Translation Workflow – Make or Buy? Textbook IT Sourcing Strategy for Localization Companies frank. bergmann@project-open. com 2005 -10 -22
Make or Buy? Internal Efficiency Rumors, Hype, Fashion Examples/ Cases Contents IT-Dept? Provider Relationship Customer Relationship IT Provider & Evaluation Which Parts/ Functionality? Organization al Change Skills & Resources? Do we really need this? ROI What to do? Explain & define „Workflow“ Cases How to do it? Why do it? What‘s in for me? Strategic or not? Make or Buy textbook Make case Buy case Adapt case Biz. Procs Workflow Design Resources Workflow Eval Matrix Scoping Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
Contents § "Make" vs. "Buy" Sourcing Options – – Sourcing The case Options Overview for "Pure Make" for "Pure Buy" for "Adaptation" § How to Decide – Summary of Decision Factors – Example of Decision Factors § Textbook Theory – "Classical" – Value vs. Risk – "Skills" - Skills vs. Strategic Importance – "IT Depts. " - Strategic vs. Efficiency – "Integration" - Modular vs. Dependent – "Ford Motor Company" Case Suggestions – "Resource Dependence Theory" § Strategic or Not? – – – – What is "Strategic" IT is not "Strategic" Translation Workflow Benefits Translation Workflow Extensions How to Differentiate? Sample ERP Architecture Strategic Modules § Summary – "Classical" – Value vs. Risk – "Skills" - Skills vs. Strategic Importance
"Make" vs. "Buy" Sourcing Options § § Sourcing The case Options Overview for "Pure Make" for "Pure Buy" for "Adaptation"
Sourcing Options Overview "Pure Make" § "Pure Make" (100% in-house) § "Make" with external consultants § "Make" with subcontracted functions § "Make", followed by spin-off § "Buy" from provider and customize in-house § "Buy" from provider, with financial investment in the provider § "Buy" from provider, but "nurture" provider with partnership and long-term contract § "Pure Buy" (100% external) § . . . "Pure Buy" Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
The Case for "Pure Make" Ownership Project Mgmt. Project 1 Project 2 . . . Customer CEO Operations Development IT Test Customer Organization Finance & Admin 100% of the functionality is developed in -house Advantages § § Tailored solutions for in-house needs Critical knowledge is kept in-house Disadvantages § § § Lack of knowledge of building and maintaining state-of-the-art IT systems. Difficulties of keeping the IT staff busy after the end of the implementation phase Difficulty of retaining good IT staff Project 3 Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
The Case for "Pure Buy" Finance & Admin . . . Customer CEO Operations IT Customer Organization Ownership 100% of "the" functionality is developed by a provider Advantages § § § Project Mgmt. Project 1 Project 2 Project 3 Provider CEO . . . Development Test Provider Organization Ownership "Economies of Scale": Provider can occupy resources with projects from other customers and share development and maintenance costs among customers. Provider may provide additional knowledge, gained from other companies in the sector The customer can profit from continuous development of functionality Disadvantages § § Provider interests may not fit fully with customer interests (roadmap development, functionality, …) The application software is more complex if it needs to fit more than one customer Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
The Case for "Adaptation" Finance & Admin . . . Project Mgmt. Customer CEO Operations . . . IT Operations Project 1 Ownership Project Mgmt. Project 1 Project 2 Provider CEO . . . Development Test Customer Organization Provider Organization Ownership Buy 90% of the functionality and make 10% extensions Advantages § § Critical knowledge is kept in-house In-house staff is able to react rapidly to company's needs Bulk of non-strategic functionality is outsourced with more efficient provider Fits with "Strategic or Not" section (see below) Disadvantages § § Difficulty to manage the partnership In-house developers need to learn the provider's software architecture Project 3 Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
How to Decide § Summary of Decision Factors § Example of Decision Factors
Decision Process Factors: § § Bla Bla bla bla Cor e Market Test Insour ce Outsourc e Smart Source Commodity Anxie ties Decision Factors Satisfac tion Theory Recommendation
The decisions depends on many factors: § "Value" or "Impact": Pr se odu rv ct ic Pr e or 1 se odu rv ct ic Pr e 2 or se odu rv ct ic o e r Pr od 3 se u rv ct ic o e r 4 Summary Decision Factors How much $$$ is involved in the sourcing decision § Relative effectiveness: § Ease of sourcing: § Relative sourcing position: § Strategic or Not: § Integrated or Modular: How efficient is your company in building the goods, compared with a provider? Is it easy for you to find another provider? Is it easier for you to find a provider than for your competition? Does the sourcing decision influence the possibility to build/lose sustainable competitive advantage? How tightly are the sourced goods integrated with the company? Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
