Outsourcing Services: What is right for your organisation. Presenter: Andrew Hewat

1. Better results through sourcing
Outsourcing Services
O t i S i
What is right for your organisation?
Andrew Hewat
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2. Better results through sourcing
Agenda
A d
• The changing outsourcing landscape
• How to decide if outsourcing is right for your organisation
• The engagement process and governance
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3. Better results through sourcing
There are different impressions of outsourcing…
If outsourcing was a tree
– What type of tree would it be?
– Wh ?
Why?
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4. Better results through sourcing
Outsourcing can be viewed in many ways
Cherry Blossom Pine
The mighty oak
g y
Giant Bamboo
African Thorn
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5. Better results through sourcing
The tree you get is your choice
The tree you get is based on:
– alignment to your organisations core strategy
– the sourcing process
– effective governance
Outsourcing is a very powerful business
tool if used appropriately
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6. Better results through sourcing
THE OUTSOURCING LANDSCAPE
THE CHANGING OUTSOURCING LANDSCAPE
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7. Better results through sourcing
The
Th CIO challenge
h ll
Do more for the business, but cost less…
Be faster and more agile
– double capacity
– halve capacity
– expand globally
– shut an application down, but without any lost investment
Buy services and manage suppliers
Manage processes across th organisation
M the i ti
Establish improved processes
Don’t pick the wrong technologies
Don’t t
D ’t get consultants or external expertise to help you f
lt t t l ti t h l formulate decisions
l t d i i
Love Vista, love Windows 7 more
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8. Better results through sourcing
The
Th IT project promise
j t i
Increased Increased
Risks Productivity
Time
Decreased Decreased
Productivity Risks
IT Project
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9. Better results through sourcing
And the i
A d th view from the business units
f th b i it
Increased
Risks
Time
Decreased
Productivity
IT Project
IT Project
IT Project
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10. Better results through sourcing
How d you make th d i i t O t
H do k the decision to Outsource?
?
Very, VERY carefully!
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11. Better results through sourcing
Lets h
L t have a l k at th options
look t the ti
1. Traditional outsourcing
2. Selective/project outsourcing
3. Transformational including BPO
g
We will look at the challenges, issues and benefits of each model for Company X.
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12. Better results through sourcing
Outsourcing “drivers” over th d
O t i “d i ” the decades
d
Now
1990s
1990
1980s
• Flexibility • Cost reduction
• Cost • Access to • Focus management
reduction expertise time on core
• Improved processes
• Release of services • Flexibility
capital • Cost reduction • Access to expertise
• Release of • Improved services
capital • Release of capital
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13. Better results through sourcing
Future
F t
Cloud Computing
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14. Better results through sourcing
Typical 1980s
T i l 1980 scope
In scope
p
Data centre including mainframe and servers
Data and voice communications
Applications maintenance and support
Desktop
Helpdesk
Out of scope
Architecture and design
g
Security
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15. Better results through sourcing
Typical 1990’s
T i l 1990’ scope
In scope
p
Focus on “best of breed”
Product consultants for design work
Assets owned by customer
Flexibility in services (ARC/RRC)
Start of project related sourcing
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16. Better results through sourcing
Typical
T i l scope now
In scope
p
Use of Suppliers for the delivery of non-core services
Business Support Services
IT Services
Use of Suppliers for delivery of projects using a combined team
and then turning over to Customer for ongoing support
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17. Better results through sourcing
Outsourcing models
O t i d l
Traditional Outsourcing Selective/project sourcing Transformational including
BPO
Move Operations functions, Select a function(s)/ project Identify end state
Assets, People Define new business operating
model and processes
Issues: Issues: Issues:
• Redundancy costs • Scope definition • Clearly define new business
• Baselines • Integration model
• Service levels • Acceptance criteria • Define acceptance criteria
• Loss of knowledge
g • Service levels • Communication
• Time • Knowledge transfer • Organisational change
management challenges
• Very clear roles and
responsibilities
p
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18. Better results through sourcing
Customer satisfaction
C t ti f ti
Over 80% of customers stated that outsourcing had not met their expectations
g p
But, they also agreed that their expectations were unreasonable
Approximately 60% did not implement an effective governance model
Unit costs did reduce
But, lack of control led to greater spend with suppliers
Suppliers think if they deliver to the service levels it is sufficient and can’t understand why
can t
the customers are unhappy
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19. Better results through sourcing
Typical ff i
T i l offerings today – IBM IT
t d
Business continuity and resiliency
y y Middleware services
services Outsourcing services
End user services Server services
Integrated communications services Site and facilities services
Internet Security Systems Storage and data services
IT strategy and architecture services
Maintenance and technical support
services
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20. Better results through sourcing
IBM outsourcing portfolio
Can be tailored to meet tactical and strategic needs
Consulting Services & Project-
based Systems Integration
Business
Transformation
Outsourcing
HR Finance &
CRM
Accounting
Industry Supply
Processes Chain
Infrastructure Procurement
Technology
Services
Application
Management
M t
Services
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Source: IBM
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21. Better results through sourcing
OUTSOURCING SERVICES
HOW TO DECIDE WHAT IS RIGHT FOR
YOUR ORGANISATION?
