NOA Glossary of Sourcing Terms
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1 NOA Glossary of Sourcing Terms 1 NOA 2015
2 Copyright Statement and Disclaimer This document has been prepared as a reference for sourcing professionals. It cannot be reproduced in part or whole in any form by anyone without the express permission from the NOA or NOA Pathway. The definition of terms is not intended to be relied upon by any users of this information in any commercial undertakings. Professional advice must always be taken where necessary to confirm meanings of terms or words. The authors and associated people and companies will not accept any liabilities as a result of any errors in this document. NOA NOA 2015
3 Index Acquired Rights Directive (ARD) Page 7 Application Service Provider Arbitrage Backshoring Backsourcing Back Tweaking BAFO Balanced Score Card Baseline costs Page 8 BATNA Benchmarking Best of Breed Bestsourcing Bestshoring Best value Blue Print Page 9 Business Process Outsourcing (BPO) Business Orientated Metrics (BOMs) Captive Captive facility Cloud computing Competitive Tender Compulsory Competitive Tendering (CCT) Page 10 Continuous Improvement Contracting out Contractor (or contracting) Core competence Co-sourcing Cost-plus Dashboard Page 11 Dispute 3 NOA 2015
4 Disaster Recovery Planning Due diligence End user End-to-end process End-user driven Escrow Page 12 Exit Exit Plan Extension clause Facilities management Farshoring Page 13 Fixed-cost model Gainsharing Global Business Services strategy Global Delivery Network Global Sourcing Governance Page 14 Information Technology Process Outsourcing (ITO) In-sourcing Intellectual Property Invitation to Tender (ITT) Joint Venture (JV) Knowledge economy Knowledge management Page 15 Key Performance Indicators (KPIs) Knowledge Process Outsourcing (KPO) Legacy systems 4 NOA 2015
5 Managed services Multishoring Multisourcing Nearshoring Novation Page 16 Onboarding One-stop shop Offshoring Outsourcing Request for Information (RFI) Risk and Reward Based Pricing Risk Management Page 17 Roadmap Run-rate reduction Sarbanes-Oxley Act Schedules Service credits Service provider Service Level Agreement Shared service Page 18 Single Line Tender Software as a Service (SaaS) Sole Source Termination and Handover assistance clauses Terms and Conditions (Ts&Cs) Time and materials Page 19 Transition 5 NOA 2015
6 Transformation TUPE Transfer of Undertakings (Protection of Employment) Utility computing Value chain Value-add Value-minus pricing Page 20 6 NOA 2015
7 Acquired Rights Directive (ARD) European Union legislation that determines employee rights in relation to outsourcings, that sets the precedent for individual countries interpretation; in the UK this is TUPE. (See TUPE) Application Service Provider A company that offers individuals or organisations access over a computer network to applications and related services that would otherwise have to be held on their own computers. Arbitrage The practice of taking advantage of a price difference between two or more markets. Labour arbitrage is a common example, where labour costs in one area are significantly different to those in another. Backshoring Bringing an offshored service back onshore. Backsourcing Taking an outsourced service back in-house Back Tweaking Back sourcing over a period of time as the need arises, as opposed to back sourcing all at the same time. BAFO Best and Final Offer submitted by supplier(s) in the Relationship Engagement phase of the Life Cycle. Balanced Score Card A structured report used to monitor supplier performance; can consist of multiple Service Levels and Key Performance Indicators across strategic, operational, quality, service and other parameters. 7 NOA 2015
8 Baseline costs Cost projection performed early in a project to serve as the reference point for all subsequent tracking, comparing, and auditing. This is likely to include costs at current service levels and estimated costs at future projected levels. BATNA This stands for Best Alternative To a Negotiated Agreement. It is best practice particularly for the client in a negotiation that they are able to walk away from a negotiation if the supplier does not continue to offer an acceptable deal. To not have a BATNA can place the client in a vulnerable position. Benchmarking The process of comparing the outsource contract against best practice and metrics from other peer organisations, buyers or suppliers. Best of Breed The best product or service of its type. When the term is used for an outsourcer it is normally one that specialises, (and may be generally considered a leading expert in) in one particular area, normally a Business Process Area such as billing, HR, maintenance. Bestsourcing Sourcing services that best suit the needs of the organization whether that is to outsource, or insource or indeed to multisource. (see Bestshoring) Bestshoring Sourcing services in the location that best suits the needs of the organization whether that is to onshore, offshore, nearshore or multishore. (see Bestsourcing) Best value A term used in the public sector to describe the process that aims to continuously improve local government performance through a programme of reviews and inspections. Councils are required under Best Value to examine their services according to four guiding principles. They must challenge how, why and by whom a service is provided; compare its performance with that of other authorities; consult service users; and use competition to get the best service available (see Compulsory Competitive Tendering). 8 NOA 2015
