outsourcing services: what is right for your organisation

Better results through sourcing

O t i S iO t i S iOutsourcing Services Outsourcing Services What is right for your organisation?What is right for your organisation?

Andrew Hewat

© 2009 LODESTAR Advisory Services 1


A dAgenda

• The changing outsourcing landscape• The changing outsourcing landscape

• How to decide if outsourcing is right for your organisation

• The engagement process and governance• The engagement process and governance

© 2009 LODESTAR Advisory Services © LODESTAR Advisory Services P/L2


There are different impressions of outsourcing…There are different impressions of outsourcing…

If outsourcing was a treeIf outsourcing was a tree– What type of tree would it be?

Wh ?– Why?



Outsourcing can be viewed in many waysOutsourcing can be viewed in many ways

Cherry Blossom Pine

The mighty oakg y

African Thorn Giant Bamboo



The tree you get is your choiceThe 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 businesstool if used appropriately



THE OUTSOURCING LANDSCAPETHE OUTSOURCING LANDSCAPETHE OUTSOURCING LANDSCAPETHE OUTSOURCING LANDSCAPETHE CHANGING OUTSOURCING LANDSCAPETHE CHANGING OUTSOURCING LANDSCAPE



Th CIO h llThe CIO challenge

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 suppliersM th i tiManage processes across the organisationEstablish improved processesDon’t pick the wrong technologiesD ’t t lt t t l ti t h l f l t d i iDon’t get consultants or external expertise to help you formulate decisionsLove Vista, love Windows 7 more



Th IT j t iThe IT project promise

IncreasedRisks

IncreasedProductivityRisks Productivity

Time

DecreasedProductivity

DecreasedRisks

IT Project



A d th i f th b i itAnd the view from the business units

IncreasedRisks

Time

DecreasedProductivity

IT ProjectIT Project

IT Project


IT Project


H d k th d i i t O t ?How do you make the decision to Outsource?

Very, VERY carefully!



L t h l k t th tiLets have a look at the options

1. Traditional outsourcing1. Traditional outsourcing

2. Selective/project outsourcing

3. Transformational including BPOg

We will look at the challenges, issues and benefits of each model for Company X.



O t i “d i ” th d dOutsourcing “drivers” over the decades

1990Now

• Cost

1980s

• Cost • Flexibility• Access to

expertise

1990s• Flexibility• Access to

expertise

• Cost reduction• Focus management

time on core reduction

• Release of capital

reduction

• Release of capital

expertise• Improved

services• Cost reduction

Release of

expertise• Improved

services• Cost reduction

Release of

time on core processes

• Flexibility• Access to expertise• Improved services• Release of

capital• Release of

capital• Improved services• Release of capital



F tFuture

Cloud Computing



T i l 1980Typical 1980s scope

In scope pData centre including mainframe and serversData and voice communicationsApplications maintenance and supportApplications maintenance and supportDesktopHelpdesk

Out of scopeArchitecture and designgSecurity



T i l 1990’

In scope

Typical 1990’s scope

pFocus on “best of breed”Product consultants for design workAssets owned by customerAssets owned by customerFlexibility in services (ARC/RRC)Start of project related sourcing



T i l

In scope

Typical scope now

pUse of Suppliers for the delivery of non-core services

Business Support ServicesIT ServicesIT Services

Use of Suppliers for delivery of projects using a combined team and then turning over to Customer for ongoing support



O t i d lOutsourcing models

Traditional Outsourcing Selective/project sourcing Transformational including BPO

Move Operations functions, Assets, People

Select a function(s)/ project

BPO

Identify end stateDefine new business operating model and processes

Issues: Issues:

model and processes

Issues: • Redundancy costs• Baselines• Service levels• Loss of knowledge

• Scope definition• Integration• Acceptance criteria• Service levels

• Clearly define new business model

• Define acceptance criteria• Communicationg

• Time • Knowledge transfer • Organisational change management challenges

• Very clear roles and responsibilitiesp



C t ti f tiCustomer satisfaction

Over 80% of customers stated that outsourcing had not met their expectationsg 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 whySuppliers think if they deliver to the service levels it is sufficient and can t understand why the customers are unhappy



T i l ff i t d IBM ITTypical offerings today – IBM IT

Business continuity and resiliency Middleware servicesy y

services

End user services

Outsourcing services

Server services

Integrated communications services

Internet Security Systems

Site and facilities services

Storage and data services

IT strategy and architecture services

Maintenance and technical support

servicesservices



IBM outsourcing portfolioIBM outsourcing portfolioCan be tailored to meet tactical and strategic needs

