global lessons in achieving sourcing efficiencies · 2013-08-08 · 250 advisors asia pacific 40...

Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.

Global Lessons in Achieving SourcingEfficienciesHow to achieve cost-cutting goals while remaining productiveand competitive

Arno Franz

Partner and Regional President Asia Pacific

August 2009

1Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.

Agenda

What is the impact of the current environment on sourcingconsiderations? The need for cost savings to drive greater efficiencies whilst the business

remains productive, competitive, innovative and sustainable

What are the most effective strategies being employed locally andoverseas? What are the changes to outsourced IT services that are likely to give the

largest and quickest cost reduction with the least risk

What are the technologies or outsourcing services should you invest in nowto drive cost efficiencies

What should be the nature of the conversation you have with ServiceProviders about outsourcing cost reductions

Questions and Answers


TPI is the Leading Sourcing Advisor by Any Measure

Americas250 advisors

Asia Pacific40 advisors and India-based

researchers and supportpersonnel

TPI HubsLocations of Engagements

EMEA80 advisors

08/08

Americas250 advisors

Asia Pacific40 advisors and India-based

researchers and supportpersonnel

TPI HubsLocations of Engagements

EMEA80 advisors

08/08

Advise on more outsourcing businessthan all other advisors combined

Work on more sourcing-specificengagements than any other company

Average marketshare 2006-8 fordeals >$25M

Advise on ~20% of the global ITO + BPOtransaction value each year for 20 years

257

366

487

595

659

2004 2005 2006 2007 2008

Provide sourcing advice to 45% of the world’slargest buyers and almost all major providers

Have most dedicated sourcing advisorswith the broadest global coverage

Since 1989: 2,978+ sourcing engagements, 751+ transactions valued at more than US$277B

#1 in Customer Feedback

TPI was named the top full serviceoutsourcing advisor by The Black Book of

Outsourcing 2009 for the secondconsecutive year. We were also named

number one for exceptional client services,IT Outsourcing and HR Outsourcing.


What do the numbers tell us?Continued softness in global outsourcing contract awards compared to 2008levels.

However, comparison of 1H09 and1H08 shows a more dramatic story

The Bad News is…

Globally, Telecom had its second best half-year ever – largely driven by mega-relationships in Asia Pacific

Asia Pacific TCV increased more than 150%over 1H08

Americas ITO TCV in 2Q09 was up 6% Q/Q

The Good News is…

TCV down 22%

ACV down 28%

Global BPO TCV in 1H09 hit a five year lowat $6.9B

Decline of EMEA TCV in 1H09 to pre-2008levels; however, EMEA still remains theleading region in TCV awarded

Traditionally strong industries such asBanking, Insurance, and Oil & Gas, havebeen weak through the first half 2009

Global Q/Q comparisonsindicate slight movement

ACV down slightly (5%) 2Q09

TCV up slightly (5%) 2Q09

12.420.5

6.915.1

3.3

13.518.2

8.5

33.0

Americas EMEA Asia/Pacific

1H07 1H08 1H09

Industrywide Contracts With TCV > $25M:TCV ($B) of Contracts Awarded: 1H Comparison


The World Has Changed

The current economic situation hasput additional pressures onbusinesses to drive down the totalcost of outsourced business supportservices, whilst still achieving theexpected benefits

However, whatever is done toaddress issues with outsourcedbusiness support functions, the over-riding requirement is to reduce costsand get there quickly

Within this over-riding need to reducecosts, there are multiple symptomsthat can indicate under-lyingproblems or issues that can lead tocost reduction

Using the Balanced Scorecardframework, some possible issuesarising are:

Organisational View

“I’m sure I’ve gotpeople doing workthat I thought wasoutsourced”

“My retainedmanagers lackmorale, but I don’twant to lose keypeople”

“Our providergovernance lacksdirection and bite”

Operational View

“I can not cope withconflictingdemands fromcustomers”

“There’s a lack ofinnovation shownby the provider”

“I find that we arestill focused toomuch on the ‘how’and not that ‘what’ ”

Financial View

“I’m under pressureto reduce overallsourcing costs”

“There’s a lack ofclarity of where ourmoney is going”

“I’m not sure whatI’m paying theprovider for”

Customer View

“I’m sure servicequality hasreduced”

“There’s a lack ofresponsiveness tomy demands”

“Why should I payfor poor service”

An holistic view of symptoms can indicate underlying issues


If There Is An Opportunity, How Do I Address It ?