9 Blue Print Equivalent term for the outsource roadmap (see explanation for roadmap). Business Process Outsourcing (BPO) The provision of a bundle of business processes by a third party service provider. Typically such processes may be denoted, front/middle/back office. Front office BPO normally involves contact centre processes i.e. customer management, customer recruitment, and customer retention. Middle office BPO normally involves industry specific processes such as insurance claims management, investment custody, mortgage administration etc. Finally, Back office BPO involves the normal administrative processes required by any business, that is the processes and sub processes involved in Finance and Accounting, Human Resources, Procurement, Legal, Marketing, Security, Facilities etc. Business Orientated Metrics (BOMs) BOMs are those outputs that can be seen to clearly impact the business goals of the organisation as distinct from other outputs that may have a more indirect impact on the business, and may be more technically or process orientated. Captive A captive is the offshore service delivery unit for a company, where the offshore unit remains a part of the company group and the employees in both offshore and onshore locations work for the same company, or same corporate group. Captive facility The facilities used by a captive service provider. Cloud computing Cloud computing is a generic term for anything that involves delivering hosted services over the Internet. These services are broadly divided into three categories: Infrastructure-as-a- Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS). Competitive Tender A commercial situation in which a specified number of service providers are asked by RFP/ITT (See below) for a written priced proposal, which will form the basis of a decision to select one or more suppliers to enter a more detailed process of due diligence (see below). 9 NOA 2015
10 Compulsory Competitive Tendering (CCT) CCT required councils and NHS authorities to allow private sector companies bid to provide a range of local government services and non-clinical health services. Initially it extended only to six blue-collar service areas, including cleaning staff and school meals. It was later extended to take in a wider range of services, including some white-collar jobs. Superseded in 2000 for local government by best value. (See Best Value) Continuous Improvement The improvement of existing processes, procedures, services and/or products already being used within in the outsourcing contract; can refer to improvements introduced by the buyer, the supplier or by both parties on a collaborative basis. Contracting out A term often used in the public sector to describe an outsourcing arrangement. For example, local authority social services departments may "contract out" meals-on-wheels services to charities and commercial organizations Contractor (or contracting) Often self-employed individuals employed on a temporary contract basis by an organisation or provided by an outsource provider. Core competence Capabilities that a business believes are critical to that business achieving competitive advantage. Note that even in the same industry organisations may espouse different core competencies. Co-sourcing Where a business function is performed both by internal staff and external resources, such as consultants or outsourcing vendors who have specialist knowledge of the business function in question. Cost-plus A common method for pricing a service by calculating the cost of delivery and then adding a margin to ensure a profit. 10 NOA 2015
11 Dashboard An approach used for reviewing project/service status at a glance; many managers will use a dashboard format to summarise key management information. Dispute A dispute arises where the client and provider are not able to resolve an issue that has arisen. The dispute should be logged and escalated to be resolved. Disaster Recovery Planning An activity that ensures plans are in place should disasters occur which may include a range of scenarios. The plans will typically ensure that data and systems can be recovered or ideally can continue to work in spite of being compromised. This is sometimes referred to as Business Continuity Planning. Due diligence The process of discovery or detailed analysis when engaging a partner company in a service relationship. Due diligence is the process of cross-checking the claims they made during the sales process, to ensure that all the facts are on the table and visible. The potential suppliers may well carry out due diligence on the customer organisation to verify the service and assets that they are proposing. End user The organisation that receives services from a third party. May be called the client organisations or the buyer. End-to-end process A complete business process that progresses a required result from start to finish. In practice it can be difficult to define a complete process as they can be highly complex and interdependent. Often a judgement has to be made regarding what is considered to be a complete end-to-end process in a given context. End-user driven Ability of the actual user of a technology platform or outsourced service to determine how it works and what services can be offered, rather than to just accept what is on offer. 11 NOA 2015
12 Escrow A bond, deed, or other document kept in the custody of a third party (for example a lawyer), taking effect only when a specified condition has been fulfilled. This is commonly used in relation to, for example, application source code. EU Procurement Directives The 2014 EU Procurement Directives. There are three directives applicable to Public Sector and other specified contracting authorities: Public Sector: Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC Concessions: Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the award of concession contracts Utilities: Directive 2014/25/EU of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC Exit This relates to a change in sourcing arrangements where a service is moved from one provider which might be an in-house operation to a new provider. The planning and management of Exit is a key outsourcing issue. Exit Plan The plan produced by the incumbent supplier(s) for exiting their contract on expiry or termination. Extension clause Written into contracts these allow for the contract to be extended beyond its original term and clarify the arrangements should this occur. For example it will confirm pricing rates and service levels. Facilities management This term is used to define the management of buildings and associated services, e.g. cleaning, waste management, security, maintenance etc. It may also extend to technical facilities in the buildings, including the IT infrastructure. 12 NOA 2015