BusinessTransformation

Consulting Services & Project-based Systems Integration

Transformation Outsourcing

HR CRMFinance &Accounting

Infrastructure Technology

Procurement

IndustryProcesses

Supply Chain

Services

Application M t


20

ManagementServices

Source: IBM


OUTSOURCING SERVICESOUTSOURCING SERVICESOUTSOURCING SERVICES OUTSOURCING SERVICES HOW TO DECIDE WHAT IS RIGHT FOR HOW TO DECIDE WHAT IS RIGHT FOR YOUR ORGANISATION?YOUR ORGANISATION?



H t d id if t i i i ht f i tiHow to decide if outsourcing is right for your organisation

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– 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 savingsy y g



Risk and accountabilityRisk and accountabilityShare Price Movements on NYSE

CustomerCustomer

SupplierSupplier

Revenue (US$ million) FY2007 FY2008

IBM 98,786 103,630

HP 104,286 118,364

Gross Profit (US$ million) FY2007 FY2008

IBM 41,728 45,661

HP 25,399 28,443

CSC 14,585 16,499

Accenture 21,453 25,314

CSC 3,041 3,348

Accenture 6,041 7,186


23

Source: Google Finance


Wh t t b t d?What cannot be outsourced?

RiskAccountability



OUTSOURCING SERVICESOUTSOURCING SERVICESOUTSOURCING SERVICES OUTSOURCING SERVICES THE ENGAGEMENT PROCESS AND THE ENGAGEMENT PROCESS AND GOVERNANCEGOVERNANCE



The Polaris2 sourcing methodology

Evaluation Negotiation TransitionPreparation Governance



Typical views of the IT budget…Typical views of the IT budget…

7%7% Controlled by non- IT

Exec2% Directly by BUs

People ~36%

Software~32%

y

Hardware~32%

61% Centrally

by IT

30% Blended IT and BUs

CONTROL OF IT SPENDINGSPENDING

Source: State of the CIO 2007

© 2009 LODESTAR Advisory Services


Wh t th d i tWhat are the common denominators

You need accurate baselinesYou need accurate baselines

You need to know your service levels

Y d t t t t tYou need a contract to protect you

You need to know your costs



St t i & T ti l R f O t iStrategic & Tactical Reasons for Outsourcing

StrategicAbilit t f b i

TacticalReduce costsAbility to focus on core business

differentiatorsAccess to scarce expertiseAct as an external change agent

Reduce costsAvoid future investmentsBuy outcomes rather than effortLeverage supplier buying powerAct as an external change agent

Share risksAbility to quickly respond to changing market conditions

Leverage supplier buying powerRemove problem areasPay for what you useAccess to low cost labour (off-shoring)

Transformation of the business processes

Access to low cost labour (off shoring)Remove assets from the balance sheetMove fixed costs to variable costsOvercome resource shortagesOvercome resource shortagesImprove qualityProvide clearer accountabilityAvoid internal politicsp



U li t l h f t f i th i tiUse a supplier to release cash for transforming the organisation

New Solutions Liberated fundingfor direct saving or t f ti l

100%

ng Application EnhancementsStrategic Change

Capacity

transformational investment

IT S

pend

in Application Enhancements Capacity

Cost ofOperations

New Solutions

Operations Support Application Enhancements

Operations MaintenanceOperations Maintenance

Operations Support



G tGovernance components

Relationship

Contract

pMgt

Performance

PMO

ContractMgt

PerformanceMgt

RiskMgt Financial

M tMgt Mgt

Strategic KnowledgeStrategicAlignment

KnowledgeManagement



It t f l t iItems to ensure successful outsourcing

Know why you are outsourcingKnow what you are outsourcingKnow what it costs you todayKnow what service levels you are achievingy gKnow where it is being deliveredDo adequate due diligence on the supplierUnderstand your risks and dependenciesUnderstand your risks and dependenciesKnow where your data is and who can access itAssess the supplier’s approach to risk management Ensure you have a good sustainable contractEnsure you have a good sustainable contractManage the contract AND the relationship Keep control of your PMO and data dictionaryEnsure you continue to monitor the Application PortfolioEnsure the supplier earns the right to your business



Q ti ?Questions?

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