educe time to market R isk management T ime zone C ustomer pressure.

Dr. N. Varachiu12 Reasons for outsourcing: Cost savings Cost restructuring I mprove quality K nowledge C ontract O perational expertise S taffing issues C apacity management C atalyst for change R educe time to market R isk management T ime zone C ustomer pressure.

Dr. N. Varachiu13 First reasons for outsourcing: Cost savings The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels. Access to lower cost economies through offshoring. Cost restructuring Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.

Dr. N. Varachiu14 Smartsourcing... …is not about …is about economy of scaleeconomy of scope just technologycompetency ownershippartnership cost cuttinginnovation cheap laborsmart, educated workers episodichere to stay just outsourcingoutsourcing is only one facet T. Koulopoulos, T. Roloff, Smartsourcing....

Dr. N. Varachiu15 C ENTER FOR G LOBAL O UTSOURCING 6th Annual Int'l Smart-Sourcing Conference, Atlantic City, NJ,USA on Sept. 6-7, th Annual Int’l Smart-Sourcing Conference, to be held in Hyderabad City, India from August 8-9, 2008

Dr. N. Varachiu16 Pareto Principle or the rule applied to organizations: non -core functions/ competency core functions/ competency areas that define the organization’s mission

Dr. N. Varachiu17 Take advantage from diversity! ! ! All policemen are British All cooks are French All mechanics are German All lovers are Italians And everything is organized by Swiss

Dr. N. Varachiu18 Take advantage from diversity? ? ? All policemen are German All cooks are British All mechanics are French All lovers are Swiss And everything is organized by Italians

Dr. N. Varachiu19 Take advantage from diversity? ? ? All policemen are German All cooks are British All mechanics are French All lovers are Swiss And everything is organized by Romanians

Dr. N. Varachiu20 Smartsourcing Increases innovation in processes, from core to non-core and let the organization to: –Focus on their most critical areas of differentiation, customer value and competency –Achieve high level of innovation in non-core operations

Dr. N. Varachiu21 Outsourcing Smartsourcing ? Focusing more on costs & replicating the status quo No interest on concurrent innovation initiative T. Koulopoulos, T. Roloff, Smartsourcing.... Improving process excellence & promoting innovation … …among organization’s core process initiatives Strong relationship between organization and its service partner

Dr. N. Varachiu22 Outsourcing Smartsourcing ? “The key in the case of Smartsourcing is that you need to be as diligent and critical of defining and understanding the value of your core competencies as you are in defining and understanding the value of the processes you outsource and then creating innovation across the spectrum.” T. Koulopoulos,

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Dr. N. Varachiu24 Low High Competency Differentiation Customer value

Dr. N. Varachiu25 Outsourcing Low High Competency Differentiation Customer value

Dr. N. Varachiu26 Smartsourcing Low High Competency Differentiation Customer value

Dr. N. Varachiu27 Smartsourcing Low High Competency Differentiation Customer value Push Towards Higher Value, Differentiation, and Innovations

Dr. N. Varachiu28 Smartsourcing Low High Competency Differentiation Customer value Push Towards Higher Value, Differentiation, and Innovations

Dr. N. Varachiu29 Smartsourcing simple questions 1.Do you know what your core competencies are so that you can focus and prioritize your energies on them? 2.Can you define your processes and your work so that you can transport them easily to partners? 3.Are you able to measure innovation and its impact in all aspects of your business? T. Koulopoulos, T. Roloff, Smartsourcing....

Dr. N. Varachiu30 Smartsourcing Dashboard Excellent Poor How important is the process to your competitive position? Non-CoreCore Segment 3: Process Outsourcing Segment 4: Process Offshoring Segment 1: Process Optimization Segment 2: Process Re-engineering How good is your performance? T. Koulopoulos, T. Roloff, Smartsourcing....

Dr. N. Varachiu31 Segment 1: Process Optimization Core processes you execute well are sources of long-term competitive advantage and differentiation Continually optimize these processes to maintain competitive advantages

Dr. N. Varachiu32 Segment 2: Process Re-engineering Processes you consider the core of your business but which perform poorly leave you vulnerable to competitive disadvantage Define a plan to fix these processes but keep them in-house and migrate them to Segment 1 as soon as possible

Dr. N. Varachiu33 Segment 3: Process Outsourcing Processes that do not differentiate you in the market and are not executed well could leverage best in-class operation from a third party Keeping these processes in-house may be unnecessarily expensive but they are not likely mature enough to offshore

Dr. N. Varachiu34 Segment 4: Process Offshoring Processes that offer not competitive advantage but are operating above industry average performance levels can be moved offshore Offshore providers will replicate existing process performance at a much lower cost

Dr. N. Varachiu35 Thank you for your attention! Va multumesc pentru atentie!

Dr. N. Varachiu36 Team working

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Dr. N. Varachiu51 Hammer principle

Dr. N. Varachiu52 Smartsourcing