Smart companies have asked themselves: Are the outsourcing arrangements delivering the promised financial and

qualitative benefits?

Are we pulling the right levers with respect to extracting benefits from the sourcingarrangements?

Are the outsourcing arrangement (s) still price competitive with the market? Arethe terms competitive and/or appropriate?

Is our service provider leveraging the most efficient service delivery model?

Is our contract service management and governance regime optimised to get themost out of our sourced relationships?

How rigorously have we managed the service providers contractual deliveryobligations?

For each of the above: What is the current actual situation?

How do we know?

What can we do about it?

In what time-frame?


Tactics For Delivering Results – Our Agenda

Now is the time for quick introspection and then bold action Study the current environment – but not for long

Decide what can be done quickly

Initiate longer term activities

Outsourcing supplier considerations

Unilateral actions

Collaborative actions


Revisit Your Outsourcing Strategy

What are we receiving under our current contract? Services

Services levels

Resources

Price

What are our short and long term business needs?

What governance arrangements do we have in place to get themost from our service provider/s?

Business partnership

Experienced team (on both sides - client and supplier)

Do we know the current outsourcing market? Experienced advice to understand cost-efficiency options and tradeoffs

Current market prices


AsIs

Re-structure

Re-compete

New Contract with currentService Provider

Modify Current Contract withcurrent Service Provider

Current Outsourcing Experience

Extent & Nature of ContractualChanges

Current and Future BusinessRequirements

Single Vendor vs. Best-of-Breed

Sole Source vs. Competitive Bid

Market Prevalence

Pros / Cons ofoptions

ClientRequirements

Single Contract - Sole Source

Single Contract - CompetitiveBid

Best of Breed - Sole Source forEach Tower

Best of Breed – Competitive Bidfor Each Tower

Pre

ferre

dC

ombi

natio

n

Options

Need to quickly determine the preferred course of action from the set of available choicesPrimary Options – Decision Tree


Outsourcing Largest and Quickest Cost ReductionOptions

Work with your service provider to restructure contracts that alignswith your IT and business environment with a forward-lookingprovision

Contract renegotiation rethink what's feasible and still meets thedemands of the business

Align service levels

Indentify opportunities for lower-cost outsourcing options in termsof Software as a Service (SaaS) and utility or cloud-basedinfrastructure offerings

Benchmark with the right to evaluate and negotiate based oncurrent market prices


Initial Set ofServices

RetainedServices

OutsourcedServices

Ser

vice

Man

agem

ent

and

Go

vern

ance

This boundary is key to proper management of the service providers Best practices are emerging for this boundary Many clients under-perform SM&G services or rely on the service provider to perform

these services, essentially creating the boundary in the wrong place

This boundary is key toa workable division ofdelivery responsibilities

This boundary variesbased on client needsand service providerservices

Dependencies of thesegroups on each otherrequires particularengagement of theSM&G Team

Inappropriate allocation of responsibility for performing tasks as well as non-performance oftasks leads to problems in sourcing arrangements

Understanding Responsibilities is Key to Successful Sourcing


Outsourcing Largest and Quickest Cost ReductionOptions - Continued

Sourcing groups should challenge their assumptions abouttraditional definitions of IT "offshoring" and identify what really canand can't be delivered from lower-cost delivery locations

Even under financial pressures business change should not be puton hold service-level agreement architectures should includebaseline operational metrics as well as business-orientedoutcomes

Review governance arrangements with your service provider –business partnership, is crucial for long-term success. Outsourcingworks when you have a good governance model in place, and anunderstanding of what you want to get out of the outsourcingagreement

Make sure you understand your contract and have the right peopleinternally managing the contract


What Can Be Done Immediately (where to invest now)

Projects – usually the most discretionary activity Triage each project

Is it a mandated project with committed due dates?

Can the project be mothballed for a period?

In the current economic environment is the business case for the projectstill viable?

Can the overall project backlog be rescheduled with less resources – andmore time?

Applications with few users

Do they still make sense to support?

Can they be performed some other way?

Environments with few users (e.g. Windows NT) Is now the time to make the effort to modernize?

Is there any way another platform can be used to do the work?


What Can Be Done Immediately - Continued

Equipment with low utilization Can it be consolidated?

Can it be unplugged permanently – perhaps due to shrinking demand?

Can it be unplugged temporarily – such as development environments whoseprojects are put on hold?

