Sourcing Insights with a Dutch Twist

A side effect of globalization and informed customers is a shorter lifecycle of products and services. The competitive pressures introduced by globalization and buying behavior of customers in combination with the fast past of technological advances, shorten the payback time of investments in R&D and new production facilities. This requires organizations to become increasingly flexible and agile in order to quickly adjust production volumes and product mix. The increasing complexity of services and products in combination with the ever higher investments required to improve quality, lower cost and renew the product and service portfolio, increase the entry barrier for new players. Within the banking and insurance industry several new players have gained considerable market share over the last couple of years by leveraging technological advances and the desire of customers for a bigger bang for a buck. Think of web-based brokers which allow consumers to trade stock, derivatives

Outsourcing IT to improve the capabilities of the IT to innovate and improve speed-to-market looks at first a contradiction. Typically outsourcing is used to reduce IT cost, with standardization and less responsiveness regarding new business demand as a side effect. However, outsourcing can actually help an IT organization to improve their speed-to-market and ability to deliver new services that add value to the business. A business that wants to grow again after a period of economic downturn and expects IT to act accordingly. There are two basic keys to achieving this goal. First key The first part is understanding that the dynamics to manage on speed-to-market and innovation is fundamentally different from delivering reliable (standard) solutions at high availability levels. The first type of service requires agility, flexibility and a general focus on benefits. The second type focuses on reducing the change of an operational risk materializing. In other words: solid build, tes

This blog is a follow up on this piece in which I wrote on some of my experiences with IT shared services in the government sector. Here I want to write about two solutions which would improve the success rate of a shared service center. Practical example The organization is a grouping of local government agencies which have a long history of semi independence. Policy is partially dictated from a ministry and national politics, but there is also room for local decision making. To align, the governors of the local agencies gather on a yearly basis to agree on long term policy and cooperation. One of the decision was starting an IT-shared service center some ten years ago, because the processes of the agencies showed considerable similarities. However, these similarities turned out to be far fewer than expected and every local agency had a list with arguments why its deviations had to stay. The result was IT systems which had more custom code than common code. The SCC was in

To execute innovation for low cost and ‘lean customization’ more successful than next doors competitor, one shared ingredient is necessary: information dominance . Where achieving air dominance is crucial to decide a military conflict in your favor, will gaining information dominance be central in doing business in the years to come. It can be simple like soccer team AC Milan using a mathematical model to predict the chance players will get struck by an injury. Google uses self-learning algorithms to improve search results and present advertisements while the success of retailers Wal-Mart and Ahold is derived from knowing more of consumers and suppliers than their competitors. These organization have been able to get a grip on the massive data amounts and can predict to a high degree what an individual customer will buy next. Smart technology alone is however not enough as all relevant information was available on the terrorist who boarded the flight between Amsterdam and Detroit in

One of the effects of the recent economic meltdown is American and Western European consumers looking for cheaper products. Many are shaken and struggle to pay off existing loans, let alone feel comfortable to engage new ones. At the same time are billions of consumers in Asia, South America and in a lesser extent Africa, entering the middle class. But a middle class which can only afford cheap products. Companies react to these developments by producing cheaper products and services, like the one Lac (2,000 dollar) car from Tata. In the Harvard Business Review article ‘Innovation’s Holy Grail’, C.K. Prahalad and R.A. Mashelkar argue that this change in demand requires companies to think differently about innovation. Where traditional innovation is built on the assumption of abundance in capital, knowledge and other resources, will future innovation be driven by the need to build more products with fewer resources. According to the authors, companies should focus on ‘affordability

Getting outsourcing contracts to comply with Solvency II is not rocket science, but requires a certain amount of attention. Here are some practical guidelines. Where within banks the Basel II implementation projects come to an end, are insurers burning the midnight oil to get Solvency II implemented before the end of 2012. The Solvency II legislation is aimed at improving risk management practices within insurance companies and providing better protection for policyholders. For this purpose, the legislation demands: the insurer to hold enough capital to survive a period of economic hardship (pillar 1), adequate quality of internal controls and governance (Pillar 2) and greater transparency in communication with the regulator and market (Pillar 3). These three topics have been translated into clauses that must be complied with. If the insurer has not outsourced any IT or business processes, it is sufficient for the insurer to translate the legislation into internal

In this blog and the next blog I want to share some of my thoughts on government agencies using shared services. More specifically: why do they often function so cumbersome that they make it into the newspapers. What makes shared services within government different Centralization of IT or processes like finance, HR administration offers the ability to rationalize and standardize processes, allowing for lower cost, more consistent quality level and faster decision making. As voters expect their ministries and other government agencies to eat as little as their tax money as possible (especially in these times of economic hardship in the US and Europe), is sharing resources and processes a useful vehicle to achieve that goal. As a result many ambitious objectives have been defined by high ranking government officials. These government officials did however not always realize that ‘sharing resources and processes’ also effects their power base. Where they use to rule their litt

