Introduction

• All processes were generally performed by people within the organization

• 1970s and 1980s:

  • Improved processes with total quality management

• 1990s:

  • Business process reengineering using new technologies

• End of 20^th Century:

  • Outsourcing to achieve more rapid benefits

• Information technology management has typically been the most outsourced function

• Beginning to see HR, administration, finance and accounting functions being outsourced

• Companies have begun to internationalize much of their outsourcing

  • Including service work

  • Particularly to India, China, the Philippines

    • Because of low labour costs

• Most companies are skeptical of outsourcing, because of risks from lack of process standards

• Two criteria required for outsourcing:

  • 1) Faith

  • 2) Cost

• Lack of comparability increases the risks associated with outsourcing

  • Standards make it easier to compare service providers

    • Evaluate cost vs. benefit

• Once costs vs. benefit become so visible

  • Outsourced processes will become a commodity

  • Prices will fall dramatically

Three Types of Process Standards

• Variability in how organizations define processes makes it more difficult to contract for and communicate about them across countries

• Within a company:

  • Standardization can facilitate communications, enable smooth handoffs across process boundaries

  • Makes possible comparative measures of performance

• Across companies:

  • Can make commerce easier for the same reasons

• Organizations must evaluate 3 things in addition to cost:

  • 1) The external provider’s set of activities and how they flow

    • The Supply-Chain Council (over 800 members)

      • Developed Supply-Chain Operations Reference(SCOR) model

        • Lays out a top-level supply chain process in 5 key steps:

          • Plan, source, make, deliver, return

        • Defined key metrics (but not benchmarks)

        • Software vendors (e.g. SAP) have begun to implement SCOR into their supply chain software packages

        • Users inc. Alcatel, Mitsubishi Motes, United Space Alliance

    • MIT created the Process Handbook

      • Online library of more than 5000 processes and activities

    • Telecommunications companies set up TeleManagement Forum

      • Developed their own standards (eTOM)

  • 2) Process performance standards

    • APQC

      • Setup consortium called Open Standards Benchmarking Collaborative

      • Inc. BofA, Cemex, IBM, Shell, World Bank

  • 3) Process management standards

    • Indicate:

      • How well processes are managed

      • How well they are measured

      • How on course for continuous improvement

    • Easiest standards to create and most widely available

    • E.g. ISO 9000 series

    • Beginning to lead to commoditization of capabilities that will eventually transform organizations

The Standards-Driven Commoditization of Software Development

• Software development is error-prone, expensive and time consuming

  • Whether internal or external

• No standard method for software development or engineering

• Carnegie Mellon’s Software Engineering Institute (SEI)

  • Developed Capability Maturity Model (CMM) - 1987

    • Become a worldwide standard for software development processes

    • Facilitated the growth of offshore providers in India and China

    • Commoditizing software development processes

    • Making processes more transparent to buyers

    • Requires only that firms have...

Buy the full version of these notes or essay plans and more in our Strategic Finance, Digitization and Extended Enterprises Notes.