challenges and risks for the cio from outsourcing in the digital era
TRANSCRIPT
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Challenges and
Risks for the CIO
from Outsourcing
in the digital era
Speaker: Adrian Quayle
June 2, 2016
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Discussion Topics
• Outsourcing and business Impact of Cloud Services :
which trends to watch for in 2016?
• How are these trends disrupting traditional
outsourcing arrangements going forward?
• Should “Everything as a Service” (XaaS) push
towards an “Outsource Everything” approach ?
• How can managed services in the age of IaaS,
SaaS, and BPaaS improve costs and innovation ?
• How can governance evolve to address the
challenges of digital and transformational
outsourcing ?
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Digital disruption is impacting across all industry sectors
Industry Historic Sources of Lock-in Sources of Disruption Disruptors
Media Talent Contracts, Distribution, TV
Stations Coverage
Digital & social media channels, free
media competes with paid content,
limitless distribution
Consumer Packaged
Goods
Mass advertising, Shelf Space,
Shopper Behavior
Ecommerce and mobile distribution,
pricing, new channels of awareness
and advocacy
Retail Location, Store Experience, Trade
Advertising
Ecommerce, auctions, group buying
Airlines Gate real estate, IT Infrastructure,
planes and other capital investments
Price comparison sites, customers
sharing stories, substitution from
telepresence
Healthcare Insurance companies, Doctor groups
and Hospitals lock-in relationships
Doctor ratings by consumers, new
regulations, cost of service delivery
Financial Services Local branch network, scale,
reputation
Low cost e-substitutes for most
transactions
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Improving service level
and control are key
drivers of next shoring
3 2 Market for 3D Printing
to double by 2020 1 Smart Manufacturing is
impacting 50% of
manufacturing jobs
The Facts: Manufacturing
$5.2 Bn
$2.2 Bn
2020
2012
2.3 X
Analytics
Automation & Robotics Process
improvement
Traditional Labor
77%
55%
43%
37%
35%
Improving Service
Levels by bringing
production…
Improving control
over quality and
intellectual…
Diversification of
manufacturing
due to natural…
Cost benefit to r
low cost
manufacturing…
Skills or technology
limitationsImproved SLAs
Superior Quality
Diverse Risk of Traditional
Approach
Offshoring less financially attractive
Better technology
Continuing Overall Cost Reductions
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The Facts: Travel & Transportation
35%
Travel
Research
24%
Promotion
Search
21%
Hotel
Reservations
20%
Ticket
Purchases
1 2 Travel activities
performed on mobile 3
Interactive
mobile apps Self Service
Technologies
Assisted Bag
Technologies Self Boarding
Technologies
95% 86%
74% 52%
Airports are improving
traveler experiences
Increased investments in
facial recognition tech
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Global CIO: Technology – Change – Unpredictability
rapid
Demand and change becoming unpredictable: One of the primary fears that global CIOs
have is to invest in a technology or sign a contract which might become redundant even
before implementation. This is yielding to shorter and more flexible sourcing contracts.
New Technology, New Assets: CIO has a sense of losing control due to trends like BYOD,
platform and cloud. Meaning of IT assets has significantly been altered over the years along
with the traditional IT policies which no longer stand valid with the new technology
developments.
Change
new
Technology
technology
Demand
Business Demands New Technology: Customers of new age businesses expect completely
integrated sales, operations, customer service and information. This creates significant
challenges for the CIO to offer information in multiple platforms, languages, devices and
integrate data bases across marketing, operations & support.
A global CIO has his hands full with unpredictability and dynamism both in terms of technology
demand and rapid changes in business requirements
Impact of Economic Uncertainties: Outsourcing has become a strategic function since the
world economy is going through volatility. Avasant has observed a trend towards a more
integrated approach to sourcing.
strategic
Sourcing
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Growing role of Technology Industry is going through a paradigm shift with technology driven business models and is steadily
moving away from viewing technology as a “cost center”
Organisations need to define and execute digital business strategies that leverage technology disruptions
to drive sustainable value and competitive advantage
Key Technology Disruptors
• Cloud and Hybrid IT
• Mobility, Unified Communications and
Productivity
• Social Media
• Big Data and Advanced Analytics
• Internet of Things and Connected
Enterprise
Key Business Dimensions
• Products and Services: Digital products/services, Customer value propositions
• Sales and Marketing: e- and m-
commerce, Sales Force Automation
• Digital Customer Experience: Omnichannel, Interactive, Customer Operations
• Digital Workforce: Communications,
Messaging, Collaboration, Productivity
• Operations Autonomics and Integration: Smart Sensors, Autonomous Processing, Edge Computing
• Digital Ecosystem Integration
Text?
