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		Strategic Sourcing Management ~ An Experiential Perspective Evolving Challenges and Solutions By Prabhuu Sinha

Sourcing Excellence Objective
The objective of this article is to provide an organization with an implementation perspective of an effective sourcing management office [SMO]. This document is a summary of our partner’s vast experience in enabling sourcing relationships, particularly offshore relationships. This is presented in the form of key challenges in offshore operations, and recommended process infrastructure with key benefits and risks. The final section outlines the establishment of an effective sourcing governance structure. Satyam Computer Services (SCS) hopes that an organization finds this information useful in preparing for, establishing and effectively operationalzing its strategic sourcing initiatives.
Global Sourcing – The Key Challenges
While offshore software development or business processing is increasingly becoming a well-accepted strategy for global enterprises, they pose certain unique challenges. These challenges related both to establishing and managing offshore relationships as also change management challenges in the onshore IT organization. These challenges, along with recommendations for addressing them are presented in the following table:

Category

Key Challenges

Addressing the Challenges

Strategy

Program and Project
Management

Quality and Process

Security and Business Continuity

Human Capital

Infrastructure

• Evolving an offshore strategy that is aligned to business and IT strategic objectives
• Managing expectations; often the promise of immediate returns may not be realized
• Evolving enterprise level alignment in terms of what can be off shored and what cannot
• Understanding and planning for the organizational changes that may be necessitated

• Operationalzing the offshoring strategy at the level of individual projects; ensuring alignment and risk mitigation at an enterprise level
• Dealing with a relatively new operating model, particularly for program / project managers who have to manage geographically dispersed teams across time zones and also shift from a skill augmentation approach to a project sourcing approach
• Deciding the 'who is driving' question balancing the need for control and frequent interaction vis-à-vis giving operating freedom to the offshore team
• Overcoming the 'I can't hear you' problem ad-hoc communication, inappropriate or at times late escalation of issues, unique cultural issues like non-interpretation of requirements to the extent desired etc.
• How to effectively understand and manage key offshoring related activities like transition?

• Addressing the 'Are we there yet question how to decide what level of process maturity is adequate before proceeding with an offshore strategy?
• What strategies to adopt with respect to process capability at offshore?
If setting up an offshore in sourcing center, when to introduce processes? at the blueprint stage or after stabilization of operations?
If engaging with an external vendor, how to manage issues of compatibility, both when the vendor has higher process capability or lower process capability as compared to on-shore?
How to deal with critical processes like testing? How to effectively establish testing infrastructure and processes for work executed at offshore?
• How to effectively address communication challenges from a process standpoint?
• How to effectively leverage knowledge residing at onshore, for executing offshore work? What about knowledge transfer in case of specific projects?

• How do we ensure security and privacy of data/information? What level of controls could be appropriate for engaging in off shoring relationships?
• How can we manage infrastructure and security over multiple locations?
• How to assess the Business Continuity risks in offshore operations and how to evolve mitigation strategies?

• How to ensure that the best available resources are working on a given project at a point in time? How can this be achieved in case of a dispersed and diverse workforce?
• What about attrition? How to ensure continuity of knowledge and skills?
• How to analyze and plan for competencies at onshore and offshore? How to balance competency distribution e.g. domain Vs technical?
• How is training best handled in offshore relationships?
How to ensure resource flexibility, particularly ramp up and ramp down?
• How to manage cultural differences effectively?

• What strategies to adopt to ensure compatibility for development and testing environments between onshore and offshore?
• How to ensure reliable communication infrastructure?
• How to go about building cost-effective and reliable offshore facilities and infrastructure, given an alien environment and its attendant challenges?

