copyright © 2005 accenture all rights reserved. accenture, its logo, and high performance delivered...

Copyright © 2005 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

Overview of Outsourcing

May 2005

2© 2005 Accenture All Rights Reserved.

Agenda

• Introduction to Outsourcing

• Preparing for Outsourcing

• Running Outsourcing

• Next Steps in Outsourcing


INTRODUCTIONA Working Definition of Outsourcing

Outsourcing denotes the continuous procurement of services from a third party, making use of highly integrated processes,

organization models and information systems.

OUTSOURCERCOMPANYServices

OrganizationLevel

Agreement

ServiceLevel

Agreement


INTRODUCTION On the origins of Outsourcing

• 50 - 70 Vertical and Horizontal Integration

• 70 - 80 Foreign Direct Investment

• 80 - 90 Global Sourcing

• 90 - Outsourcing


INTRODUCTION Very different level of acceptance

98,6%

1,4%: costs for outsourcing

100%

0%

20%

40%

60%

80%

Banking industry worldwide:cost share of outsourced

services 2003

German car manufacturers: degree of vertical integration

38% 32%24%

62% 68%76%

0%

20%

40%

60%

80%

100%

1980 1990 2000

Value CreationSuppliers

Value CreationProducer


INTRODUCTION Types of Outsourcing

Businessprocesses

Application Development and Maintenance

IT-infrastructure

BPO: Business Process Outsourcing

ASP: Application Service Provider

DBRO: Design, Build, Run & Operate

ADM: Application Develop. & Maintenance

ITO: IT Infrastructure Outsourcing

ITS: IT Services, Managed Hosting

Administrative processes

APO: Administrative Process Outsourcing

Outsourcing models:

BPO

AMO

SDO


INTRODUCTION BPO - Business Process Outsourcing

Degree of industrialization

medium highlow

Customized Industrialized

Single service delivered to multiple clients simultaneously

Similar services delivered to multiple clients

Custom designed services leveraging know-how

One-to-one One-to-many


INTRODUCTIONAMO - Application Management Outsourcing


INTRODUCTIONSDO – Service Delivery Outsourcing

• Security - End-to-end security services

including firewall management, intrusion detection, identity management and security policy

• Data Centers

- Remote and on-site managed server hosting

- Data centers

• Technical Support - Help desk, desk-side and self-service

support- Global hubs

• Network Services - Managing data and voice networks

• Desktop Management and Mobility- PC, laptop, hand-held, distributed

• Supplier Management- Identifying, qualifying, contracting

and managing strategic suppliers

Services

Data Centers

Desktop Mgmt.

& Mobility

Technical Support

Network Services

Security SupplierMgmt.

Client Operations Management

Messaging & Collaboration

Technical Support

Desktop Management & Mobility

Network Management

Hosting

Sales Support and Mobilization

Security Operations

Delivery capabilities


INTRODUCTIONSourcing of Outsourcing

• Off-Site – Local service providers

• Near Shore – Proximity cross-border service providers

• Off-Shore – Remote Cross-border service providers


INTRODUCTIONGeographics of Outsourcing

Montreal (1)

Atlanta (1)

Wilmington (1)Toronto (1)

London (1)

Riga (1)

Prague (1)

Madrid (1)Bratislava (1)

Malaga (1)

Mauritius (1)

Bangalore (3)

Mumbai (3)

Dalian (1)

Shanghai (1)

Manila (8)Chennai (1)

Hyderabad (1)

São Paulo (1)

Houston (1)

Cincinnati (1)Chicago (1)

Ireland (1)

Budapest


INTRODUCTIONTrend is clearly towards Off-Shore


INTRODUCTIONTypical Outsourcing Clients

ArgentariaBanca ItaleaseBBVABanco Rio de la PlataBankiterBarclays Bank plcBilbao Bizkaia Kutxa (BBK)Caixa CatalunyaCaja MadridCortalConsors Credit LyonnaisDepository Trust & ClearingDeutsche BankDnB NOR

Morgan StanleyProvidianRoyal and SunAllianceSallie MaeSantanderSchmidtBankSEC PadovaSEIUBS Life InternationalUniversal LevenWorkers’ Compensation BoardXelion