The concept behind cloud computing started off as ‘utility-based computing’, allowing a company to buy CPU cycles, storage and other IT resources. Advances in the area of virtualization and remote access (e.g. Server Based Computing ,HTML5) since then paved the road for more complex services to be delivered by using internet protocols. Not only technicians have embraced the cloud concept. Marketeers have burned the midnight oil to translate the whole technology stack into ‘as a service’ solution (illustration 1). An overview of the cloud solutions offered. RaaS: Rackspace as a Service HaaS: Hardware as a Service PaaS: Platform as a Service IaaS: Infrastructure as a Service DaaS: Desktop as a Service DPaaS: Data Protection as a Service MaaS: Mobility as a Service STaaS: STorage as a Service SaaS: Software as a Service BPaaS: Business Process as a Service AaaS or XaaS: Anything as a Service For many of the mentioned solutions the marketing fluff still outweighs the underlyi

I recently started to write a book and I will publish parts in the coming months on this blog. The working title of the book will be:  Orchestrating the IT value chain and provides my experience and vision on improving the performance of IT and alignment with the business. This blog is about the effects globalisation had on the country I lived in for an year: India. After the fall of the Berlin Wall, countries such as India, China and Russia began to open up their economies to the world. This enhanced collaboration across the globe and kick started an unprecedented economic growth within India. Until the 1980s, Indian policy makers enforced a strict industry policy which resembled in many ways the ‘plan economies’ of communistic countries. By nationalizing companies and regulating the amount of output a company or industry could produce, the government tried to develop the country from a society of farmers to an industrialized country. In line with this policy imposed the government

Many outsourcing contracts are still driven by the aim to cut cost. Cutting cost can be achieved by economies of scale and standardization of similar activities and assets. This means that the scope of typically outsource contracts is defined in terms functional area’s or processes (e.g. IT infrastructure support, payroll, logistics). Many of the functional area’s or business processes being outsourced can often indeed be split off without large consequences for the retained functions and business processes. There is however at least one area where these standard outsourcing practices start doing more harm than good. One of these area’s is IT. The rate IT is absorbed by business processes has never been so high and soon almost every items we use in daily live including clothes and food, will have some kind of IT component. At the same time is there the relentless pressure to cut cost and innovate, increasing the complexity and dynamics for the organization as a whole. The role of IT

The outsourcing of activities is a trend which started in the seventies with car manufacturers and has since then progressed into almost every aspect of our economy. Think of Indians analyzing x-ray pictures for European/American hospitals, South Africans administering mortgage requests and Philippine’s doing the salary administration. The main drivers behind this wave of outsourcing are technological advances and the breaking down of national trade barriers. The same technology enabling outsourcing also allows for an increasingly intimate relation between company and customer. Books, pizza’s, insurances, movies; almost everything can be ordered these days by TV, laptop or PDA. The technology behind these advances are however so complex that most companies have to rely on external technology partners/service providers to design and manage the technology. The pressure to work with external partners is increased further by the relentless pressure to lower cost, increase quality and inn

Centralisation, either in a shared service center or another form, promises lower cost, a more consistent quality level and faster decision making by consolidation of responsibilities. Putting theory to practice is however not always that simple. Cultural difference, disagreement over the new process standard and lack of governance by the internal ‘clients’ towards the SSC are well known issues which may limit the realization of benefits. As these issues have been discussed already in-depth by various writers will I not cover them again. An issue which is less frequently mentioned is the more strategic question whether the shared service center fits within the business model. In other words, was the creation the shared service center based on a ‘me too’ decision of was it part of well thought about strategy. Take for example UPS and FedEx. UPS en FedEx deliver both packages, but have a totally different business model. UPS has one standard process and does not allow for many excepti

This post is a follow up on this one and it described my thoughts on some of the outsourcing contracts which have been signed in the last 1,5 years. These contracts had to be signed as fast as possible and this meant cutting corners. Cutting by standardizing services which should not be standardized, transferring valuable knowledge, and a contacts structure which fits a shrinking economy, but not a growing one. As a result will many outsourcing contacts signed in 2008-1009 increase the gap between demand and supply instead of closing it. Contracts solely aimed at reducing price/cost are typically very rigid and do not leave a lot of room for flexibility. Flexibility is however something the business needs now the economy is picking up again. The market dynamics are slowly moving back into the fast paste from before the crisis. This means the business will want to move quickly on new opportunities for growth and does not want to be confronted with outsource contracts which limit its m

Because of the economic crisis have many companies deployed aggressive scenario’s to cut cost. This resulted among others in stretching the definition of ‘non-core’ activities in order to outsource them to an external party (including selling off offshore captives to cash rich vendors). Balancing the benefits (cash for asset transfer, lower prices) with the risk, most companies opted not to engage in high profile, high value deals. To further reduce the risk, many companies outsourcing focused on contracts which used labor arbitrage and increased economies-of-scale to reduce cost. Complex transformations of business and IT which would increase the risk (and potentially reduce flexibility/agility when the economy picked up again) were often left out. This to the dismay of vendors as the hours related to these programs are an important area of margin for the vendor (and potential value for the client if done well). The pressure to cut cost thus resulted in a substantial volume of small