it management - xerox case study

Outsourcing Global Information Technology Resources

Xerox Background Description

A global enterprise addressing the worldwide document processing market which develops, markets, services, and finances a complete range of products and services designed to make offices around the world more productive.

Xerox Introductions & Market Share

0

20

40

60

80

100

120

1961-64 1965-68 1969-72 1973-76 1977-80 1981-84 1985-88 1989-92

NewProduct

NewCopierIntroductions

0

5

10

15

20

25

30

35

1984 1993

Low-End Copiers

Mid/High EndCopiers

Market Share

New Product & Copier

Introductions

Yet, Net Income is Declining

($1,200)($1,000)

($800)

($600)($400)

($200)$0

$200

$400$600

$800

1993 1992 1991 1990 1989 1988 1987 1986

Net Income

Background Corporate Restructuring — 1992

• Decision Making Moved Closer to Customer

• Greater Focus on Core Competencies

• Focus on Core Business

• Focus on Benchmarks

• Workforce Reduction

Information Management

• 1970s - CIM Established

• 1987 - General Services Division Established

Mission of CIM was now to . . . “develop the IT strategy for Xerox and ensure that it was implemented in all the business units.”

• $500 Million IT Budget

Information ManagementIT Strategy Consulting Firm

Finds Problems• No coordination of money spent each year

• No Corporate-Wide Management of IM Investment Priorities

• A Peripheral Player in IT Management

• Narrowly Focused IM Talent Pool

• Senior Managers Stingy With IT Infrastructure

• Redundant / Overlapping Efforts

• No Staff Development Mechanisms

Centralizing IMWallington Presents at President’s

Council Meeting — April, 1993

• $670 Million spent on IM in 1992 —

• Forecast to grow to $1 Billion by 2000 —

• . . . Amounts to 3.7% of total revenues!

IM 2000 Reengineering ProjectMid-1993

• Identification of IM problem areas

• Strategies to address those problem areas

• Projects implemented to fix problem areas

Goal: Move IM to a new information systems infrastructure.

Problems Revealed

• Aging applications portfolio

• Proprietary technologies from previous structure

• Large spending for legacy systems

• Autonomous culture allowed for costly duplication

IM 2000 - Strategies

• Reduce / Redirect

• Infrastructure Management

• Leverage Worldwide IM Resources

• Business Process Driven Solutions

IM 2000Internal Obstacles Remain

• Little discipline of both time and money

• Internal costs of $55 million for hardware

• Viewed as an “expense center’ by top executives

IM 2000External Forces Create

Final Pressures

• Increasingly competitive environment

• Forced to adapt quickly

Outsourcing & Xerox:What?Why?How?

What was and What is Outsourcing

• Outsourcing was looked upon as the business strategy associated with downsizing

• Outsourcing now is looked upon as utilizing the best expertise in local laws and business customs.

What is Outsourcing?

• Is the strategic use of outside resources to perform activities traditionally handled by internal staff and resources.

• Mgmt strategy by which and organization outsources major, non-core functions to specialized, efficient services providers.

• Wholesale restructuring of the corporation around core competencies and outside relationships.

Strategic Grid

Outsourcing at Xerox

• Outsourcing versus integration.

• Create win:win relationship.

• Share values to create a true partnership.

• Develop “spirit of the contract” for senior management to and understand.

• Create infrastructure to support companies strategic direction in the 90’s.

Outsourcing Process

Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase IV - Baseline Building and Evaluation

Phase III - Feasibility and Management Approval

Phase V - Due Diligence and Contract Awarded

Phase I - Fact Gathering

Vendor Selection

Benchmarking

OutsourcingObjectives

ITPartner

Phase I - Fact Gathering

• Vendor selection team– Cross-functional representatives– Establish outsourcing requirements, objectives,

goals, and timeline– Conduct industry benchmarking

Outsourcing Objectives

• Drive down spending on “legacy” system

• Improve quality and cost of IM services

• Focus company’s resources on the primary mission.