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22. Better results through sourcing
How t d id if outsourcing i right f your organisation
H to decide t i is i ht for i ti
Don’t outsource
– when you are in the middle of an acquisition/divestiture
– a major project is underway (new ERP)
– a new CEO/CIO has just been appointed
– there is no service level regime in place
– there is a fundamental lack of controls and planning, mixed technologies etc UNLESS
You can clearly define the end state
You can accurately forecast how much it will cost to get to the end state
– if your only reason is cost savings
y y g
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23. Better results through sourcing
Risk and accountability
Share Price Movements on NYSE
Supplier
Customer
Revenue (US$ million) FY2007 FY2008 Gross Profit (US$ million) FY2007 FY2008
IBM 98,786 103,630
IBM 41,728 45,661
HP 104,286 118,364 HP 25,399 28,443
CSC 14,585 16,499 CSC 3,041 3,348
Accenture 6,041 7,186
Accenture 21,453 25,314
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Source: Google Finance © LODESTAR Advisory Advisory Services
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24. Better results through sourcing
What
Wh t cannot be outsourced?
tb t d?
Risk
Accountability
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25. Better results through sourcing
OUTSOURCING SERVICES
THE ENGAGEMENT PROCESS AND
GOVERNANCE
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26. Better results through sourcing
The Polaris2 sourcing methodology
Preparation Evaluation Negotiation Transition Governance
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27. Better results through sourcing
Typical views of the IT budget…
7%
Controlled
by non- IT
2% Directly Exec
by BUs
y
People Software
~36% ~32%
30%
Blended 61%
Hardware IT and Centrally
BUs by IT
~32%
CONTROL OF IT
SPENDING
Source: State of the CIO 2007
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28. Better results through sourcing
What
Wh t are the common denominators
th d i t
You need accurate baselines
You need to know your service levels
You
Y need a contract to protect you
d t tt t t
You need to know your costs
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29. Better results through sourcing
Strategic T ti l R
St t i & Tactical Reasons for Outsourcing
f O t i
Strategic Tactical
Ability t f
Abilit to focus on core business
b i Reduce costs
differentiators Avoid future investments
Access to scarce expertise Buy outcomes rather than effort
Act as an external change agent Leverage supplier buying power
Share risks Remove problem areas
Ability to quickly respond to changing Pay for what you use
market conditions Access to low cost labour (off-shoring)
(off shoring)
Transformation of the business Remove assets from the balance sheet
processes
Move fixed costs to variable costs
Overcome resource shortages
Improve quality
Provide clearer accountability
Avoid internal politics
p
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30. Better results through sourcing
Use
U a supplier t release cash f t
li to l h for transforming th organisation
f i the i ti
100%
New Solutions Liberated funding
for direct saving or
transformational
t f ti l
investment
Strategic Change
ng
Application Enhancements Capacity
IT Spendin
New Solutions
Cost of
Operations
Operations Support
Application Enhancements
Operations Support
Operations Maintenance
Operations Maintenance
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31. Better results through sourcing
Governance components
G t
Relationship
p
Mgt
Contract Performance
Mgt Mgt
PMO
Risk
Financial
Mgt
Mgt
M t
Strategic Knowledge
Alignment Management
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32. Better results through sourcing
Items to ensure successful outsourcing
It t f l t i
Know why you are outsourcing
Know what you are outsourcing
Know what it costs you today
Know what service levels you are achieving
y g
Know where it is being delivered
Do adequate due diligence on the supplier
Understand your risks and dependencies
Know where your data is and who can access it
Assess the supplier’s approach to risk management
Ensure you have a good sustainable contract
Manage the contract AND the relationship
Keep control of your PMO and data dictionary
Ensure you continue to monitor the Application Portfolio
Ensure the supplier earns the right to your business
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33. Better results through sourcing
Questions?
Q ti ?
www.lodestar-as.com
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