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Digital Customer
“Research shows that the customer journey is no longer
linear. Our business customers spend more time doing
their own research online through communities and
websites, before coming to our sellers. ” – Stella Goulet,
CMO, Avanade
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Consumers are becoming increasingly digital, requiring companies to be
digital to remain relevant
Follows
Rituals
Seeks Immediacy
Stays
Connected
Is Value
Conscious
Opines &
Shares it Seeks Authenticity Digital
Customer
75% Millennials are
disconnected for an hour or
less per day
50% check their phones
before they sleep and after
they wake up
34% go online to share
their feelings about a
company
26% express
dissatisfaction 23% express
positive feelings
46% feel they
can be brutally
honest online
51% aim to influence
others with their
opinions
41% online users practice
showrooming
>50% millennials use 4
or more sources to help
them make a purchase
decision
89% affirm that real-time
product availability would
influence their buying
behavior
>50% Walmart online
buyers choose site to
store pickup
92% find online information
more trust-worthy than other
sources
75% do not find company
ads trust-worthy
70% consult online reviews
before a purchase
89% rely on the same
brands for their daily needs
75% get disappointed when
their brand of choice is not
available
Source: Avasant Research
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Digital Customer’s buying behavior is changing
74% Of all customers rely
on social networks
to guide their buying
decisions
74% 42% 39%
B2B decision makers increasingly consult
social media before making purchase
decisions
Social Media – Positioning among peers Online Research – Knowing without asking
94% of B2B buyers
conduct online
research before
purchasing a
business product
83%
34%
77%
11%
42%
9%
Supplier Website Google Product User
Reviews
3rd Party Websites Blogs Social Media
Mobile – Right here right now
B2B products researched on mobile
devices
44% 18-25 yr old buyers doing research on
mobile
55% Buyers doing research for busines goods on
tablets
37% Corporate purchase on tablets
25% Source: Avasant Research
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Value Leakage is a Reality !
Over 51% of contracts are
renegotiated before term
Over 75% of organizations and third
party providers are not in
compliance with their contract terms
and conditions Lack of business alignment, service
expectation misses, and operational
disarray leads to about 12-15%
deterioration of the business case
Contract amendments lead to a
further 6-10% reduction in the
business case Organizations typically spend over 12%
of contract value on governance yet
do not achieve the expected benefits
30-60% of the estimated business case value for sourcing is lost due to ineffective governance
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The Sourcing Governance Challenge:
Relationships
Operations
Performance
• Too many points of contact create confusion
• Not enough business involvement
• Limited understanding of contractual responsibility and lack of transparency at operational levels
• Lack of accountability resulting in duplication and gaps
• SLAs are met but client expectations are missed
• Metrics are not aligned with business outcomes
• Performance and financial performance incentives not appropriately managed
Ineffective Governance due to limited capability, lack of operational transparency and misalignment with
business needs is a key cause of poor sourcing outcomes
Business
Strategy
• Limited alignment with the business strategy
• Inability to see the big picture for proper decision making
• Limited tracking of actual vs. perceived financial benefit of sourcing Analytics
Staff
Services
SLAs
Providers
Targets Finances
Projects Portfolios
Scorecard
Compliance
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As the managed services landscape matures, some organisations are turning
to governance - provided as-a-service - to meet the challenges faced by
outsourcing customers and providers alike
Financial
Management
Relationship
Managemen
t
Performance
Management
Financial
Management
Relationship
Managemen
t
Performance
Management
Outsourcing Lifecycle Model - ISO 37500
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Avasant sees a quantum shift in sourcing models driven by rapid changes in Market, Technology
and Vendor Landscape…. Requiring a more Innovative approach to Sourcing!
The sourcing market is transforming
• Accelerated adoption of Cloud, Analytics, Automation, IOT, Mobility create a hybrid IT
environment
• XaaS adoption driven by business, sometimes without involvement of IT/Procurement
• Blurring of lines between Software, Platform and Services vendors
• Service Providers rapidly acquiring software, Cloud and platform capabilities
New
Technology
Platforms and
XaaS
Unprecedented Velocity of Change Drives Sourcing Innovation • Rapid shifts in business cycles drive scalable and flexible IT and Operating model
• Rise of the Connected Enterprise and Big Data driving need for Analytics and business predictive
models
• Technology is impacting all functions in businesses. Every company is a Tech company today
• Increased global competition predicates need for more Innovation in business services and
engagement models
Market is
Changing
Rapidly
• Powershift from Procurement to CIO as Services become more strategic and linked to Tech and
Digital platforms
• Business Agility powered by Technology, Services and Operations Transformation is becoming the key
driver
• Multi-tower constructs converging into multi-sourcing deals based on domain and technology
prowess
• Rapid change in Technology and Services landscape means that 5 to 10 year contracts are history!
