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Deciding to outsource and offshore
A classic make or buy decisionRFP process
Presented 20 May 2005, CSE Annual Meeting, Atlanta by Cara Kaufman
Kaufman-Wills Group 2Outsourcing and Offshoring
What is a make or buy decision?
Sometimes it makes more sense to buy services rather than perform the task in-house The argument for outsourcing
Proficiency Complexity
The argument against outsourcing Control Flexibility
The verdict Either can make operational and financial sense Arguments for, can become arguments against
Kaufman-Wills Group 3Outsourcing and Offshoring
Deciding whether to make or buy
What do you want to accomplish? How is it done now? What can you do?
Make Buy
Kaufman-Wills Group 4Outsourcing and Offshoring
Set objectives
What? Improve quality Reduce time Cut costs
Why? Rationale Importance
When? Timeframe
Kaufman-Wills Group 5Outsourcing and Offshoring
Needs assessment
Identify your needs The more crucial the task, the more details need to be
specified Workflow and outputs
Policies Steps Time increments Staff and system capabilities
Classify your needs Long-term, medium-term, immediate Low, medium, and high priority
Kaufman-Wills Group 6Outsourcing and Offshoring
Review options
Outsourcing Availability of options Competitor offerings Appropriateness
(esp, offshoring) Gains from technology Interface issues
In-house Core competencies Competing priorities Career path
Skills to task Supervision
Corporate culture
Kaufman-Wills Group 7Outsourcing and Offshoring
The RFP process: a 5-point plan
1. Identify potential suppliers
2. Prepare and distribute the RFP
3. Evaluate proposals
4. Meet with finalist/s
5. Decide on supplier
Kaufman-Wills Group 8Outsourcing and Offshoring
Prospective suppliers
IdentifyDirect and indirect competitors Industry meetings and periodicalsVisit Web sites
Pre-screenExperience InterestTime
Kaufman-Wills Group 9Outsourcing and Offshoring
Prepare the RFP: components
Stated objective Organizational overview Required deliverables
Product specifications Service expectations
Assumptions, agreement Start date, length of initial
term Budget, cost considerations Ownership of data, code,
etc.
Required proposal format Technical section Time-cost section Additional documentation
Submission Deadline Contact Basis of award of contract Award date
Send Targeted suppliers With sample materials Confirm receipt
Kaufman-Wills Group 10Outsourcing and Offshoring
Evaluate proposals
Decide on evaluation criteria Financial Qualitative
Create summary grid/s Compare apples to apples Involve stakeholders appropriately Goal: good decision, perhaps not best decision Select finalist/s
Kaufman-Wills Group 11Outsourcing and Offshoring
Evaluating alternatives
Make Buy 1 Buy 2
What it means
Potential benefits
Potential drawbacks
Costs to consider
Kaufman-Wills Group 12Outsourcing and Offshoring
Meet the finalist/s
Presentation Q&A Meet and greet Tour
Kaufman-Wills Group 13Outsourcing and Offshoring
Decide on supplier
Decide on supplier Notify all prospective suppliers Enter into contract negotiation
Set timeline for completionBusiness terms firstLegal sign off afterward
Culture
“…the way we do things around here.”
Kaufman-Wills Group 15Outsourcing and Offshoring
When is change necessary?
When the environment is undergoing fundamental change, and the organization has always been highly value drivenAdvent of new technologiesPressure on traditional business modelsGlobalization
Deal and Kennedy
Kaufman-Wills Group 16Outsourcing and Offshoring
What does change look like?
Management Risky Critical Time-consuming
Employees Threatening Confusing Insecurity
Positive Excitement Opportunity Motivation
Negative Resistance Questioning trust Glorification of past
Kaufman-Wills Group 17Outsourcing and Offshoring
Promote and manage change
ManagersArticulate objectives clearlyLay out step-by-step planAlign employee incentives with objectives
EmployeesParticipate directly in process Coordinate and implement changeCommunicate concerns constructively