Equipment not needed Equipment used by laid off staff needs to be dealt with

Make sure support is not being paid for

Consider lowering licensing requirements (e.g. items licensed by the seat)

Defer – things that can wait a bit

Hardware refresh - Unless it is a contract commitment (which might berenegotiated) consider running existing hardware longer. Maintenance mightincrease a bit but things don’t fall off a cliff at the end of the refresh period

Software refresh – if the current platform (e.g. Windows XP) is good enoughdefer the upgrade


What Do We Need To Know To Make Good TacticalDecisions?

Need to understand the linkage between critical success factors for theenterprise and each application and technology platform

Perform a quick analysis to understand, in the current environment, theimportance of each application and technology platform

Prioritize each application and technology platform for limited resources

Classify items as mission critical, mission supporting, IT critical, ITsupporting and IT back office (IT record keeping, historical, etc.)

Involve user management in the classifications to set the stage for broadcuts in IT services across the organization that will be viewed as fair

Then, Consider consolidation (e.g. number of servers that run a particular application or

database)

Consider service reductions depending on importance of application

Lower tier of service (e.g. Gold to Silver to Bronze)

Use lower tier of storage

Run on fewer servers

Provide less network bandwidth

Provide less service desk support


Outsourcing Supplier ConsiderationsUnilateral actions that can be taken without consulting the supplier

Benchmark to reset pricing

Focus on the invoice Audit the invoice (if not done recently)

Look at all variable priced elements as opportunities

Less PCs etc. due to reduced staff

Mothballed development environments

Possibly reduced network requirements

Ports

Bandwidth

Consider lowering tiers

Service levels (e.g. Gold to Silver to Bronze)

Storage tiers (e.g. high performance to medium performance)


Outsourcing Supplier ConsiderationsCollaborative actions taken with the supplier

Providers want revenue and margin but in these times they may find itacceptable to protect margin, knowing that loss of revenue is inevitable

Begin the discussion indicating a willingness to work with the supplier toprotect margin as the revenue shrinks

Actions to consider: Reduction of tiers

Determine the impact of service and price

Reduction of service levels

Tell the supplier what service levels could possibly be lowered

Ask the supplier which of these service levels have the largest impact onsupplier cost and therefore price


Outsourcing Supplier ConsiderationsCollaborative actions taken with the supplier - continued

Standards

Often standardization of hardware and software environments can drivesavings

Ask the supplier with their knowledge of the environment whichstandards could be more strongly enforced to provide savings

Administrative burden

Ask the supplier what things the client organization is doing that driveadministrative expense on the supplier side that could be reduced

Reporting requirements

Can contract reporting requirements of all types be scaled back?

Invoicing requirements

Can invoicing requirements be simplified or done more by exception?

Other supplier suggestions

Don’t hesitate to ask the supplier for creative ideas to save cost – betterthey tell you than you hear it from their competition


Final Thoughts

There is a clear goal of urgent cost reduction; every organisationmust seek the best combination of “cost to execute”, “risk profile”and “timeline” to meet that goal

There is a range of options for sourcing ICT and back officeprocesses to reduce cost: from high performing internal teams tomulti-sourcing and joint ventures; my expectation is that the use ofoutsourcing will increase in both ICT and the back office, certainlyonce we are past the next election, what ever flavour government isin power.

Outsourcing needs strong management if it is to deliversuccessfully, otherwise the value just leaks away. We can’t affordto let that to happen.


Conclusion

We at TPI have been assisting clients in all facets of sourcing for 20years and are available for consultation.

Questions?


Knowledge Resources and Forums

Information, Insights & KnowledgeTPI IndexIT Mark-to-MarketWhite PapersSurveys & Research

Market Education Serviceswww.tpi.netConsider the Source blog

www.considerthesourceblog.comThe Platform (client e-newsletter)Gradient (service provider e-newsletter)

We are committed to educating, evolving and enhancing the sourcing industry.

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21Copyright © 2009, Technology Partners International, Inc. All Rights Reserved.Copyright © 2009, Technology Partners International, Inc. All Rights Reserved. No part of this document may be reproduced in any form or by any electronic or mechanical means, including

information storage and retrieval devices or systems, without prior written permission from Technology Partners International, Inc.

Arno FranzPartner and Regional President, Asia Pacific+61 (0) 2 9006 1610 Office+61 (0) 412 097 684 [email protected]

global lessons in achieving sourcing efficiencies · 2013-08-08 · 250 advisors asia pacific 40...

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