• Objectively evaluating the risks and benefits of various off shoring models, in the context of the overall business and IT strategy
• Converting the off shoring strategy into an off shoring roadmap that meets objectives and mitigates risks; roadmap to not only indicate timeliness objectives but also targeted benefits
• Developing and disseminating off shoring decision criteria and guidelines based on an extensive analysis of existing application and process portfolio
• Developing an effective change management approach that addresses all key stakeholders In case of offshore In sourcing as a strategy, an additional critical success factor would be to ensure that the off shoring roadmap takes into account the business realities prevailing in the offshore destination

• Converting strategic off shoring criteria to operational decision rules
• Identifying what aspects of the existing program and project management processes support or hinder effective working with offshore teams; this needs to be done through an analysis of processes vis-à-vis identified challenges
• Architecting revised processes for program and project management, including relationship governance, based on identified needs
• Involving key stakeholders throughout the process so to ensure buy in and aid in effective implementation; this will also proactively sensitize managers to the challenges of managing geographically dispersed teams
• Establishing transition related knowledge and making it accessible to stakeholders; developing transition experts is also advisable as they can ensure that an objective process is followed for transition

• Objectively deciding the level of process maturity required based on the following factors:
Types of relationship models proposed to be engaged in e.g. if entire projects are to be off shored then a high level of process capability is required offshore while a high level of governance capability is required onshore. On the other hand if only some aspects of projects are offshored with a majority of the projects still retained onshore, then along with governance and process issues compatibility needs to be ensured between onshore and offshore processes
Types of projects proposed to be off shored e.g. if highly business critical projects are to be off shored then a high level of process capability is a must. Further the processes established should suit the nature of work e.g. maintenance projects need specific methodologies to be put in place
SCS advises that at least a minimum set of processes particularly project management, requirements management, configuration and change management etc. be established. The higher order processes like metrics and improvement could probably be implemented at a later point in time after stabilization of offshore operations
• As regards testing, typically having specific testing infrastructure in place at the offshore location is advisable; else involving third party testing entities in the process, after ensuring measures for information security, is also feasible. Further, onshore teams may need to do independent testing to prevent aspects like malicious code, depending on the threat perception
• Communications related aspects need to be introduced in all the processes ranging from project management and governance to actual development e.g. communication plans as a key component of project plans. Further, seeking to support communication through standardized templates can also be helpful
• For knowledge transfer, involving the offshore partner (either in sourced or outsourced) in developing an effective knowledge transfer process is critical

Adopting a systematic approach to management of information security and business continuity risks is critical. SCS advises that the following key steps be adopted in this regard:
• Conducting a Risk Assessment; this needs to possibly be conducted both at onshore and offshore
• Defining suitable Control Objectives based on risk assessment output
• Establishing a comprehensive Security Policy
• Architecting suitable Information Security Management Systems (ISMS) to implement Control Objectives
• Deploying relevant tools to implement the ISMS
•Carrying out a Business Impact Assessment, particularly considering offshore relationships, and establishing effective Business Continuity Plans
Depending on business objectives and requirements, the processes developed could potentially be mapped to internationally accepted standards like the ISO 17799 [BS7799]

Effective resource management is probably the key success factor for offshore operations. The extent to which resource management can be effective depends on how well it aligns with the overall objectives of off shoring. E.g. the competency plans need to consider the types of competencies planned to be retained onshore Vs those planned to be transferred or developed offshore. Further, the mix of competencies to be developed should be based on the current and anticipated IT and process portfolio
It is proven that ‘micro-management’ of offshore- resources is not advisable. Allowing free hand to the offshore team allows them (whether in sourced or outsourced) to plan and acquire resources based on imperatives that are pertinent to their environment and also have a level of flexibility to ramp up. The on-shore team however needs to play a key role in the recruitment and training of those resources which are in roles like relationship management, requirements development, project management etc since they need to culturally sensitized and compatible to onshore personnel

Typically an extent of replication of development of testing environments is advisable; while this could involve initial investments, over the long term there are adequate returns in terms of ease of operation, security etc.
Communications networks need to be made resilient; redundancies could be established to ensure uninterrupted communications
Tuning the physical infrastructure to match infrastructure facilities that are present at onshore is advisable; this also promotes effective collaboration among onshore and offshore teams
Further, the physical and technology infrastructure needs to match the security and business continuity requirements e.g. providing redundant power supply sources to assure 24 / 7 power
For overcoming challenges related to the local environment, several strategies are possible. This includes involving external vendors in the process of establishing an offshore presence, either through a fully outsourced model or through a partnership model. In case of offshore in sourcing, engaging local personnel in key roles related to facilities / infrastructure management etc. is essential.


