Title: FB58075
1FB5807-5
- IT Based Organisational Transformation
-
- Offshoring
2Background
- IT has the potential to integrate information
(globally) - IT can enable (globally) distributed people to
communicate with ease - Indeed, it is hard to imagine life without IT
- IT can extend the enterprise beyond its
traditional borders - Li Fung, Amazon, TAL Group, etc.
- These organisations are truly IT-dependent.
- They also leverage IT to ensure their competitive
advantage
3CityU and IT-based Change
- How has IT changed CityU in terms of
- Teaching
- Web-based, groupware enabled, technically savvy
graduates teachers - Learning
- All students need to be IT-literate to survive!
- Do students have to be here to learn?
- Research
- Communication and collaboration with my
colleagues - Administration
- Online forms, portal, reporting, approving,
email,
4Implications of IT-based Change
- Changes to processes
- Changes to structures
- Changes to the culture?
- Are we more open than before
- Are we receptive to new technology?
- Are we developing a dynamic culture, not
reinforcing the status quo?
5IT can transform
- The inner operations of an organisation (not just
communication processes) - The fundamental structure of the organisation,
its supply chain relation-ships and the way its
employees work - The organisation itself
6IT can transform
- Internal and External Business Processes
- The Supply Chain
- The Organisational Structure
- From physical to virtual
- From centralised to distributed
- From hierarchical to heterarchical
- Employees
- From in the office to anywhere in the world
- Telecommuters and Virtual Teams
7Business Process Re-engineering
- The fundamental rethinking and radical redesign
of business processes to achieve dramatic
improvements in critical, contemporary measures
of performance.... - Hammer and Champy (1993)
8A Generic Model for BPR
1. Develop Vision
Objectives
8. Ongoing Continuous
1
Improvement
2. Identify Process
8
for Redesign
2
7. Make New
Process
7
3. Understand
Operational
3
Measure
Existing
Process
6
4
6. Develop Support
5
4. Identify IT
Solutions
Levers
5. Pilot/Trial New
Process
9IT as an Enabler of BPR
- 1. Automation Elimination of human labour
- 2. Informational Capturing/tracking process
information - 3. Sequential Changing process sequence, or
enabling parallel processing - 4. Analytical Improving analysis of information
and decision making
10IT as an Enabler of BPR
- 5. Geographical Coordinating processes across
time and space - 6. Integrating Coordination between tasks and
processes - 7. Learning Capturing and distributing
intellectual assets - 8. Disintermediating Eliminating intermediaries
from a process
(adapted from Davenport, 1993)
11Choosing the Processes to Re-engineer
- Symptom - Extensive information exchange, data
redundancy, rekeying - Disease - Arbitrary fragmentation of a natural
process - Symptom - Inventory, buffers, and other assets
- Disease - System slack to cope with uncertainty
and mistakes - Symptom - High ratio of checking and control to
value-adding - Disease - Fragmentation, confusion, and mistakes
12Example AA Sabre 1970s
- Symptom Data redundancy, rekeying of data,
double bookings, telephone calls to confirm seat
availability - Disease the process is fragmented across
multiple systems, multiple technologies - Solution - Sabre, a Reservation System for Travel
Agents - For all airlines, but AA flights came up first
- 50 of agents select 1st or 2nd choice on the
screen - What was the role of IT in coordinating
integrating?
13Example Freq Flier Progs 1990s
- Symptom Flights are not always full passengers
fly based on cost, convenience. - Disease (our) passengers are fragmented across
multiple airlines - Solution A Frequent Flier System
- For airlines in our team, with bonus points,
check-in and luggage privileges, occasional
upgrades - If your airline is not part of a major team (e.g.
Star Alliance, Sky Team, OneWorld, Asia Miles),
then what? - What was the role of IT here?
14Example Outsourcing 2000s
- Symptom We lose money on packaging, logistics,
even RD. - Disease we are doing many things that are not
our core competence - Solution Stick to what we are best at and
outsource everything else - UPS/FedEx are no longer just transport companies.