Espirito Santo SequrosGE Consumer FinanceGrupo Financiero BanCrecerGuy CarpenterImmobiliere 3FInfocajaING GroupItalian Pension AgencyJohannesburg Securities ExchangeJPMChaseLondon Stock Exchange LosangoMediolanumMeridia

AmerenBC HydroBorden ChemicalBPBritannia OperatorCogemaDow ChemicalDuPontDynegyDirect Energy Essential Home Services (DEEHS) Enbridge Gas Distribution Enbridge Gas New Brunswick Freeport McMoRan

RAG American CoalRepsol YPFRhodiaSiam CementSithe EnergiesSlovnaftSouthern Company GASTalisman Energy Ltd.Terasen Utility ServicesThames WaterTiconaTotal E&P UK plc (formerly TotalFinaElf)

HalliburtonLASMO plcLyondell-Citgo RefiningMOL - Hungarian Oil & GasMidAmerican EnergyNorsk HydroOrange and Rockland UtilitiesPPL (Pennsylvania Power & Light)

02 (formerly BT Cellnet)AlcatelAlgarAT&TAvayaBellSouthBoston ScientificBTCegetelCitrixeBayEMCETS Sonera

Sun MicrosystemsTecnomenTelecom ArgentinaTelecom ItaliaTelefonica ArgentinaTexas InstrumentsThomsonVIA NetworksXM Satellite Radio

Fujitsu Siemens ComputersInfineonInfostradaJVC do Brasil Ltda. & Nokia Gradiente IndustrialO Globo EmpresaOlivetti TecnostOmnitel2000QinetiQSiemens Mobile Communications ItalySITA

AlcanArdentAsahi BreweryAstilleros Espanoles,now IZARAstraZenecaBest BuyBrahmaBristol Myers SquibbCampofrioCarrefourCaterpillarDelphiDeltaDiageoDSV GroupeLSG SkyChefs.com

Neptune Orient LinesNew LookPayless Shoe SourcePfizerRenaultResort Condominiums

International (RCI)

Sainsbury’sSara LeeSolar TurbinesTexas MedicaidTransnet PortnetUPSWärtsiläWyeth

Edgars Consolidate Stores LimitedExel plcHCSCHealth Alliance PlanImpregilo AchieveInterstate BrandsKLM Royal Dutch AirlinesLevi StraussLSG Sky Chefs Thomas CookMarriottMDB Information NetworkMecaluxMedicines Control AgencyMilwaukee County Mental HealthMultibras Electrodomesticos Whirlpool


INTRODUCTIONOutsourcing Service Providers

One Stop

Locals

Pure Players

Off-Site Near-Shore Off-Shore

• IBM• Accenture• EDS

• Cap• CSC• Fujitsu

• Tata• InfoSys• Guja


• Access best in class business processes• Harness leading technologies• Increase efficiencies• Enhance capabilities• Expand service• Enrich customer relations• Improve supplier relations• Free up management time

• Decrease operating costs

Key drivers for Outsourcing (Survey Results)INTRODUCTIONWhy do outsourcing? - Survey Results


INTRODUCTIONValue Contribution of Outsourcing


Agenda






OutsourcingChange Drivers

PREPARING FOR OUTSOURCINGFrom Drivers to Strategic Options

Defining the Burning Platform

Determine Scope

Understand Internal Constraints

OutsourcingOptions

In-HouseTransformation

ExternalOutsourcing

Spin-off

Co-Sourcing

Captive

Joint Venture

Lift-Out

Shoring

Understand External Constraints

In-HouseStatus Quo

Continuous Improvement


PREPARING FOR OUTSOURCINGThe Burning Platform

BUSINESS CONCERNS• Perceived low availability of services Perceived low level of service quality