		The above challenges can be summarized into each phase of the sourcing lifecycle, right from sourcing strategy and governance to relationship formation, management and improvement. The above challenges have certain commonalities. Understanding these commonalities enables organizations to effectively address these factors. Some of the key commonalities include: • Need for planning activities in each phase of the life-cycle • Managing involvement of multiple stakeholders • Standardizing activities to ensure consistency, especially in vendor selection and vendor management Need for measurement throughout the life cycle. For example, in the sourcing strategy phase measurement enables effective base lining of internal capabilities and accurate definition of the
Change Management How do we anticipate and plan for organizational changes caused by sourcing initiatives? How do we ensure stakeholder involvement to ensure buy-in to our sourcing initiatives? What communication strategies should we adopt?		value proposition of sourcing. And in the contract development phase measurement enables effective definition of service levels. Further, in the relationship management phase having effective vendor performance scoring and tracking mechanisms is critical.

Processes for Global Sourcing
In order to overcome / mitigate the challenges outlined in the preceding section, several organizations are currently establishing processes for managing their global sourcing initiatives. They are doing so because a strategic process driven approach has proven effective in addressing the challenges outlined earlier, particularly in terms of effective strategic planning, coordination across stakeholders, measurement, etc. In SCS experience, processes play a key role across the sourcing life cycle right from strategy to program and project management, and also in effective execution of sourcing engagements.

Figure (2) presents the various stages of the typical global sourcing life cycle and the key process components, i.e. program management office and sourcing management office, for managing global sourcing as a strategic initiative.
The above life cycle begins with establishing a sourcing strategy and definition of an implementation roadmap. As mentioned in the preceding section, organizations need to ensure that they perform certain critical activities while developing the strategy and roadmap if they are to succeed in global sourcing. The life cycle has two potentially parallel streams; the first is to do with establishing sourcing relationships and the second is related to establishment of governance capabilities. While these are indicated as occurring in parallel, organizations at times prefer to perform these in sequence; with some establishing relationships first before governance capabilities and vice versa. SCS recommends a parallel approach to these streams as it optimizes the timeliness and also enables effective synchronization between them e.g. while establishing a governance structure and processes for program management, having visibility into initial results from piloting offshore and initial experiences with processes and operating models can be helpful.

Overview of Process Components
This section describes each of the process components mentioned above, along with the value delivered to the organization. These are derived from SCS’s experiences, both as a partner in several offshore relationships with global customers and also from playing a consulting role in enabling establishment of such processes at several leading organizations globally.

Program Management Office [PMO]
The enterprise PMO is increasingly gaining traction as the preferred entity and set of processes for managing organizational IT Programs and Projects. While each project is a distinct endeavor to address a unique requirement, a program is a group of projects managed in a coordinated way to obtain benefits not available from managing them individually . Establishing a dedicated program management office enables the IT function to provide the extra focus and resources that complex projects demand. The PMO focuses on coordinating multiple projects under a program umbrella and acts as a ‘center of excellence’ that supports project managers in the implementation of activities required to achieve project(s) success.

The PMO offers project management tools, support, monitoring, project portfolio management and quality assurance. Depending on its envisaged role in the context of the overall organizational structure, the PMO could function as one or more of the following:
• ‘Repository’–serving only as a central source of information
• ‘Weather Station’ –reporting and tracking events without influencing them
• ‘Coach’ – participating as a trainer, consultant or mentor, providing information on project processes and often helping in the project set up and post-project review
• ‘Super Project Manager’ – a consolidated central function providing direct management or at least oversight (depending on scope and duration) of major projects
Figure 3 describes the typical processes handled by a PMO.

While establishing a PMO, organizations need to ensure that it fits well within their existing IT organization structure, in terms of its envisaged scope and in terms of enabling effective change management. Figure 4, depicts the various options available in terms of fitting a PMO into the structure of the IT organization. As can be seen, the PMO could potentially be at the level of a business unit, or cater only to development projects, or as a separate entity under the Administration & Planning area.