- They do warehousing, logistics, customer delivery.
15Common IT Problems in BPR Projects
- 1. Team members unfamiliar with IT possibilities.
- 2. IT professionals not part of BPR teams.
- 3. IT people dont understand the business.
- 4. IT professionals not knowledgeable about how
IT can support BPR. - 5. IT consultants brought in too late to have any
major impact on process redesign. - 6. BPR team members too preoccupied with process
analysis and redesign to explore IT applications.
16IT Lessons Learned
- IT is not a solution
- It must be applied sensitively
- IT-enabled BPR should be part of the corporate
agenda - IT people must be involved from the beginning
- But BPR is about business processes, so
- Business people should lead the effort
- Processes should be redesigned with IT in mind
- Targets should be realistic
- BPR is not trivial. It requires creative
thinking.
17Getting Serious about BPR
- 1. What is likely to be the hardest part of
reengineering for our company? - 2. How can we develop our people so that they can
do the jobs that re-engineering will create, and
use the IT appropriately? - 3. Are we prepared to adapt our HR policies to
the needs of a reengineered environment? - 4. How may we have to adapt our organizational
structure for the aftermath of re-engineering?
18Will Re-engineering work in China?
- Does anyone have experience of process
improvement in China?
19Changes to the Organisational Structure
- The extension of organisational boundaries
- Including customers, suppliers partners
- Not just process redesign, but structural
redesign - X-engineering (BPR-II)(Champy, 2002)
- Realisation that success involves managing
dependencies (with IT), and perhaps changing our
culture
20WalMart
- US4B investment in IT to develop the Retail
Link private exchange - All manufacturers/suppliers wishing to do
business with WalMart must buy and use it - Top 100 suppliers must use RFID as well.
- Huge cost advantage over competitors because
they integrate with IT.
21But IT is not just for the big
- Anyone can leverage IT to their advantage
- IT is for both radical incremental change
- IT can be used to transform an industry
- IT can be used to drive up the competitive
advantage of the traditionally small and weak.
22Case TAL Group (talgroup.com)
- Founded in 1947, HQ in Hong Kong
- Turnover of US590M in 02/03
- 11 factories
- 23,000 employees
- 50M garments a year
- 78 of sales in the US market
23TALs IT Investments
- Integrating ERP SCM systems (US10M)
- End-to-end fully integrated system for
- Capacity planning
- Production scheduling
- Inventory management
- Raw material purchases
- Finished garment sales
- Extensive R_at_D gt manufacturing patents
24Vendor Managed Inventory
- Persuade the customers (retailers) to let TAL
control the Inventory Management. - TAL is the sole supplier for those goods
- TAL has total control of inventory monitoring
replenishment no more purchase orders - TALs systems constantly monitor inventories at
the store level - Reduce stock levels (and wastage) On-demand
production Rapid stock replacement
25From Linear and Sequential to Integrated and
Synchronised
- Traditional information flows are linear and
sequential. - Information quality degrades down the value chain
- Coordination problems are frequent
- TAL have an integrated synchronised hub
arrangement - This connects all their suppliers, customers and
partners seamlessly and enforces mutual
dependence. - Collaboration information exchange are routine.
26A Sequential/Linear Value Chain for Apparel
Manufacturing and Retailing
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
Service
Purchase receive raw materials (natural /
synthetic fibre, yarn, etc.)
