Sunday, June 8, 2008

Title: Outsourcing more but enjoying it less: What’s the real problem?

Article: Gartner Research ID: G00143315

Title: Outsourcing more but enjoying it less: What’s the real problem?

Author: Allie Young, Lorrie Scardino

This article discusses the incorrect approach that firms make while trying to outsource its IT hence they are not able to derive the full potential of IT outsourcing
IT outsourcing is generally employed to solve immediate gaps, attain tactical results and derive short term cost benefits.
Although it is predicted that IT outsourcing will keep growing the satisfaction levels have been poor.

The article suggest that firms should have an enterprise sourcing strategy that evaluate firms and also establishes governance mechanism once the outsourcing deal is done.

Finally the article advises firms to follow multisource strategy which will help identify and measure the delivery outcomes and help increase satisfaction.

Case: Nestlé tries for an All-for-one Global Strategy

1. Nestlé one of the world’s largest food and beverage company in the world operated at 500 facilities in 200 countries having nearly 250,000 employees and revenues in excess of $70 billion.
Taking into account local conditions and business cultures it supported decentralized strategy wherein ,it had 80 different information technology units that ran nearly 900 IBM AS/400 midrange computers,15 mainframes and 200 Unix systems.

Supply chain management – local differences prevented Nestlé from competing effectively in electronic commerce. The lack of standard business processes prevented Nestlé from leveraging its worldwide buying power to obtain lower prices for its raw material. Although every factory used the same global supplier each unit negotiated on different terms. Nestlé’s supply chain technology also was not as per the required standards especially with its largest customers Wal-Mart and Tesco
Lack of sales information from retailers on a gloabl basis caused inefficiency in its supply chain management by overstocking and products sitting too long on the shelves.

Enterprise management – Nestlé facilities in 14 countries ran their ERP application differently and used different schemes for formatting data and managing forms. The system disparity resulted in increasing maintenance costs. Compiling financial reports to gain a company wide view of performance became laborious.
With thousands of differently configured supply chains, multiple methods of forecasting demand, and innumerable practices for invoicing customers and collecting payments made planning coordination and controlling at an enterprise level a nightmare.
The inconsistencies and inefficiencies across the enterprise were chipping away Nestlé profits as it had to invest more in its information systems sending.

Customer management- with the localized approach to systems management it was very difficult to gauge customer buying trends and preferences and lack of such knowledge prevented Nestlé in its decision making abilities to roll out new products or offer discounts to increase sales at an enterprise level.

Knowledge management – with the diverse systems knowledge was localized and not harnessed at an enterprise level. There was no common set of best practices nor any global standards to rollout products to market or common financial reporting practices or common tools for its sales teams.

From the Porters competitive forces model Nestlé had to improve its operation efficiencies and reduce its IT spending while trying to grow in new markets and introducing new products in order to gain advantage over its competitors like Unilever and Kraft Foods.

Nestlé on a global platform lacked the standardization of all of its processes, data and systems that prevented it from planning, coordinating, controlling and decision making abilities at an enterprise level.



4. To deal with the above challenges Nestlé embarked on a program to standardize and coordinate its information systems and business processes.
They launched a $2.4 billion initiative to compel its market heads around the world to adopt a single set of business processes and systems for procurement, distribution and sales management. This initiative started in year 2000 was know as Global Business Excellence (GLOBE).
The strategy was all of Nestlé worldwide business units were to use the same processes for making sales commitments, establishing factory production schedules, billing customers, compiling management reports and reporting financial results.
Every Nestlé facility would format and store data identically, using the same set of information systems.
Nestlé wanted to bring in 70 percent of the company’s global markets to adhere to GLOBE strategy within a span of three and a half years. This was a lofty goal and a challenge in itself.

Nestlé also wanted to bring in operational efficiencies by reducing its number of suppliers from 600,000 to 167,000 and save millions of dollars in this process.

Previous attempts to develop a standardized system brought resistance from market managers and country heads. One of the challenges the GLOBE team had was to convince and buy in the market managers who would be the key in its roll out and oversee its adherence. To circumvent this resistance from technology managers GLOBE build a team of best of the breed business managers from diverse business groups.
The plan was to achieve this standardization through the deployment of mySAP an internet based ERP software application.

The GLOBE team of 400 executives who knew best how the company conducted business documented best practices for every business process.

The strategy encountered both technical as well as personal challenges.

The greatest challenge that the GLOBE team had was that managers resisted the idea of giving up control over their business processes to participate in a centralized solution.
Managers feared loosing their decision making power to a centralized head.
To bring in manager support the GLOBE team took a frank and open discussion to address all their concerns and questions and for the ones who were still not convinced were threatened to be fired.

mySAP ERP could not accommodate localized overrides so Nestlé worked with SAP to allow difference for specific countries that had different promotional strategies.
The short timelines to implement GLOBE strategy prevented sufficient training time for end users using the new ERP nor did they have the time to perfect the processes.