13 The term can also be used to refer only to IT facilities management. In both instances the end user organisation typically retains ownership of the facilities under management and the arrangement is based on a fixed term agreement. Farshoring The transfer of business functions to a different country but one that is neither adjacent nor relatively close to the organization s home country. Typically it refers to offshoring to a different continent from where the buyer organisation operates. Fixed-cost model Where a service provider will quote a fixed price for a service, regardless of the time and effort involved, which may change as the work progresses. Gainsharing The concept of working together with another organization and creating measurable benefits from the arrangement that can be between the service provider and the buyer. In outsourcing costs to the customer are often planned to decrease year on year, gainshare would allow the supplier company, if savings could be increased, to split these additional savings between themselves and the customer. Sometimes a proportion of these savings can be used to develop new services to further benefit the customer s business. Global Business Services strategy The idea of bringing together shared services and outsourcing in an integrated strategy to improve the effectiveness of managing global sourcing. Global Delivery Network A specifically selected set of globally separated service delivery locations offering distinct skills sets (such as: languages, processes, quality and cost profiles) that are interlinked through governance and by resilient communications networks (in order to facilitate continuity of service) to service consuming locations. Global Sourcing Sourcing suppliers and/or services from multiple geographical locations and time zones across the world; can comprise a mixture of onshore, nearshore and offshore delivery locations. 13 NOA 2015
14 Governance This is of fundamental importance to the success of outsource arrangements. In essence it is the methodology, process and procedures implemented by the buyer and supplier to assure the achievement of defined objectives. Information Technology Process Outsourcing (ITO) The provision of a bundle of IT business processes by a third party service provider software development, applications management, IT Helpdesk, Problem Management, Change Management etc. In-sourcing This term is most usefully used to describe bringing previously outsourced processes back inhouse. Intellectual Property Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. In outsourcing scenarios this is an important area for consideration and is likely to require specific contract clauses clarifying IP rights (IPR) of all the parties both during and after the contract. Invitation to Tender (ITT) A formal document inviting a select supplier list to competitively tender for the provision of an outsourced service delivering a bundle of processes to the customer. Joint Venture (JV) A business venture in which two or more organisations join forces as partners to create a shared third-party organisation with goals to meet the needs of both partners. Both parties have risks and rewards associated with the JV. Knowledge economy As many service-based jobs have been created requiring no more than the knowledge inside a person s head, the term knowledge economy has grown in usage to describe the jobs these people perform and their value to the wider economy. 14 NOA 2015
15 Knowledge Management A systematic approach to capturing, organising, sharing, and analysing both tacit and explicit knowledge held within an organisation. Key Performance Indicators (KPIs) A quantifiable business metric to evaluate the supplier s performance, aligned to the strategic and operational goals of the outsourcer; may have penalties and/or damages attached for under-performance by the supplier. Knowledge Process Outsourcing (KPO) The provision of a bundle of knowledge processes by a third party service provider. These are typically higher value, thought-based intellectual tasks. Examples include R&D, product design, market research, investment recommendations, actuarial processes, and medical diagnoses. Legacy systems Old, generally proprietary systems that often can be difficult to upgrade or maintain.. May be used to refer to the existing systems that an outsourcer may take over. Managed services An arrangement in which a third party assumed responsibility for the management of a service, the hardware of which continues to be owned by the service user. Multishoring The transfer of business functions to different countries both close by and distant from the organisation s home country. Multisourcing Selecting multiple suppliers to provide outsourced services to the buyer; can be segmented by service towers, functions or scope and overseen by a Service Integration and Management Layer within the buyer. Nearshoring The transfer of business functions to a different country but one that is either adjacent or relatively close to the organization s home country. 15 NOA 2015
16 Novation The process of legally transferring ownership of existing contracts from their current owner (customer or previous outsource service provider) to the new outsource service provider. Typically this process deals with licenses or service contracts and requires the formal consent and signature of all three parties involved. Onboarding Sometimes used to describe the process of bringing into an outsource provider a client organisation s operation that the outsource provider will then deliver under an outsourcing arrangement. One-stop shop The term has been used in many situations for many years and means providing a comprehensive offering to customers in order that they will not need to use multiple suppliers. Offshoring A service delivery location usually an extended geographical distance from the buyer. It does not mean outsourcing. Outsourcing A contractual arrangement between two or more parties for a specific period to provide defined services which the buying party would otherwise have undertaken themselves. Posttermination assistance clauses. This provides for the client to receive support from the provider after the contract has ended. Request for Information (RFI) Request for Information produced by the buyer in the Relationship Engagement phase of the Life Cycle Request for Proposal (RFP) Effectively the same as an ITT (See above). RFP is favoured as an acronym in the private sector, and ITT by the public sector. Risk and Reward Based Pricing See Gainshare. 16 NOA 2015