Manufacture according to customer specs (cut
fibre, sew, buttonhole, iron)
Package ship to retailers warehouse
Manufacturer's Value Chain (TAL)
Retailers Value Chain (J.C. Penney)
Marketing, merchandizing, and selling to end
consumers
Receive consumer feedback for product
enhancement/ new product
Re-pack distribute to retail outlets
Perform inventory control, sales monitoring
forecast place replenishment orders
Purchase receive garment from manufacturer at
central warehouse
Lee et al., 2004
27An Integrated and Synchronized Value Network for
Apparel Manufacturing and Retailing
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
Service
Monitor retail sales, replenish inventory, and
design new products
Select order raw materials according to sales
patterns new design requirements
Design product according to sales pattern
manufacture according to design specs
Distribute orders directly to customers retail
outlets
Perform test marketing of new products at retail
stores
Manufacturer's Value Chain (TAL)
Hub (shared data and processes)
Retailers Value Chain (J.C. Penney)
Focus on after-sales service to end consumers
Focus on marketing sales service to end
consumers
Streamlined product delivery vendor-managed
inventory at the store level
Lee et al., 2004
28Impacts?
- US2M in annual savings for J.C. Penney
- 35 increase in inventory turnover
- 19 increase in sales
- 5 increase in gross margin
- Reduced out of stock situations and zero local
(warehouse) inventory
29Implications?
- Radically transformed industry structure new
rules of competition - Much higher switching costs for customers.
- Access to real-time sales data at the store level
- Useful for TAL as it seeks new customers.
30Lessons
- Innovation can be driven by a weak member
- Strong networks, manufacturing expertise
- Use IT to leverage strengths
- IT changes the value chain
- Develop an integrated and synchronised value
network - Shared data, systems, processes and performance
indicators
31Blog Questions
- How did TAL leverage IT to re-engineer its supply
chain? - What kinds of barriers would normally exist to
hinder such leveraging and re-engineering? - What is the strategic advantage for TAL?
- Why should a retailer like JC Penney trust TAL?
- Can we replicate TALs success in other HK
industries?
32The Virtual Organisation
- Depends on a seamlessly integrated federation of
alliances partnerships with other organisations - Extract value from partners, with minimal
investment in staff, assets and capital - Outsource as much as possible
- Use technology to overcome barriers of time
space - Employees telework
- and then to offshored work.
33Sun Microsystems Nike
- Sun - An intellectual holding company that
designs computers - Product ordering, manufacturing, distribution,
customer service handled by partners - Nike An intellectual holding company that
designs footwear - Manufacturing is outsourced to suppliers in
Taiwan, South Korea, Indonesia,
34MRO Software
- Global software firm
- Focusing on the property management sector
- Global HQ New York
- Regional HQ - Shanghai
- Staff in Hong Kong, Taipei, Singapore
- Wide use of Executive Suite offices
- Staff work from home, from their PDA, from
Internet cafes, from anywhere - I meet my boss once every 18 months, but I am in
touch most days.
35Advanced Book Exchange
- Helps buyers find sellers and v.v.
- Provides a search engine.
- Takes a commission for the tie-up.
- Does not handle books or publishers (unlike
Amazon). - It has information and a core process.
- Very few employees.
- Sweet, simple and effective.
36Airbus Consortium
- Airbus Consortium designs and builds aircraft
- Component parts come from 1500 suppliers in 30
countries - RD is shared with selected component developers
- Technical innovations are routinely shared in a
drive for quality
37Telecommuters or Teleworkers
- Work at home, on the road, from hotels or from
other non-office locations - They need communications technology and access to
corporate databases - They are often in sales, customer support and
research.
38Telecommuters
- ATT increased the number of sales people working
from home 15-20 more time with customers. - ATT saved US550M from 1991-1998 by eliminating
unused office space. - IBM saved US100M in one US unit through TC.
- Perkin-Elmer encouraged TC and shut 35 branch
offices altogether. - Texaco see TC as a key to increasing
competitiveness
39Telecommuting Problems/Opportunities
- Monitoring the quality of work
- What is the measure of work done?
- Who pays for the technology?
- Out of sight, out of mind?
- How can we control people we cant see?
- Keeping in touch with colleagues.
- Where is the boss?
40IT Offshoring
- Contracting software development or the provision
of IT services to an overseas firm - It is often seen as being cheaper, faster.