M St at an er Tr d ia an a l sl rd M at a Tr rk ion an et sl ing at W io n or kf lo w Decision Factors Example How much $$$ is involved in the sourcing decision The company creates "value", by training it’s in-house staff in marketing translations. Freelance translators with company to build expensive. these the goods, skills are very § Relative effectiveness: § Ease of sourcing: § Relative sourcing position: Big translation agencies to may have better access § Strategic or Not: § Integrated or Modular: How efficient is you compared with a provider? Is it easy for you to find another Freelance translators with these skills are very provider? difficult to find. Is it easier for you to find a provider then resources the skilled for your competition? Big translation agencies may have better access to influence skilled resources to the possibility Does the sourcing decision build/loose sustainable competitive advantage? How tightly are the sourced company? A new translator has to learn a lot of knowledge goodsupon joining thewith the integrated company O The decisions depends on many factors: § „Value" or „ Impact": ffi c e This example uses a fictitious MLV translation agency with 20 employees, specialized on marketing material. Should they "make" their translation inhouse? What should they do with the workflow? Low Very low High OK Easy Same Good Bad Diff Med. Bad Not Stra. Med tegic Mod Med Integ Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
Textbook Theory § § § "Classical" – Value vs. Risk "Skills" - Skills vs. Strategic Importance "IT Depts. " - Strategic vs. Efficiency "Integration" - Modular vs. Dependent "Ford Motor Company" Case Suggestions "Resource Dependence Theory"
"Classical" – Value vs. Risk Critical High Strategic Ex: Components that represent a competitive edge in marketplace Goal: Reduce or eliminate Goal: Form strategic alliances, partnerships, limited global sourcing Risk Ex: Very unique and "over specified" items Routine Leverage Ex. Office supplies, MRO, Administrative Low Ex. Basic Production materials, packaging Goal: Reduce activity, minimize transactions, supplier managed inventory Goal: Maximize leverage, standardize, consolidate volumes, reduce transaction costs Low Value Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II" High
"Classical" – Value vs. Risk Routine Items § § § Routine items are low-value activities which contribute little to the strategic direction of the firm Implement streamlining in the acquisition process Purchasing goal: Reduce the time spent by personnel in the firm on the acquisition, delivery, stock-keeping, and payment of these items Leverage Items § § § Leverage items are high-value activities Focus on short-term contracts and pursue a proactive supply strategy to find new substitute products Purchasing Goal: Increase profit margin, use competitive purchasing practices to increase profitability Critical Items § § § Critical items are low-value activities with high exposure/risk Strategic items are high-value activities with high risk/exposure Purchasing Goal: Evaluate them for elimination Strategic Items § § § Require the highest level of purchasing competence; consider long-term contracts. Total cost of acquisition must be monitored and controlled Purchasing Goal: Maximize competitive advantage – Earlier time to market, Superior Product Quality, Rapid Innovations Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II"
"Classical" – Value vs. Risk § § - Covers the global sourcing situation of a company The classic 2 x 2 sourcing matrix Being tought in all MBA sourcing classes Critical Strategic Ex: Very unique and "over specified" items Ex: Components that make a competitive edge in marketplace Goal: Reduce or eliminate Goal: Form strategic alliances, partnerships, limited global sourcing Risk or Exposure § Routine Leverage Ex. Office supplies, MRO, Administrative Ex. Basic Production materials, packaging Goal: Reduce activity, minimize transactions, supplier managed inventory Goal: Maximize leverage, standardize, consolidate volumes, reduce transaction costs Very generic Most major IT systems are located in the "Strategic" sector. Low Value è There are few conclusions for IT sourcing concerning "Make" or "Buy", except that we have to keep digging. Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II" H
"Skills" - Skills vs. Strategic Importance Company’s Skills Related to Best External Source Low Equal High Strategic Importance High Strategic Alliances Tend to make Buy/Outsource Make or Buy/ Outsource Make Tend to make Low Source: T. Rands: A framework for managing software make or buy. EJo. IS, 1993, pp. 273 -282.