Shifting Sourcing
Dynamics and
Business Drivers
15
About Greater Toronto Airports
Authority (GTAA)
#EmpoweringBeyond @Avasant
The Greater Toronto Airports Authority (GTAA) manages,
operates and maintains Toronto Pearson International Airport, the
major airport serving the Greater Toronto Area (GTAA).
Toronto Pearson is by far Canada's largest airport facility with a
traffic of 38 million passengers, and is the second-busiest
international airport in North America.
The GTAA’s corporate vision is to be the best airport in the world,
making a difference, connecting the world.
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#EmpoweringBeyond @Avasant
Key Lessons Learned
Decisions are made at the CIO, CEO and Board level, not by mid-level IT/Procurement
Business involvement and buy in is key
Need to develop governance model for joint decision making with IT and business
Significant change in current IT organization, to focus away from technical outcomes
Fragmented IT services do not meet enterprise needs
Automation is yesterday’s news, clients need integration and transformation
Operations excellence and global delivery is a given, need to demonstrate strategic leadership
Sales excellence may drive good proposals and presentations, but delivery leadership is critical
Ensure C-level sponsorship, and
strong business involvement in
all stages of the relationship
Focus on business-IT alignment
and IT restructuring
Focus on driving business
improvements and integrated
technical capabilities
Ensure strong local resources
with transformation and
execution experience
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Governance case study: client adopted managed services governance
support resulting in value leakage recovery and substantial savings in less
than 18 months
Client recovered > $Ms in credits due to lost value and has
realized approximately $Ks in annual cost savings from the outcomes of sourcing governance services
Client is realizing the outcomes they expected as well as
significant added value from the Governance As a Service
approach
Company
The client governance organization’s
mission is to be an industry leader in the use
of managed services to help the business
excel in a future competitive market –
including it’s own governance services
function
• Implemented managed governance services for over 12
sourcing relationships contracts
• Client established ‘best practice’ governance capabilities
alongside managed service
• Implemented regular Value Leakage Management,
Performance Governance, and Demand & Consumption
Analytics and Reporting
Challenge
BFSI industry client recognized they lacked
adequate competencies to effectively
manage and govern their IT managed
services sourcing contracts. Client strategy
was to outsource transactional, analytical,
and operational governance support
services to address the requirements of
their new governance organization
Solution
Impact
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The CIO championing the New Digital stack: Enabling an Agile and
Responsive Organization
Business Processes
BPaaS, Automation, BI/Analytics
Enterprise Software SaaS, PaaS, (Artificial Intelligence AI)
Cloud, IaaS Systems Infrastructure, Connectivity, Security
Content, Commerce
& Social Media Apps & Services
Connected Enterprise IoT, Wearables, Components
End User Devices Workstations, Mobile, Tablets
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#EmpoweringBeyond @Avasant
Service Delivery
Effectiveness
Operations
Efficiency
& Effectiveness
Digital
Business
Strategies
• Support the definition of new business models powered by digital technologies, and execute and integrate specific digital solutions to enable these models
• Migrate to and leverage enterprise class application platforms, information and business processes for efficient, scalable business operations
• Migrate to enterprise-class cloud
infrastructure for core IT services to provide hyperscale capabilities and future-proof the foundation
• Digital business models • Digital technology integration • Management of Digital
Ecosystem
• Application modernization • Software as a Service • Open architecture
• Business Process orchestration
• Hybrid Cloud infrastructure • Lifecycle management • Service analytics/automation • End-to-end IT service
orchestration
Execution Objective Key Characteristics
New Sourcing Model - Digital Ecosystem
PartnershipsTM driving business effectiveness.
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“Once we rid
ourselves of
traditional thinking
we can get on with
creating the future”
-J. Bertrand
@kevinparikh #empoweringbeyond
#Avasant
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Adrian Quayle
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Representative Client list 1. Insurance Services
Media & Technology
National government
Local government
Telecom
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Representative Client list 2.
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