(accessibility, turn-around time etc.) No clear service reporting and service

management Roles & Responsibilities not clear. Processes

unclear, too slow, too many hand-offs• Slow and error-prone service introduction• Unsatisfactory support of remote sites &

subsidiaries• No service culture• Cost allocation & charges unclear and cannot be

influenced by business decisions …

IT CONCERNS Unreasonable service level expectations from

business No cost & resource awareness Large number of non-standard work requests• Overlarge project portfolio, paired with spaghetti

development infrastructure• High-level of business applications• Inefficient / underutilized server platform, aging

central technology platforms and complex networks

Large and divers skill pool required to support infrastructure

…

Change

Drivers

Management Control

Service Scope &

Level

Budget Levels

Financial Flexibility

Infrastructure Quality

Skill & Capability

Pool

Organizational Impact

Time to Benefit

Client

Rating


PREPARING FOR OUTSOURCINGOutsourcing Options & Contribution

Sourcing Option

Ma

na

ge

me

nt C

on

trol

Se

rvice S

cop

e &

L

eve

l

Bu

dg

et L

eve

ls

Fin

an

cial F

lexib

ility

Infra

structu

re Q

ua

lity

Skill &

Ca

pa

bility

Po

ol

Org

an

izatio

na

l Im

pa

ct

Tim

e to

Be

ne

fit

Spin-off High Limited Limited None None None Limited Short

Co-Sourcing Medium Medium Medium Limited Medium Medium Limited Medium

Captive High Medium Low Low Medium Low Medium Long

Joint Venture Medium Medium Medium Medium Medium Medium Medium Long

Lift-Out Low Strong Strong Medium Medium Medium Strong Medium

Shoring Low Strong Strong Strong Strong Strong Strong Short


PREPARING FOR OUTSOURCINGUnderstand Internal Constraints

• Availability of Seed Money – I need to reduce cost, this requires efficiency gains, efficiency gains require investments…

• Structural Inflexibility – Your current business and application architecture may not allow for simple and low cost ICT changes

• Time to Benefit – Most “quick-wins” have already been explored over the last couple of years. Major initiatives have pay-backs seldom shorter than 24 – 36 months

• Business vs. IT Projects – Most projects are invisible to the normal business users and do not directly contribute to business revenue generation

• Capacity & Know-How – Are there sufficient internal resources available to drive the change in a timely fashion? Will heavy external resource usage kill the business case?

• Change Capacity – Can the internal organization absorb this change now (ex. Overall moral, unions, etc.)

• Sustainability – Can initiatives be maintained in light of business development?

€

6 Months 12 Months 18 Months 24 Months 30 Months 36 Months

ChangeApplication &TechnologyArchitecture

Head Count &InfrastructureImprovement

ILLUSTRATIVE

Procurement,Financing &Quick Wins

ReduceExternal Services

Operate &Infrastructure

45%

Maintenance15 %

SWR & NSWR10 %

Business Projects20 %

Manage & Support10 %

ICTBudget

- Illustrative -

Discretionary

Fixed


PREPARING FOR OUTSOURCINGUnderstand Partner Constraints

Criteria Assessment

Financials • Service providers are mainly driven by volume, and to a lesser extend by margin and margin composition

Duration of Contract • 3 years is standard, but will not allow time for fundamental transformations.

• 5 years gives more room for change

Scope of Technology & Services

• In how far can the existing park be integrated into provider’s infrastructure & skill pool

Demand Stability • In how far can demand for service delivery be accurately assessed?

Scope of Control • How much insight & governance control does the client want to exert? Which service model will prevail?

Transformation Potential • What are the potential synergies in terms of people, processes, infrastructure etc. What are the hand-back constraints? How will benefits be shared?

Follow-up Business • What else might be offered to the client (ex. Business process outsourcing?)

… …


PREPARING FOR OUTSOURCINGApproach to Outsourcing

Assess Current Environment

Define Target Model and sourcing

strategyCreate Programs

“What needs to change?”

“How will we implement the changes?”

“What must we change to?”

Timeframe

High Level Activities

• Baseline the business and operating direction and strategy as applicable

• Benchmark expenses to similar industry segments across functions/processes

• Interview key stakeholders

• Understand key drivers of resource utilization to set a baseline and construct an economic model

• Plan and develop material for executive workshop

• From workshop, identify and build out “to-be” state

• Define future sourcing strategy

• Identify initial areas of cost savings and prioritize based on future direction

• Identify 4-5 areas for focused planning

• Identify Infrastructure & Operations management and organization impacts and corresponding risks

• Develop high-level implementation roadmaps based on approved target operating model and sourcing strategy