"Skills" - Skills vs. Strategic Importance § Generic matrix, not only for IT outsourcing decisions The 2 x 2 is used for large corporations. It's not clear how it relates to SME's Strategic Importance § Company’s Skills Related to Best External Source Equal High Low High Strategic Alliances Buy/ Outsource Tend to make Make or Buy/ Outsource Tend to make Low Source: T. Rands: A framework for managing software make or buy. EJo. IS, 1993, pp. 273 -282.
"IT Depts. " - Strategic vs. Efficiency Core Business Value of IT Market Test Outsource Commodity Insource Smart Source Anxieties Satisfaction Operational Performance of IT Source: Adam Murray: Costing, Outsourcing and Contracts
"IT Depts. " - Strategic vs. Efficiency When to Outsource § reduce head count § service a "commodity" § can’t afford time, $ for new tech § can’t keep good staff § don’t have good staff § small project When to Insource § function is mission critical § is a core competency § cannot identify any cost savings § not clear that vendor is any better § vendor cannot be "controlled" Source: Adam Murray, Costing, Outsourcing and Contracts
"IT Depts. " - Strategic vs. Efficiency § - Focuses on the experience that an in-house IT department doesn‘t fully satisfy expectations. The 2 x 2 is being used Commodity in generic IT outsourcing decisions in large corporations. Business Value of IT § Core Market Test Outsource Anxieties Insource Smart Source Satisfaction Operational Performance of IT The "Operational Performance of IT" measure depends on the track record of the IT department in a given area. This may be difficult to measure in the case of complex software development Source: Adam Murray, Costing, Outsourcing and Contracts
"Integration" - Modular vs. Dependent ITEM IS INTEGRAL ITEM IS MODULAR Dependent for Knowledge & Capacity Dependent for Capacity only Independent for Knowledge & capacity A POTENTIAL OUTSOURCING TRAP BEST OUTSOURCING OPPORTUNITY OVERKILL IN VERTICAL INTEGRATION CAN LIVE WITH OUTSOURCING BEST INSOURCING SITUATION WORST OUTSOURCING SITUATION Source: Fine & Whitney, "Is the Make/Buy Decision Process a Core Competence? "
§ Focuses on "modularity" of the product or service Captures the "dependency" of other systems in the product‘s company. Dependent for Capacity only Independent for Knowledge & capacity ITEM IS MODULAR § Dependent for Knowledge & Capacity A POTENTIAL OUTSOURCING TRAP BEST OUTSOURCING OPPORTUNITY OVERKILL IN VERTICAL INTEGRATION ITEM IS INTEGRAL "Integration" - Modular vs. Dependent WORST OUTSOURCING SITUATION CAN LIVE WITH OUTSOURCING BEST INSOURCING SITUATION è May apply more to the decison of how to source part of a product than to the IT "make or buy" decision. Also, the author further elaborates on the concept of "clockspeed" in the corresponding market which doesn't apply to IT sourcing decisions. Source: Fine & Whitney, "Is the Make/Buy Decision Process a Core Competence? "
"Ford Motor Company" Case Suggestions High Inhouse solution Need for tailor-made support Cost sharing or strategic alliance/ Selective outsourcing True spin-Off or outsourcing Low High Market Potential to provide the support Source: Ford Motor Company Case: Supply Chain Strategy
"Resource Dependence Theory" High Degree of Resource Dependence Low Inhouse solution Cost sharing or strategic alliance Outsource True spin-Off or outsourcing Low High Degree of volatility Source: Strategic Choice Framework for the IT Professional Resource
Summary § "Classical" – Value vs. Risk § "Skills" - Skills vs. Strategic Importance