- But there are many hazards as well
- Managerial, HR, Work Style, Political,
- Offshoring should be a strategic choice, not an
accidental mistake - Failing to plan for it is planning to fail at it
41Inshore or Offshore?Insource or Outsource?
- Outsource
- Ask someone else to do it (outside the
organisation) - Insource
- Do it yourself (perhaps with non-local employees)
- Inshore
- Do it in your own country
- Near shore
- Do it in a nearby country
- Offshore
- Do it somewhere else, usually a less developed
country
42Background
- Providing IT services is big business
- India, China, Philippines, Russia, Brazil
- Technology parks, IT parks, lots of engineering
graduates - China graduates 4 times as many engineers as the
US annually - The cost of calling IDD has dropped 80-90, if
you still call, with VoIP at 100 below. - Bandwidth has increased similarly, with some
developing countries now connected by gigabit
lines. Only 10 years ago, it was close to 0.
43Software Commoditisation
- Standard practices and tools
- Established industry benchmarked procedures
- Some software tasks have been commoditised
- They can be offshored to the lowest cost, most
productive bidder - Like shopping in an online supermarket
44Strategic Advantages of Offshoring
- Cost reduction but is this strategic?
- Enable cost efficiencies that promote better
competition - Is offshore or die a strategic choice?
- Speed, agility and flexibility
- Respond to opportunities and get products to
market faster - Accessing talent unavailable elsewhere
- Both quality and quantity
45Follow the sun, round the clock
- Take advantage of time zone differences
- Send work from time zone to time zone
- US to S or SE Asia to Europe
- Non-stop work
- But coordination must be perfect
- And that is very hard in reality
- Few success stories
- Tasks with low complexity and small size are more
suitable
46Why are so few firms offshoring?
- It is not as easy as it seems
- Breakdowns can occur in
- Communication proximity
- Coordination spontaneity and proximity
- Control managers cannot manage by walking
around so easily - Cohesion barriers socialisation that doesnt
take place - Culture clash sensitivity and adaptiveness
47Who is offshoring? - US
- IBM
- RD in US, IL, CH 16 sw devt centres
- MS
- most RD in the US, but also IN, CN, IL UK.
- Google
- RD in IN.
- All the top 20 US tech firms do offshoring, but
only about 10 of the Fortune 1000 devote more
than 10 of their budget to offshored activities
48Who is Offshoring? - Europe
- Fewer than in the US, due to more conservative
business culture, as well as stricter labour laws
(redundancies) - Language is an issue few Indian programmers
read French or Danish manuals, or can build
interfaces in FR/DK - The UK is an exception, with much work outsourced
to IN, PK, BD, LA - Germany 80 of the large firms have yet to
offshore language, culture, - 60 of German offshoring is to E Europe
(nearshoring) - Dutch extensive offshoring to 35 countries,
but India preferred
49And what about Nearshoring?
- Germany to E Europe
- Japan to China, Vietnam, S Korea
- NEC started offshoring to China in 1982, with 40
firms and 3000 employees now involved - Several JP firms are spending US10-30M/year in
China - US to CA and MX growing potential here
50The big three destinations
- China, India Russia
- Large population, number of qualified employees
- 1000 software exporting firms
- But around 100 countries provide some offshoring
services (RO, BR, PH, VN, PO, HU, MY, AR, FJ,) - The Indian firms in particular are now global
firms in their own right - TCS, the largest Indian firm, had 2003 revenues
of US1B. It has its own offshore sites in HU,
CN, UY, AU, US, UK, JP - All are a great threat to US- and Europe- based
firms
51Offshoring IT Services
- If you want the loan application processed
today, click 1 and it will be done in Fiji.
Otherwise press 2, it will be done in the US,
and will take a lot longer - What clicked 1?
- There is increasing offshoring of IT services
- Application processing, telemarketing,
help-desking, airline reservations, data entry,
etc.