• Identify key stakeholders and related action plan

• Define economic model for the integrated change program

Half-day Executive Workshop

Kickoff Executive Meeting

Decision

IT Opportunity Assessment

Transformation

Outsourcing

Decision

Assess current environment

Define Target Model and sourcing strategy

Create change program

Supplier selection

Transition

Transformation

Mobilize and design

Implementation


Dev

elo

pm

ent

Mai

nta

nan

ce

10%

20%

40%

25%

5%

40%

10%

10%

40%

Application Development Management (ADM): Split-up of work steps

CLIENT EXAMPLE

In-house / Off-shoreOutsourcing / On-shoreOutsourcing / Off-shore

In-house / On-shore

Functional Design

Requirements refinement/design control

Acceptance test

Deployment

Requirements, Functional Design and Acceptance

Prioritization, Escalation

Business Requirements

Acceptance and Implementation

Acceptance and Implementation

Resources on-site

Majority of build offshore

Product testIntegration test and fixingDeployment assistanceOffshore resources onshore

Build, test and implementation

Technical changes, as requested, assuming no new functionality

Fixes and root cause analysis2nd level support

Detailed DesignTechnical Design

100%

Design 70%30%

Build20% 80%

Test30% 70%

Deploy75% 25%

Enhancements30% 70%

Fix on Fail20% 80%

Concept100%

Technical Upgrades20% 80%

Performance Tuning20% 80%

PREPARING FOR OUTSOURCINGAssess Operating Model Impact


PREPARING FOR OUTSOURCINGDo not forget TUPE

• TUPE stands for The Transfer of Undertakings (Protection of Employment) Regulations 1981. The Regulations were introduced to safeguard employees’ rights in the event of a transfer of an undertaking, business or part of a business. This includes:

– The obligation to inform and consult all employees in scope transfer

– Transferee inherits all claims and statutory rights– Continuity of employment is preserved for employees– Employees transfer on their existing terms and conditions of

employment– Transfer connected dismissals are automatically unfair


PREPARING FOR OUTSOURCINGKey Data Components

IT Capability Performance

Governance

Summary of Issues

Fundamental issues in the partnership between IT and the business

Strategy Development & Planning

Inadequate Best Practice

Highly reactiveorganisation, unintegrated silos, limited coherence of vision

InadequateBest Practice

Architecture Management

Beyond a few well-intentioned individuals, there is little evidence of architecture leadership


Service Delivery Legacy is reasonably stable - but are we ready for “e”?Inadequate Best Practice

Resource Management

Some poor financial controls; cultural issues inhibit getting best value from IT people.


Summary of IT Capabilities (Summer 2000)

Solutions Development & Planning

Major issues recognised; but change is hugely challenging. There is still a lack of partnership between SC and ISSM


Financial Analysis

Operations Maturity Model™

Executive Review

External Point-of-View

Target Operating

Model

Current Infrastructure

and Operations

Margin/Growth Service Health Information Allina

Business Process Area / Change Initiatives

Pro

ject C

ost R

an

ge

(Ea

rly e

stim

ate

in

Millio

ns)

Le

ng

th o

f P

roje

ct (m

on

ths)

Ba

rrie

rs to

Ch

an

ge

Ris

k o

f A

bility to

Im

ple

me

nt

Ba

lan

ce

d M

em

be

rsh

ip G

row

th

Re

ve

nu

e G

en

era

tio

n

Ad

min

istr

ative

Co

st M

gm

t.

Me

dic

al C

ost M

gm

t.