The initial rollout in the spring of 2003 show caused to many managers the improvement in operational efficiencies with better demand forecast and better financial reporting.
By the end of 2005 only 30 % of its business adhered to GLOBE standards which was way below the ambitious target of 70%.Although GLOBE proved to be beneficial its project costs overran the initial budgeted amount and also eat into the firms profits.

Sunday, June 1, 2008

Article - Agile Project Managment

Article:
Agile project management: steering from the edges
Sanjiv Augustine, Bob Payne, Fred Sencindiver, Susan Woodcock
December 2005 Communications of the ACM, Volume 48 Issue 12
Publisher: ACM


The article is of interest to me and relevant to the chapter 14 as it discusses the Agile project management techniques which has become the new buzz word in the project managers world.
The agile programming techniques is shift from traditional project management methodologies such as the water fall method which is sequential in the software design lifecycle and lets software project managers and employees adapt to changing circumstances rather than impose rigid project controls.
In today’s world system development is conducted in very volatile environments as organization adapt to rapid changes in technology, markets and social conditions.

The article discuss six practices in Agile methodology such as nurturing small organic teams, establishing a guiding vision with simple rules ,championing open information that can be accessed by everyone in the team and adaptive leadership.

The Agile project methodology is very popular among managers who manage software projects that deal with web site development which needs rapid iterative delivery, flexibility and working code.

Case Study - Maine's New Mediciad system

Case Study:
1. Maine’s department of health and human services provided Medicaid health insurance to over 260,000 eligible members. Most of the healthcare providers i.e. doctors and institutions submitted electronic claims to DHHS in order to get paid for the services rendered to the Medicaid members.

The Medicaid claims processing system had also to comply with the Health Insurance Portability and Accountability Act (HIPPA).
Each of the services rendered had a corresponding code and payments were made automatically based on the service code as per the Medicaid agreed rates defined by DHHS.
To reduce provider’s call volumes to the Bureau of medical Services which was supported by a limited staff the state also wanted to offer providers online access to patient eligibility and claims status.

In order to enable the above requirements it was very critical for Maine’s DHHS to have a robust IT application

The implementation of a faulty claims processing system caused several issues apart from the fact that it was delivered 27 months after the planned go live date

Ø The system rejected several claims from the providers as it could not do an intelligent match of providers against their database. Within two months 300,000 claims were frozen. The new system rejected 50 % of the claims in the first week where as the old system rejected 20% claims on an average.
Ø The suspended claims due to the system rejection were handled manually that resulted in enormous delays to issue payments The DHHS staff was not geared to handle the unprecedented call volumes from providers neither could they manage the manual claim processing. A limited 13 member staff could not handle calls from 7000 providers
Ø Even for the ones for which the system made automatic claims payment resulted in overpayments eventually totaling to $9 million
Ø The electronic claims forms were incorrectly filled by the providers and the system did not have data checks and mandates that could have ensured the right data to flow in their systems.
Ø The overall cost for the faulty claims processing system resulted in an additional $30 million to the state
Ø Doctors received multiple claims rejection statements via mail. The claims rejection and the consequent delayed payments resulted in providers refusing rendering services to Medicaid members
Ø Last but not the least the claims system was not built as per HIPPA guidelines and hence did not satisfy HIPPA requirements.



3. The problems faced by DHHS in implementing its new Medicaid claims processing system can be classified as listed below

Management:
The state took 6 months in its due diligence process to select a vendor i.e. from time of request for proposal in April 2001 to selecting a vendor in Oct 2001.
Only 2 firms responded to the RFP shows that vendor outreach was poor and DHHS did not have several options to compare and select the best bid.

The management decision to go with the cheapest bid and inexperienced vendor proved costly in the long run as they had to spend additional $30 million in disaster recovery process.
Lack of competent management staff, budget constraints and lethargic decision making without proof of concept for the Medicaid system was a major lapse on the part of the DHHS management.

Organization
The vendor did not get the much needed support from DHHS staff in terms of subject matter experts in Medicaid claims processing neither did they have the functional domain expertise on Medicaid systems.
The project suffered from ineffective project management and dearth of communication among Maine’s IT staff, CNSI the vendor and the end business users.

The project was also poorly staffed which resulted in delayed response to provider complaints and manual claims processing.

The providers were not trained to fill the claim forms correctly in the new system reflected lack of provider training that usually is part of the states outreach program to providers on claims procedures.
The organization did not adequately staff its call centers nor did it sufficiently train its staff to handle provider calls and grievances.

Technology
The Medicaid claims system application design itself was flawed as the J2EE based system was a mis-match with the legacy code from the old mainframe system.
There was no system back up or roll back plan or parallel system to support the deployment because the legacy system was incompatible with the new code.
Due to short time frames to deliver the project detailed system testing was compromised which resulted in several glitches in the production system that was rolled out.