"Classical" – Value vs. Risk Critical High Strategic Ex: Components that represent a competitive edge in marketplace Goal: Reduce or eliminate Goal: Form strategic alliances, partnerships, limited global sourcing Risk Ex: Very unique and "over specified" items Routine Leverage Ex. Office supplies, MRO, Administrative Low Ex. Basic production materials, packaging Goal: Reduce activity, minimize transactions, supplier-managed inventory Goal: Maximize leverage, standardize, consolidate volumes, reduce transaction costs Low Value Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II" High
"Classical" – Value vs. Risk Critical High Ex: Very unique and "over specified" items Risk Goal: Reduce or eliminate Routine Strategic Most IT decisions are Goal: Form strategic alliances, high-risk and partnerships, limited global sourcing high-value. Ex: Components that make a competitive edge in marketplace Leverage Ex. Office supplies, MRO, Administrative Low Ex. Basic Production materials, packaging Goal: Reduce activity, minimize transactions, supplier managed inventory Goal: Maximize leverage, standardize, consolidate volumes, reduce transaction costs Low Value Source: I-Ping Chou, Cristal Brun, Augusto Gamarra: "Supply Chain Strategies Part II" High
"Skills" - Skills vs. Strategic Importance Company’s Skills Related to Best External Source Low Equal High Strategic Importance High Strategic Alliances Tend to make Buy/Outsource Make or Buy/ Outsource Make Tend to make Low Source: T. Rands: A framework for managing software make or buy. EJo. IS, 1993, pp. 273 -282.
"Skills" - Skills vs. Strategic Importance Company’s Skills Related to Best External Source Low Strategic Importance High Strategic Alliances Buy/Outsource Equal High Do you have Tend good reallyto make IT guys in-house? Make or Buy/ Outsource Make Tend to make Low Source: T. Rands: A framework for managing software make or buy. EJo. IS, 1993, pp. 273 -282.
Summary: Two Relevant Factors è Strategic or Not? è How good is your IT team? (Compare with the best external source)
§ § § § Strategic or Not? What is "Strategic" IT is not "Strategic" Translation Workflow Benefits Translation Workflow Extensions How to Differentiate? Sample ERP Architecture Strategic Modules
What is "Strategic" A strategy is a long term plan of action designed to achieve a particular goal [. . . ]. Wikipedia § Goal: èSustainable competitive advantage èSustainable superior margins § Examples that are known to work: – Size: Be the biggest – Price: Be the cheapest – Specialization: Be the best in a very specific field
IT is not "Strategic" Michael Porter claims IT doesn't provide companies with a competitive advantage: § To gain competitive advantage using IS and IT usually needs an element of surprise; the system needs to be out in the market place before competitors make a start in copying the idea § Sustaining that competitive advantage requires either: – Converting the technical advantage into brand advantage – Sustaining the technical lead by continuous product and service development Source: "Strategy and the Internet", Michael Porter, Harvard Business Review March 2001
Translation Workflow Benefits Strategic for you? § Improved general efficiency by 20% § Demonstrate sophistication to customers § Improve quality (process standardization) no no no § Take more informed project staffing decisions no è Generic Translation Workflow is not "strategic" (according to Porter). . . è You may need it anyway to match or exceed your competitor's "operational efficiency". Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
How do you compete? Specialization/ Niche Price Service . . . (? ) Brand Salesforce ("presence") Proximity § Sales/ Channel § § § Specialization on field, industry sector, value chain position, . . . Linguistic Resources Upward Integration High Quality § § Price Size / economies of scale § § Capability to execute /Company Size Execution Speed Customer Service One-Stop shop § . . .
