Slide 1 Outsourcing Part 2 - Evaluation & Management Section 3 – Developing the Relationship Strategy Developing the Relationship Strategy. Establishing the Objectives for Outsourcing. Selecting the Supply Relationship Strategy. Potential Relationship Strategies. Final Thoughts - Developing the Relationship Strategy. Stage 5 of the Outsourcing Framework

Slide 2 Developing the Relationship Strategy Organisations are recognising the benefits of adopting approaches for managing across and beyond the boundaries of the organisation: –competitive advantage can be based (as much) upon managing beyond the ownership boundaries of the organisation as on management within the boundaries. Source: McIvor (2005) Cont’d

Slide 3 Developing the Relationship Strategy (Cont’d) As organisations increasingly OS important activities, they have been attempting to develop collaborative relationships with suppliers as they seek to reduce the risks associated with OS. By employing astute relationship management mechanisms it is possible for organisations to leverage the capabilities of suppliers in a more effective way than competing organisations. McIvor (2005)

Slide 4 Developing the Relationship Strategy (Cont’d) Stage 5 - Developing the Relationship Strategy This stage outlines the steps involved in building relationships across organisational boundaries in order to achieve the objectives established for OS. Key steps include: –establishing the objectives for outsourcing and –selecting the appropriate supply relationship to achieve these objectives. Source: McIvor (2005) Recap Slide

Slide 5 Establishing the Objectives for Outsourcing Establishing clear objectives will assist in the implementation of a successful outsourcing strategy. For example: –reducing the costs of sourcing the activity (NB see other comments on cost / OS) –enhancing quality levels –obtaining higher levels of service in the provision of an activity. The objectives for outsourcing are important from a number of perspectives: –selecting the supply relationship –monitoring supplier performance –monitoring the nature of the supply relationship –the competitive position of the sourcing organisation. Source: McIvor (2005)

Slide 6 Selecting the Supply Relationship Strategy Selection of the appropriate relationship strategy is influenced by: The objectives for outsourcing the activity. The importance of the activity: –a reliable indicator of the attention that the organisation should give to managing the relationship with the supplier. Supply market risk: –includes factors in the supply market that can create difficulties for the organisation in managing the relationship with the supplier. The latter two dimensions yield the potential relationship strategies. Source: McIvor (2005)

Slide 7 Adversarial Competitive Collaborative Close Collaborative Secure Supply Potential Relationship Strategies Not Critical to Competitive Advantage Critical to Competitive Advantage LowHigh Supply Market Risk Activity Importance Q1 Q4 Q2 Q3 Source: McIvor (2005) Close Collaboration

Slide 8 Quadrant 1 – Competitive Collaborative Most appropriate when the supply market is highly competitive with many suppliers competing for business. Suppliers have limited bargaining power and customers can easily switch to alternative sources of supply. The buyer can develop a relationship with a supplier for as long as that supplier maintains a position of leadership in the activity concerned. Close Collaboration - it is possible to establish a close long- term strategic collaborative relationship with one of the potential suppliers (rather than having a number of suppliers competing against each other for the business). Source: McIvor (2005)

Slide 9 Quadrant 2 – Close Collaborative Close collaboration involves the adoption of a long-term collaborative buyer/supplier relationship. This approach is suitable in the case of a critical activity for which there are only a limited number of suppliers in the supply market. Allows the buying organisation to establish and build a mutually advantageous relationship with the supplier: –through specialised investments in the relationship the buying orgn and the supplier can develop a relationship that delivers benefits that are unavailable to competitors. Source: McIvor (2005) Cont’d

Slide 10 Quadrant 2 – Close Collaborative (Cont’d) The presence of relation-specific investments can create a high level of mutual dependency for example: –collaboration in new product development –the development of inter-organisational IS –the development of integrated order management and delivery systems. Source: McIvor (2005)

Slide 11 Quadrant 3 – Adversarial In this quadrant it is possible to source the activity from a wide number of suppliers in the supply market. The supply market is extremely competitive with many suppliers aggressively competing for business. The most appropriate strategy is to source the activity from the most competitive supplier in terms of price, delivery and quality. The buyer (i.e. organisation) must be aware of supplier attempts to build any dependency into the relationship. Source: McIvor (2005)

Slide 12 Quadrant 4 – Secure Supply Factors in the supply market can create uncertainty and vulnerability in supply. Attention must be given to ensuring continuity of supply: –consider pre-empting any supply problems by establishing a long-term relationship with the supplier or maintaining some capability internally. Source: McIvor (2005)

Slide 13 Final Thoughts - Developing the Relationship Strategy An organisation may have outsourced a number of activities, of differing importance, to a single supplier. In this case the organisation should choose the appropriate supply relationship on the basis of the amount of business it has with the supplier rather than the importance of a single outsourced activity. For example: a close collaborative relationship may be appropriate in a situation in which the organisation's expenditure is a significant ratio of the supplier’s total sales revenue. Source: McIvor (2005)

Slide 14 Required Reading Jones, W. (1997) Outsourcing Basics, Information Systems Management, vol. 14, pt. 1, pp Lee, M. (1996) IT Outsourcing Contracts, Industrial Management and Data Systems, vol. 96, pt. 1, pp McIvor, R. (2005) The Outsourcing Process, Cambridge University Press, pp.12-14, 35-36, 66-67,

Slide 15 References The following texts were used in the preparation of this material. Barthelemy, J. (2003) The Seven Deadly Sins of Outsourcing, The Academy of Management Executive, vol. 17, no. 2, pp Barthelemy, J. & Geyer, D. (2000) IT outsourcing: findings from an empirical survey in France and Germany, European Management Journal, vol. 19, no. 2, pp Jones, W. (1997) Outsourcing Basics, Information Systems Management, vol. 14, pt. 1, pp Lee, M. (1996) IT Outsourcing Contracts, Industrial Management and Data Systems, vol. 96, pt. 1, pp Cont’d

Slide 16 References (Cont’d) The following texts were used in the preparation of this material. McIvor, R. (2005) The Outsourcing Process, Cambridge University Press.