17 Risk Management On-going identification of risk at all stages of the life cycle whether in project or operational mode and the adoption and completion of associated action assignments which are either designed to avoid or mitigate the risk. Roadmap A document produced by the Strategic Leadership Team to outline the outsource strategy and direction. Run-rate reduction Reducing the amount of actual outgoing operating costs. Sarbanes-Oxley Act Legislation in the United States, passed in 2002, intended to increase transparency in accounting practices. It is also known as the Public Company Accounting reform and Investor Protection Act of Schedules Contracts favoured for outsourcing deals typically have a core set of terms and conditions (See Ts&Cs) which invoke a series of key schedules. Typical schedules will include Scope, Pricing, SLAs, Pricing & Billing, Volumetrics, Remedies, Change Control, and Exit. Service credits A service credit is an agreed refund given by a supplier to a customer if the supplier's service fails below a contractually-agreed service levels. Typically the contract agreement will be that any service credits will be offset against the future costs of the service being supplied. Service provider An organisation that delivers a service to the service end user (buyer organisation). Service Level Agreement (SLA) A record between the supplier and buyer defining the scope, quality and responsibilities of the outsource; typically uses target values for the supplier to achieve; may have penalties and/or damages attached for under-performance by the supplier 17 NOA 2015
18 Shared Service Consolidation of a service provision point by one part of an organisation or group where that service had previously been found (and provided) in more than one part of the organisation or group. Coming together of similar services between one or more organisations that are normally noncompetitors in the same area (e.g. local government) and by sharing they can gain economies of scale. Single Line Tender A situation in which only one service provider is chosen to bid for a specified bundle of business processes. This may occur because of domain knowledge, relationship, or as the result of a policy which operationally limits the number of third party relationships a customer is prepared to manage at any one time. Software as a Service (SaaS) A software distribution model in which applications are hosted by a vendor or service provider and made available to customers over a network, typically the Internet. Sole Source See Single Line Tender. Termination and Handover assistance clauses Provisions in the contract that help to ensure an exiting provider effectively supports the change. Terms and Conditions (Ts&Cs) Terms and conditions are a series of legal clauses under which provide the agreed basis on which parties to the contractual agreement will interact and from which the detailed schedules are invoked (See Schedules). Typically issues such as contract term, methods of termination pre-term, liability, warrantees, indemnities, and protection of intellectual property will be covered 18 NOA 2015
19 Time and Materials T&M is a simple method of charging for a service contract where a charge is made based on a unit cost for time (amount per day usually) plus expenses (i.e. materials, but it often includes travel, hotel and meal expenses incurred by individuals involved in a project). Transition The project which moves operations from the customer or his currently incumbent supplier to the new service provider. Transformation The project which makes more efficient the delivery of a bundle of business processes to the customer. TUPE Transfer of Undertakings (Protection of Employment) The TUPE Regulations protect the pay, terms and conditions of employees who are transferred from one organization to another typically as part of an outsourcing arrangement, preventing these entitlements being changed without agreement. The Regulations also protect their accrued pension rights, provide some protection against unfair dismissal and state that trade union recognition and collective agreements in force at the time of the transfer, be maintained. Utility computing A service provisioning model in which a service provider makes computing resources and infrastructure management available to the customer as needed, and charges them for specific usage rather than a flat rate. Value chain The chain of services that connect together everything your company does from one department or process to the next, and how they add value to whatever it is that you do. Value-add The measurement of where value is added to a process or service. 19 NOA 2015
20 Value-Minus Pricing Pricing a service by quantifying the value it will create and using this figure to place a price on the service; the agreed price for the service will be this total value created figure minus a figure agreed by the two parties. For instance, if a new scheduling system might be projected to save a company 5 million per year, they might offer an IT group 3 million to produce the system, but with payment based on the projected savings being achieved rather than time and materials payment of 1 million. Do you need more outsourcing knowledge? The NOA s Professional Development programme offers training, qualifications and accreditation for individuals and companies working in outsourcing. 20 NOA 2015
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