52Offshoring IT Services
- All these various services are highly dependent
on both IT and language - The relevant data is mobile it can be sent
through the Internet easily - HSBC in 2003 had 1500 employees in China and 2000
in India for clerical work 500 in MY for data
processing. - English speaking countries (populations) have a
distinct advantage
53It all depends on language
- UK, US, CA, AU, NZ gt IN, PK, LA
- FR gt MU, MA, DZ, TN (Mauritius, Morocco, Algeria,
Tunisia) - NL gt ZA, SR (Surinam)
- ES gt ??
- DE gt ??
- IT gt ??
54What do IT Professionals cost?
- US
- Canada
- Japan
- Singapore
- Brazil
- Mexico
- India
- Russia
- China
- Vietnam
- 63,000
- 57,000
- 44,000
- 43,000
- 20.000
- 7,000
- 8,000-9,000
- 5,000-18,000
- 3,000-14,000
- 1,400-6,000
All salaries US/year
55But, this is the basic
- What about housing, medical insurance,
transportation, loans, 13th month bonus, etc. - The full costs of an Indian programmer are
30-40k, compared to 120K in the US. - Chinese programmers (3-4 yrs exp) cost
US12.50/hour about 20 of the US rate.
56And what about?
- Transaction costs
- Infrastructure costs
- Knowledge transfer costs
- Currency movements
- Dispute resolution
- Travel costs in the early stages
- Unpredictable risks wars, financial collapse,
terrorism, regulatory changes (e.g.
nationalisation, tax breaks), IP theft,
corruption, proprietary knowledge, etc.
57The IT Offshoring Journey
- SunnySystems (SS) is a small sized HK software
house. It needs to reduce costs, so it decided
that the next version of its software would be
developed in India. The project manager met a
rep. of a large India provider at a US IT fair
and designed to sign a contract. Problems started
almost immediately SS used a development
platform called Progress, but this is little used
in India. SS overlooked the fact that the Indian
programmers had no experience with the latest
version of Progress. Knowledge transfer from SS
to India was fraught with problems. One year
later, the project was written off as a failure
and abandoned. Clients now started to lose
confidence in a company that could not deliver.
The project manager had already lost his job.
58Ill Never Do It Again!
- Offshoring can be exciting or scary
- Depends on your appetite for adventure, for the
exotic, for risks - Many lessons have already been learned, and can
be read, so companies considering offshoring have
no excuse not to know in advance what they are
getting into. - But are the risks over stated? Is it really that
dangerous? - What should be done?
59Three steps (not that special)
- Laying the foundations
- Do we have a plan, a strategy? Who is involved?
Are we ready? a year? 18 months? - Identifying the providers
- Which country? Which providers? Selection
criteria? RFI and RFP. 6 months - Assessing Selecting the Provider
- Visit the offshore location. Meet the people.
Observe their work. Sign the contract. at least
a month
60Laying the Foundations 1
- Assessing if we are ready
- How good is our project management?
- Can we manage an offshore project?
- Can our people work with them?
- Are changes in work norms acceptable?
- What is our appetite for risk?
- The hardest step is re-engineering internal
processes so as to ensure that they are ready.
61Laying the Foundations 2
- The launch team
- Offshoring is complex it needs a powerful team
- Build a strategic vision, commitment and push for
implementation - Agile and able to make quick decisions
- Expertise in offshoring
- Learn from others experiences (including
consultants)
62Laying the Foundations 3
- Strategy Plan
- Why are we doing this? (specifically why?)
- How are we going to achieve this goal?
- What are the risks?
- Operational issues
- HR costs, skill sets, current future
operations, exactly what are we offshoring, - Develop a business case for offshoring
- With performance indicators to measure later
success - Costs, satisfaction rates, productivity rates,
delivery times, benchmarking against competitors,
- Planning for resistance to change
- How to keep key people, retrain some, let others
go
63Identifying the Providers
- In India, there are thousands of providers!
- Many have offshore agents in your country!
- Globally, there are tens of countries that do
offshore work - Which one do you want?