Translation Workflow Extensions Strategic for you? § Support for specialized processes? § Managing knowledge in order to allow for synergies in very big company § Special way to manage quality maybe § Attract better freelancers § Manage existing knowledge §. . . maybe è You may have to extend your IT application using proprietary functionality in order to gain a sustained competitive advantage. Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
How to Differentiate? Differentiation / Strategic value High Make ? ? ? (Minimize Cost) ? ? ? (Maximize Value) Buy Low Cost of (Re)-Development Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/ High
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How to Differentiate? Sample Modules from ]project-open[ Differentiation / Strategic value High Support for specialized process Query Workflow Make L 10 n Workflow Skill. DB Translation Workflow Customer Portal Data Warehouse (Config) ? ? ? Support for specialized (Maximize Value) process CRM Knowledge Mgmt. Recruiting Workflow Project Mgmt Financial Controlling Reporting ? ? ? (Minimize Cost) Timesheet Mgmt. Pay roll Workflow Engine Content Mgmt. Reporting Engine Accounting Buy! Data Warehouse Engine Search Engine Data base Web Server Low Cost of (Re)-Development Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/ High
Payroll HR Skill Database Recruiting Workflow Application Modules Application Services Platform Services Web Server Project & Mgmt. Subprojects Project Controlling Timesheet Mgmt. Collaboration, File Calendar Content & KM storage Online Wiki Chat Discussions Mail Server Web. DAV Incident Integration Workflow Content Management CMS Blog Full-Text Search Workflow Engine Reporting Engine Portal & Components Localization Framework OO OO Frame Model Object Metadata Dyn. Field Object Extensions SOAP & XML-RPC DB-API AOLServer Search Engine TSearch 2 Oracle Intermedia/Text Database Postgre. SQL Oracle 8 i, 9 i, 10 g Operating System Windows + Cyg. Win Linux Solaris Sample ERP Architectur e Other Room Reservation ECommerce Surveys Web-Mail Finance Base Controlling Quotes & Invoice Freelance Invoicing Payments Timesheet Financial Invoicing Reporting Software Package Development Manager Profiling & Templates Performance Debugging Automatic System Testing Software Form Builder Updates TCL Translation Workflow TM Integration Automatic Invoicing Glossary BSD Mac OS CRM Contact Mgmt. Customer Web Reg. Marketing Campaigns CRM Tracking Mail Server Integration ISDN Tel Integration Security Open. ACS Permission Page Basic Contracts Authentication SQL LDAP Templates Authentication Automatic Audits Pound Revers Proxy Big. Brother Sys Mgmt. Database Replication CVS System Mondrian Data. Warehouse Postfix/ Sendmail Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
Payroll HR Skill Database Recruiting Workflow Application Modules Application Services Platform Services Web Server Project & Mgmt. Subprojects Project Controlling Timesheet Mgmt. Collaboration, File Calendar Content & KM storage Online Wiki Chat Discussions Mail Server Web. DAV Incident Integration Workflow Content Management CMS Blog Full-Text Search Workflow Engine Translation Workflow TM Integration Automatic Invoicing Glossary Possibly(!) Strategic Finance Base Controlling Quotes & Invoice Freelance Invoicing Payments Timesheet Financial Invoicing Reporting Portal & Components Software Package Development Manager Profiling & Templates Performance Debugging Automatic System Testing Software Form Builder Updates TCL Localization Framework OO OO Frame Model Object Metadata Dyn. Field Object Extensions SOAP & XML-RPC DB-API AOLServer TSearch 2 Oracle Intermedia/Text Database Postgre. SQL Oracle 8 i, 9 i, 10 g Windows + Cyg. Win Linux Solaris BSD Mac OS Strategic Modules CRM Contact Mgmt. Customer Web Reg. Marketing Campaigns CRM Tracking Nothing but Headaches Reporting Engine Search Engine Operating System Other Room Reservation ECommerce Surveys Web-Mail Server Integration ISDN Tel Integration Security Open. ACS Permission Page Basic Contracts Authentication SQL LDAP Templates Authentication Automatic Audits Pound Revers Proxy Big. Brother Sys Mgmt. Database Replication CVS System Mondrian Data. Warehouse Postfix/ Sendmail Source: ]project-open[, own elaboration, http: //www. project-open. com/whitepapers/
End Frank Bergmann frank. bergmann@project-open. com www. project-open. com
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