Sourcing Management Office [SMO]
The Sourcing Management Office is another process driven entity that organizations are increasingly focusing on. While the Program Management Office, outlined in the preceding section manages IT programs, the SMO is envisaged as the entity that will ‘source resources’ for implementing these programs.

Key Benefits of a PMO
Generic
• The PMO allows for consolidation of project resource plans, financial reporting, project schedules, change, risk and quality information into a central repository
• Provides a mechanism for prioritizing enterprise IT initiatives based on strategic imperatives, risks, benefits, etc.
• Improves senior management visibility and control over IT initiatives
Specific to off shoring
• Establishes the critical capabilities for managing project teams working across time zones; puts in place processes for managing the extended development window and ensuring that the best available resources are put to use at any given point in time
• Enables effective decision-making in terms of what projects go offshore, and to what extent. By tying such decisions to strategic objectives and project risk profiles, the PMO emerges as a key tool in managing off shoring related risks.

The SMO:
• Is a distinct organizational unit that is responsible for centralizing the acquisition, integration and coordination of needed resources
• Plays a key role in establishing and managing sourcing relationships with internal and external entities
In a typical external sourcing scenario, the SMO would contain processes for managing the entire sourcing lifecycle; extending from strategy to vendor evaluation and selection to contracting and relationship management. However in an in sourcing scenario, the SMO would play the role of establishing contractual relationships (e.g. Internal Supply Agreements) with the in sourced organization and also serve as a single entity responsible for all projects / activities that are performed using resources from the in sourced organization.
Figure 5, represents the typical process architecture of an SMO. There are four distinct categories of processes, which address the entire sourcing life cycle. While the strategic processes provide the sourcing governance structure and workflow, templates and guidelines for developing a Sourcing Strategy and a Sourcing Plan, the Operational processes do likewise for the ‘Evaluation and Selection’ and ‘Contract Development’ phases. Further, the Enabling processes and Developmental processes address the ongoing ‘Relationship Management’ phase and provide capabilities for managing and continuously improving sourcing relationships.
While the SMO does provide organizations with the above capabilities, it also presents new challenges for its successful implementation.
Effective implementation of SMO processes requires cross-functional and cross-departmental teamwork and co-ordination. Further, since the SMO takes over some of the major sourcing related activities, which had hitherto belonged to project managers and operations managers, it may cause some shifts in organizational dynamics that need to be managed by the organization. Hence, all stakeholders need to have a sense of common purpose towards the SMO. Therefore, organizations need to manage soft issues relating to people, expectations, roles and responsibilities, in the changed environment, through a comprehensive “Change Management” strategy and plan.

Recommended Approach for Establishing Processes
While the preceding section gave an overview of the critical process components for effective global sourcing, it also highlighted several key challenges in establishing such organizational entities and processes. In this section SCS shares its experiences with supporting organizations in effectively implementing such processes. The key learning from such consulting engagements are presented below:
This section outlines the approach recommended by SCS for implementing effective sourcing governance and program management processes [See Figure 6]. This approach is in the form of the typical phases, the key objectives to be achieved and the associated deliverables. While this is generic in nature, it has proven to be quite effective in establishing processes both within SCS as well as for external customers. The overview of this recommended approach is presented below.
The timeliness presented are the typical proportion of time spent in each stage. By adopting such a systematic approach, an organization can ensure that whatever processes are developed meet their intended purpose and eventually get used; this is achieved by involving stakeholders throughout the process right from planning to design to definition and deployment.

Conclusions
Global sourcing has emerged as a proven strategy for driving value in IT organizations. SCS believes that organizations can achieve excellence and derive lasting value from their Global Sourcing initiatives if they adopt a strategic approach and establish the required process infrastructure based on industry best practices. SCS hopes that the information presented in this document is of value to an organization in furthering their Global Sourcing strategies, establishing effective sourcing operations and mitigating sourcing related risks. SCS would be pleased to provide further information or clarifications required regarding any of the aspects presented in this document.

The author is Sr Vice President, Global Head, Quality Solutions, Satyam Computer Services