- General skills or specific?
- Risks? IP protection? Security? Culture? Time?
- What is your strategic concern? Cost, quality,
efficiency?
64Selecting a Country
- While selection of the provider is often done
carefully, selection of the country is the
subject of much less care. - It may relate to personal factors or connections.
- Who is going to have to go and work there, to
supervise and control? Can they cope? - Is makes no sense to select a country that no one
wants to visit or live in.
65Provider Selection Criteria
- General Criteria
- Company size stability
- HR policies
- Quality management
- Technical expertise
- Business domain knowledge
- Track record
- Methodologies used
- Costs
- Quality initiatives ISO, CMM, 6 Sigma, etc.
- Extra care criteria
- Infrastructure
- SW production environment
- Interntional experience
- Language skills
- Employee turnover
- Org culture flexibility, responsiveness, soft
skills - Global presence
- Disaster recovery backup
- 24-hour support
Weight the criteria matrix the providers
66Send an RFI, using the criteria
- Who we are
- What we are looking for
- Questions about the provider
- History, customers, management, geo-locations,
turnover, infrastructure, security - Questions on services offered
- Domain expertise, platforms, skills,
subcontractors - Questions on strategy
- Vision, market share, alliances
67Send an RFP to the most promising firms
- What we expect in the proposal
- How are you going to undertake a specific project
- Need to provide sufficient project details
- Try to stimulate the providers creativity by
asking more specific/difficult questions - Ask for references of work they have done.
68Assessing Selecting the Provider
- Evaluate the RFPs
- Identify false promises, too good to be true
offers - Learn what yes means.
- Check the references
- Ask what worked, and what didnt.
- Technology always has problems.
- Look at soft issues culture, values, trust,
wavelength. - Dont only look at cost. Too good to be true is
almost certainly too good to be true. Quality
costs.
69The Offshore Visit
- Important for large/complex projects, long-term
cooperation and situations where there is a high
degree of dependence on the provider (i.e. it is
hard to switch) - Launch team members should be involved, but also
other members of senior management and those who
are not yet convinced about offshoring.
70Offshore Things to Do
- Dont just visit the HQ, but also the work site,
national software association, - Talk to other foreigners who are already there
- Plan the site visit carefully not on the plane
- Dont visit too many and dont only listen to
sales pitches they are all the same. - Do speak to project managers and programmers
- Walk around - literally
71Recommendations Contract Negotiations
- To offshore or not.
- Project objective, functionality scope,
- Comparison of providers
- Financial justifications to top mgt.
- Legal/contract issues price, IP
confidentiality, penalties incentives
72Concluding Lessons
- Dont underestimate the importance of careful
planning, or of allowing enough time to lay the
foundations carefully. - The project launch team should be small, agile,
open-minded and pro-offshoring - A low-risk pilot project will help a company find
out if it is ready for offshoring - Contracts are important, but developing a
relationship with the provider is probably more
critical. - The two parties need to align their business
interests for the duration of the project.
73Lessons for IT Based Org Change
- Top Management must be the change architects
- IT cannot transform an organisation IT enables
transformation - Enterprise-wide business-IT Partnerships are
needed - The pace of change must match the rate of
acceptance - Individual transformation is as important as
organisational transformation - Change champions must be diverse, yet work
together - Offshoring IT development sounds attractive, but
it is not just an IT project.
74Consequences of Transformation
- Organisational culture and identity
- There will be pressure for change here too
- People who support the old way will feel left
out, marginalised or discriminated against - A new, more flexible set of cultural norms may be
necessary - Guided by new principles, new values, and
perhaps new managers? - A Culture of Blogging? The CEOs blog-desk?
75The Value of IT?
- IT can enable transformation
- But IT is not cost-free
- The price is the price of change, the
acceptability of change - If management doesnt want change, then handle IT
carefully - IT is only IT, but IT enables people to do things
that were previously impossible - Even email can produce radical changes in
organisations