Imp

rove

Cu

sto

me

r S

erv

ice

Imp

rove

Em

plo

ye

e S

erv

ice

Imp

rove

Pro

vid

er

Se

rvic

e

Imp

rove

He

alth

Ou

tco

me

s

Imp

rove

Clin

ica

l Q

ua

lity

Imp

rove

Cu

sto

me

r In

form

atio

n

Imp

rove

Pro

vid

er

Info

rma

tio

n

Imp

rove

Co

mm

un

ity In

form

atio

n

Imp

rove

In

tern

al In

form

atio

n

Su

pp

ort

s A

llin

a E

xp

eri

en

ce

Ma

tch

with

Allin

a IT

Fo

cu

s

Develop Products and Services

1.1 Predict local market changes… 0.1 - 0.2 12 L L M L L H L

1.2 Assess internal execution capabilities… 0.1 - 0.2 12 L L M M L L M

1.3 Design more flexible products… 0.5 - 1 6 M L H L L L M

1.4 Segment population better… 0.5 - 1 6 H H H M M H H

1.5 Communicate during product development… 0 3 L L L L L M L

Manage Delivery Capacity

2.1 Support pull-through strategy… 0.3 - 0.5 6 M M M M L M H

2.2 Better manage provider contract terms… 0.1 - 0.2 3 M L M L L L L

2.3 Model provider locations… 0.2 - 0.5 9 M L L H L L M

2.4 Track contracts more closely… 0.5 - 1 9 M M L H L M M

2.5 Innovate new reimbursement models… 1 - 1.5 12 H H H M L L M

2.6 Roll out provider profiling… 0.5 - 1 12 H M H M L H M

2.7 Enhance Q-Star to support providers 0.3 - 0.5 6 L L L H L H L

Sell Products and Services

3.1 Enable electronic enrollment… 0.5 - 2 12 H M M H L M H

3.2 Assemble member-unique benefits… 1 - 2 18 H H M H L L H

3.3 Manage workflow electronically… 1 9 L M L H L H H

3.4 Reinvent broker value chain… 1 - 3 18 H H H H L M M

3.5 Improve automation of buyer contracts… 0.25 - 0.5 9 L L M H L M M

3.6 Enhance underwriting capability… 0.5 - 1 9 L M H M L M L

3.7 Improve SSS functionality… 0.5 - 1 6 L M L M L H L

3.8 Enhance employer group reporting… 0.25 - 0.5 6 L L L H L H L

Deliver Health Care Products and Services

4.1 Coordinate health improvement initiatives… 0.1 - 0.3 3 L L M L M M H

4.2 Triage members and channel them… 0.1 - 0.3 6 L M M M M M H

4.3 Develop outcomes management strategy… 1 - 3 18 M H H L H M M

4.4 Enable doctors to perform HRAs… 0.1 - 0.3 6 H L L L H M M

4.5 Develop Proactive Interventions… 0.5 - 1 9 H M M M M H H

4.6 Improve case management capability… 0.5 - 1.5 12 L M H M M L M

4.7 Better match transitions and transactions across Allina… 0.5 - 1.5 12 M H L H L M H

4.8 Improve disease management capability… 0.5 - 1.5 18 M H H M H M M

Deliver Administrative Products and Services

5.1 Create reimbursement modeling system… 0.5 - 1 12 L H M L L L L

5.4 Stabilize key system availability and performance… 0.5 - 2 12 L L L M L H L

5.5 Create business-specific data warehouses… 1 - 3 18 L H M M L H H

5.6 Increase electronic claims submission… 0.5 - 1.5 12 M M M M L H L

5.7 Implement utilization management tools… 0.5 - 1 9 L M H L L M L

5.8 Improve referral/authorization/precerts… 0.25 - 0.5 6 L L M H L L H

5.10 Improve COSMOS management reporting… 0.1 - 0.3 6 L L L L L H L

Support Relationship Building and Management

6.1 Automate appeal/complaint process… 0.1 - 0.2 9 L L L M L L M

6.3 Create proactive intervention facility… 0.5 - 1 12 M M M H M H H

6.5 Develop life care plans for members… 1 - 2 18 H H M H H M H

6.6 Improve information distribution… 0.1 - 1.5 9 L M L M L H L

6.7 Improve access to compliance data… 0.1 - 0.2 6 L L L L L H L

6.8 Improve performance reporting capabilities… 0.1 - 0.5 6 L M L M L H L

6.9 Improve Q-Star stability… 0.1 - 0.3 6 L L L H L M M

6.10 Roll out HealthVillage… 1 12 L L L H L H H

6.11 Develop common call center infrastructure… 1 - 1.5 12 L L M M L L M

Manage Infrastructure

7.5 Enhance communication through entire system… 0.1 - 0.1 3 L L L L L H L

7.6 Turn our data into revenue… 0.5 - 1 6 M M H L L L M

7.7 Solve help desk responsiveness issues… 0.1 - 0.3 6 L M L H L M L

Gap Analysis

“What needs to change?” “How will we implement the changes?”

“What must we change to?”