Xerox Benchmarking

• Outsourcing Strategies

• Outsourcing Processes

• Vendor references

• Human resource impact

Companies• Salomon Brothers• General Motors• Equifax• First Boston

• AT&T• Kodak• Sun Microsystems• McDonnell Douglas

Vendor SelectionQualifications• Global Presence• Capability to manage “globally”• Experienced in large scale outsourcing•“Core” strengths in various frameworks•Mgmt processes and strengths

Human Resources• Treatment of Xerox employees•Human resource values

Financial• Translation of productivity savings to Xerox•Flexibility in meeting Xerox financial requirements•Experience in “engineering” financial environment

Technical Solutions• Productivity Commitment• Support for existing Xerox diverse environment•Capability to “migrate”

“Soft” Criteria• “Congruence” with positive Xerox environment• Provide benchmark for desired Xerox cultural traits

Outsourcing Process

Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase II -Data Gathering and Request for Proposal

Prepare a Request for a Proposal Be structured in a way that will allow assessments and

comparisons to be done in meaningful way Define requirements in complete and measurable terms Describe the type of relationship you are looking for Explain the problems that you are trying to solve Ask specific questions about corporate culture Present the current costs to the organization Specify a service level

Phase II -Data Gathering and Request for Proposal

Data Gathering

• Research the Vendors– Financial Stability, potential mergers, takeovers

• Questions and Answers

Outsourcing Process

Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase III - Feasibility and Management Approval

Phase III - Feasibility and Management Approval

• Outsourcing feasibility

• Recommendation to Management for approval to proceed

Outsourcing Process

Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase IV - Baseline Building and Evaluation

Phase III - Feasibility and Management Approval

Phase IV - Baseline Building and Evaluation

• Evaluate the vendor responses– Systematic– Measurable– Meets objectives

• Select the vendor for contract negotiation

Lessons Learned - Xerox

• “What you want” is essential

• Clear objectives are key

• Cross functional team is a necessity

• A good contract requires a lot of data

Outsourcing Process

Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase IV - Baseline Building and Evaluation

Phase III - Feasibility and Management Approval

Phase V - Due Diligence and Contract Awarded

Phase V -Due Diligence & Contract Awarded

Outsourcing deals that go bad frequently suffer from poorly designed contracts - “Outsource Sense,” InfoWorld, September 1996

Managing the Outsourcing Relationship

• Create a Shared Vision• Include Effective Performance Measures• Use Performance Incentives and Penalties• Establish Clear Communication Mechanisms• Develop a Clear Contingency Plan and Exit

Strategy• Manage People Issues

Negotiate a Sound Contract

• Terms of the Agreement

• Minimum Service Levels

• Ownership & Confidentiality of Data

• Warranty• Incentives

• Disclaimers• Bankruptcy

Contingency• Force Majeure• Performance Measures• Anticipate Change

Global Complications

• Various Human Resource / Employee Laws

• Degree of Risk

• Political Instability

• Various Asset Transfer Laws

Xerox: Status in June 1994

• Xerox/EDS Core Teams Created • Massive Internal PR Campaign Initiated• Switch Incentives Offered• Assured Confidentiality• Divorce Issues Addressed• Annual Price Benchmarking• Single Global Contract• Key Global Players Added to Team

Xerox: Status 1996/1997

• Xerox “Satisfaction at the Low End and Dropping”• 2000 Employees Transferred to EDS / 700 Remain• After 2.5 Years 15% of Proprietary System Replaced

(Global View)• 600 Novell LANs installed• 1000’s Desktops and Printers Replaced• 12 Person Xerox Team Established to Manage• Contract Amended in Sept 1996

Contract Addendum

• Clarified Terms for Desktop and LAN Support

• Established Formalized Response Metrics

• Established ‘Managed Rate Change”

• Eliminated Billing Inconsistencies

Xerox: Status 1999

EDS Files Suit Against Xerox February 1999

Recommendations

• Outsource Non-Core Competency Functions

• Write Air-Tight Service Level Agreements for Every Strategic Business Unit & Every Platform

• Define Graduated Levels of Performance and Penalties Based on Customer Satisfaction

• Don’t Compromise Service Levels with Price Negotiation