Paper Summary/Critiques

Honors 3060

Name: _______________________________________________________

"12 Capabilities to evaluate in your Business Process Outsourcing Provider,"

by David Feeny, Mary Lacity and Leslie Willcocks, Working Paper, Oxford Institute of Information Management, 2004

Main Argument of the Paper:

The authors argue that client organizations have difficulty selecting the right business process outsourcing providers because there are so many providers from which to choose. In addition, client organizations tend to evaluate provider resources rather than the capabilities of providers to effectively manage and deploy those resources for the client organizations' benefit. To solve these problems, the authors argue client organizations should assess 12 provider capabilities that comprise three supplier competencies.

Research Method to support the authors' arguments: The authors provide only a short description of their research as a sidebar. The research was mostly case studies based on interviews and documents conducted from 1990 to 2004 in the area of information technology outsourcing, business process outsourcing, and application service provision.

Important Ideas & Definitions:

Relationship Competency: capabilities which determine the extent to which a supplier is willing and able to align with client needs and goals over time.

Delivery competency: capabilities which determine the extent to which supplier can respond to client's requirement for day-to-day operational services

Transformation Competency: capabilities which determine the extent to which supplier is equipped to deliver client's need for service improvement

SUPPLIER CAPABILITY	DEFINITION
1. Leadership	the capability to identify, communicate, and deliver the balance of delivery, transformation, and relationship activities to achieve present and future success for both client and provider
2. Planning & Contracting	the capability to develop and contract for business plans which deliver ‘win/win’ results for customer and supplier over time
3. Organizational Design	the capability to design and implement organizational arrangements to realize plans and contracts
4. Governance	the capability to define, track, assess and fix performance
5. Customer Development	the capability to transition users of an internally provided service to customers who make informed decisions about service levels, functionality, and costs
6. Process Improvement	the capability to design and implement changes to service processes to meet improvement targets
7. Technology Exploitation	the capability to swiftly and effectively deploy technology in support of critical service improvement targets
8. Program Management	the capability to prioritize, coordinate, ready the organization, and deliver across a series of inter-related projects
9. Sourcing	the capability to access whatever resources are required to deliver service targets
10. Behavior Management	the capability to motivate and manage people to deliver service with a “front office” mindset
11. Domain Expertise	the capability to apply and retain sufficient professional knowledge of the process domain to meet user requirements
12. Business Management	the capability to consistently deliver against both customer service level agreements and suppliers’ own required business plans

Critique of the Paper:

1. The greatest weakness of the paper is that the reader does not really understand how the data was used to generate the 12 supplier capabilities. The authors only anecdotally support each capability. How can a senior executive know that this framework is valid and reliable? The authors need to expand the explanation of the research base so the reader can better assess validity and reliability.

2. It is unclear to the reader whether there are similar frameworks available. A search of the current literature would help us realize the novelty of the framework.

3. Because the paper is written for senior executives, there are many ideas the authors assume the reader knows. I encountered the following term that needed better definitions and explanation:

3.1 Business Process Outsourcing:

"BPO outsourcing is the transferring of a non-core, non-IT business process to a supplier.
The Internet has sparked two trends that are causing BPO to grow exponentially: the globalization of commerce and the compression of business cycles. These two trends are forcing companies to outsource their non-core processes just to stay competitive.
Suppliers can complete the process faster, cheaper and better than buyers can do it in-house. This type of service also helps companies compete in a Web-based marketplace. "

Source: "What Exactly Is BPO?", By Peter Bendor-Samuel, CEO, Everest Group on www.everestgrp.com viewed on 1/16/05)

3.2 The authors use the term "Provider" and "Supplier" as synonyms. Consistent wording would make the paper clearer.

The authors sometimes use the term "client" and "customer" as synonyms and sometimes differentiate them as "client" referring to an organization and "customer" referring to a user in the business process area within the client organization.

3.3. Fee-for-service contract. "A customer pays a fee to a supplier in exchange for the management and delivery of specified IT products and services." (Source: Lacity, M., and Willcocks, L., "Practices in Information Technology Outsourcing: Lessons From Experience," MIS Quarterly, September, Vol. 22, 3, 1998, pp. 363-408.)

3.4 Domain Expertise: This really means that the provider has people on staff who understand the business context of whatever service they are providing. If the business process outsourcing provider is providing human resource services, then the domain expertise would be knowledge about benefits, pensions, travel expenses, training, etc. (Source: Asked Jane Doe, Director of HR Services, on 1/12/05)

3.4. Business Management Capability is really about making sure the supplier can get something out of the relationship. This something is usually a reasonable profit margin, but can also mean the potential for growth, access to a new market, a great client reference, etc. (Source: Asked Dr. Lacity in email on 1/13/05)

3.5 Six Sigma: The Six Sigma methodology is a strategy for satisfying the customer's needs profitably, primarily by reducing the number of defects in processes. Achieving "Six Sigma" in a process means that there are, on average, only 3.4 defects per million opportunities to make an error. The theory of Six Sigma suggests that profitability increases when processes are improved because defects and exceptions are expensive. Thus, Six Sigma proponents reject the notion of cost/service tradeoffs, believing instead that the key to lower costs is improving service. (Source: Lacity, M., Willcocks, L., and Feeny, D., "Transforming Indirect Procurement Spend: A Case Study" Cutter Consortium, Vol. 5, 2, 2004, pp.1-25.)

3.6. Capability Maturity Model: According to the askjeeves.com website,

" The CMM describes the principles and practices underlying software process maturity. It is intended to help software organizations improve the maturity of their software processes in terms of an evolutionary path from ad hoc, chaotic processes to mature, disciplined software processes. The focus is on identifying key process areas and the exemplary practices that may comprise a disciplined software process. The maturity framework provided by CMM establishes a context in which:

Practices can be repeated, if you don't repeat an activity there is no reason to improve it. There are policies, procedures, and practices that commit the organization to implementing and performing consistently.
Best practices can be rapidly transferred across groups. Practices are defined sufficiently to allow for transfer across project boundaries, thus providing some standardization for the organization.
Variations in performing best practices are reduced. Quantitative objectives are established for tasks; and measures are established, taken, and maintained to form a base-line from which an assessment is possible.
Practices are continuously improved to enhance capability (optimizing). "

This page had 3 references:

Bemberger, J. (June 1997) Essence of the Capability Maturity Model. IEEE Computer, p. 112-114.

Olson, T. G., N. R. Reizer, & J. W. Over (1994) A Software Process Framework for the SEI Capability Maturity Model. Documents and Checklists for a Software Process Framework for CMM.

The Capability Maturity Model: A Tutorial. A set of slides from SEI describing CMM and the underlying structure.