(M $) 2001 2002 2003 2004 2005

(A) As Is SD Budget Baseline 937 913 925 940 940

(B)Adjustments due to Price/Performance evolution

(C) Potential savings from infrastructure 3 28 85 129 129

(D) Other savings opportunities 0 10 40 50 50(E)=

(A)-(B)-(C)-(D)

To Be Operational costs 934 875 800 761 761

(F) Organization and One-Time Costs 35 74 70 40 19

(G)=(E)+(F) Total Costs 969 949 870 801 780

(H) = (A) - (G) Cash Flow -32 -36 55 139 160

(H) = (A) - (G) Cumulative Cash Flow -32 -68 -13 126 286

(I) Total Revenue 937 903 903 894 894

(J)=(I)-(G) Cash Flow -32 -46 33 93 114

(K) Cumulative Cash Flow -32 -78 -46 48 162

Included in (A)


Agenda






RUNNING OUTSOURCING Framework

• Delivery Model is based on several key components

• Common objectives & goals

• End-to-End governance structure

• Multi-level team organisation

• Leveraged core competencies and skills

• Formalised SLAs, OLAs, KPIs

• Forum for engaging multiple sources in the key processes of communication, coordination and integration

• Optimize global resources

• Encourage collaborative working

• Leverage technology to enable business strategy

• Establishes a single point of responsibility for entire relationship.

Key Principles

Client Accenture Skill Pool AMP + …

OFF-SHORE

NEAR-SHORE

LOCAL

SPOC

SPOC

Pro

ject

s R

epo

rtin

g &

Sta

tus

Tra

ckin

g

Common Objectives & Goals

Met

ho

ds,

Sta

nd

ard

s, a

nd

To

ols

Co

mm

on

Pro

cess

es

Co

ntr

act,

SL

A, O

LA

, KP

I, M

BO

Governance


RUNNING OUTSOURCINGCommon Objectives & Goals


RUNNING OUTSOURCINGStandard Methodology & Tools

DEPLOY

PLAN ANALYZE DESIGN BUILD TEST

SUPPORT TOOLSSDM Estimator

SBP Standards & Methods

SBP Configuration Manual

Deliverables Library & Template

Project Deliverables Repository

Accenture Knowledge Exchange

AAB IT & Security Policies & Standards


Local Deployment Team

Development Center

Development Support Team

Deployment Support Team

Vendors

RUNNING OUTSOURCINGCommon Organization Model

Local Deployment Teams

Business Lead(Change Manager)

Conversion Lead

Off-Site Coordinator

Local Project Manager

Configuration Specialists

Solution Delivery Team

Table Management & Application Customization

Mercator Application Integration Team

Conversion Support Team

Test & Release Team

Test Team

Documentation

Gap Management

Service Mgt & Support Office

Functional Architect

Configuration Management

Release Management

Environment & Dev Tool Mgt.

Unit Manager

Service Delivery Partner

Application Management

Partner

Operational Readiness Lead

Data Migration Team

Local Design & Acceptance Team

Joint Management

Technical Architect & Associate Manager

Data Migration & Deployment Tools

OffNear

Staff Functions

Other

ClientIT Security, Audit

& Compliance

Sample


RUNNING OUTSOURCINGCommon Processes

Scope Work-StreamConfig. Components

Configuration Workshops & Detailed Specification

Management Sign Off

Support & QA Specifications

Support Build Process

Prepare UAT

Product & User Acceptance Test

Support Build & Validate Test

QA Solution

Technical Review & Interface Impact Analysis

Build

(Configure & Code)

Component Test & Documentation

Prepare Assembly & Non-Regression Test

Execute Assembly & Non-Regression Test

Perform Detailed Configuration Design & Prepare Work Package

TP TP

TPTP

Local Near-Shore Off-Shore

FunctionalDesignCheck List

TechnicalDesignCheck List

Component &QualityCheck ListsWork

PackageCheck List

ProductDeliveryCheck List

TP


Agenda






Next Steps in Outsourcing

• Outsourcing will continue to grow, mainly for BPO…• Services will become more standardized, creating new

norms• New service providers will appear in Eastern Europe and

China• Asian players will move on-shore and compete head-on

with traditional local players• Local regulations will continue to be opened up to support

cross-border services• Politics will start to address increasing social issues and

concerns


Questions

?

copyright © 2005 accenture all rights reserved. accenture, its logo, and high performance delivered...

Documents

infrastructure outsourcing

origins of outsourcing

overview of outsourcing

trademarks of accenture

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