One of the key features of global sourcing maturity in manufacturing has been the desegregation of components and production processes. This has enabled manufacturing companies to outsource more efficiently, better leveraging their global network of suppliers. A recent McKinsey Global Institute/Harvard Business Review study points out that industries with mature sourcing approaches are characterized by disaggregated value chains and distributed global sourcing. Consequently, these industries — in particular consumer electronics and clothing — have achieved an enviable global sourcing maturity. In contrast, the globalization of IT and product engineering services are in their infancy. Furthermore, their value chains are not even well defined, let alone disaggregated.
Assessing global potential
After assessing some of the best practices from the industries and applying them to the IT services industry, Infosys has leveraged its experiences in global sourcing to develop a unique approach called Modular Global Sourcing (MGS). This aligns sourcing activities with business strategy, delivers innovation and improves operational efficiency. MGS provides a conceptual foundation and a set of actionable frameworks to help enterprises at any level of sourcing maturity realize the benefits of global sourcing.
MGS was conceptualized to provide the answer for two apparently conflicting demands that companies place on their IT organizations, namely to optimize the speed and innovation of IT facilities while improving their efficiency and predictability. These demands have traditionally presented IT organizations with huge challenges, since these conflicting capabilities can seldom be developed concurrently. This is like asking an athlete to be a sprinter and a marathon runner; or a retailer to compete with Harrods and Wal-Mart at the same time. To help address this issue, the creators of MGS employed the concept of modularity. Modularization in a strategic sourcing context involves deconstructing complex business processes, supporting IT applications/infrastructure and their execution phases such as innovate, design, develop and maintain. This enables an organization to optimize different modules and tune them to suit distinct business imperatives.
Simply put, modules are “sliced” along a three-dimensional grid:
- by the enterprise estate “stack” (business processes / IT applications / infrastructure)
- by its life cycle or execution processes – Design, Build, Operate and
- most importantly, by its key functions or lines of business
Each of these “modules” can then be optimized for the desired capabilities.
In the case of an order management function, for instance, one could optimize the business process design for speed. As new products come on board and new customers sign on, the order management function must speedily bring about the necessary changes. The rest of the business process and application layer – order processing, fulfillment and delivery to customer – can be optimized for predictability of cost and quality. The metrics becomes aligned to business value – cost per order, service levels, error rates, customer satisfaction and so on.
Set of actionable frameworks
MGS is designed to help enterprises at different levels of sourcing maturity realize the full benefits of global sourcing. Hence, MGS provides a conceptual foundation and a set of actionable frameworks for business and IT leaders to think about outsourcing services at an enterprise-wide level to create alignment between businesses, operations and IT. Furthermore, the frameworks structure businesses and IT assets and their execution phases in a well-defined modular configuration to achieve flexibility and determine optimal sourcing strategies – resource utilization models (in-house, services vendors, contractors) and location decisions (onshore, near-shore, offshore). The frameworks allow operations on a global level, using global delivery to ensure predictability of cost, quality and risk to meet shared business objectives.
The Enterprise Assessment Framework of MGS identifies the organization’s key business drivers and objectives for the global sourcing program as an “umbrella”. A future vision is developed along with a set of measurement metrics to enable senior management to gauge the success of the global sourcing program. The sourcing effectiveness assessment provides insights into key sourcing opportunities, desired capabilities and key risks, which in turn are mapped to create a high-level sourcing strategy with appropriate cost, risk and reward trade-offs.
The other three frameworks help the organization build capabilities in line with identified opportunities and sourcing strategies. Based on sourcing drivers and objectives, the Modular Structuring Framework identifies and evaluates appropriate modules or units at which sourcing decisions need to be taken. Depending on how they have been defined, modules may span processes, applications and infrastructure layers. In some cases, modules may also be restricted to only one or two of these layers.
The Sourcing Decision Framework is designed to make optimized sourcing decisions for the identified modules so as to maximize business value and minimize risks associated with global sourcing initiatives.
Governance and transition
The results of these evaluations are fed back into the high-level sourcing strategy to create a detailed roadmap and execution plan that addresses the organization’s readiness to undertake such a global sourcing program. The roadmap is supported by governance mechanisms and transition plans in order to ensure smooth implementation of the envisaged objectives, while providing a mechanism to effectively monitor progress. These are elements of the Global Execution Framework.
The frameworks are structured for flexibility of approach depending on a client’s needs and situation. The MGS methodology is executed in a collaborative environment with inputs from key stakeholders, while ensuring buy-in from senior executives. Through the four frameworks, MGS covers much ground and addresses key questions to provide organizations with a robust sourcing strategy. It also emphasizes the point that modularity and disaggregation of the IT process/value chain precedes all sourcing, ownership and geography decisions.