Agenda

Purpose

Scope

Approach and Methodology

A. The Outsourcing Market

B. Management Practices

Participants

Purpose of The State of Canadian Outsourcing: Update 2009

The 2009 update to the Centre for Outsourcing Research & Education’s (CORE) State of Canadian Outsourcing report released in early 2008 provides:

Trends in the Canadian outsourcing market and outsourcing

management practices;

Data on new outsourcing transactions, add-ons to existing

transactions, and renewals for the 18 months between June

2007 and November 2008;

Data on close to 100 new transactions reported in last 18

months, of which we obtained TCV data on 40 transactions with

a total TCV of $2 billion.

Scope of The State of Canadian Outsourcing: Update 2009

The State of Canadian Outsourcing: Update 2009:

includes outsourcing across all industry sectors, and covers the 10-

year period 1998-2008

focuses on the larger end of the outsourcing market (outsourcing

transactions with a total contract value in excess of $1 million)

includes publicly reported outsourcing transactions and outsourcing

transactions reported to us through our primary data gathering

The quantitative data in this report is indicative of the size and scope of

the outsourcing market in Canada, but should not be seen as definitive.

Approach and Methodology

For quantitative and qualitative data in this report:

CORE hired the research support services of Evalueserve, a Knowledge

Process Outsourcing (KPO) company, and Deloitte to design the research

questionnaires

Evalueserve collected data based on public announcements of outsourcing

transactions and conducted direct requests for data with a web survey

from buyers, outsourcing service providers and advisors; and produced all

the data analysis, graphs and charts

Merit Outsourcing Advisors conducted additional qualitative interviews with

leading outsourcing advisors, research organizations and service providers

and contributed to the compilation of the report

A. The Outsourcing Market

ITO and ADM are often done in combination. BPO and ADM are also done

in combination, although less frequently.

Types of Outsourcing

Information Technology Outsourcing (ITO): the outsourcing

of IT and related activities

Application Development & Maintenance (ADM): the

outsourcing of the development and maintenance of software

applications

Business Process Outsourcing (BPO): the outsourcing of

business processes

Market Size

Market Size

Market Size

Market Activity

Types of Outsourcing

Industry Analysis

Buyers

Providers

Providers

B. Management Practices

1. Factors Influencing Decision to Outsource Gaining more scalability or flexibility is the the biggest influencing

factor in 2008

Other factors in 2008 included cost reduction, access to wider skill

base, and improved customer value

Changes in preference of various factors in 2008 included an increase

in importance of gaining more scalability or flexibility and leveraging

technological expertise, and a decrease in importance of cost

reduction and increasing shareholder value

2. Factors Affecting Vendor Selection

Delivery of services effectively rather than lower cost.

Other factors included access to expertise and experience/skills in

specific domains

Management Practices

3. Pricing Trends

Pricing is situational to transactions

Pricing has dropped over time, as market competition and global

delivery models drive down prices

Typically a positive market perception of potential to control costs

through outsourcing

An increase in use of variable/metric-driven pricing in transactions

4. Vendor Mix

Many clients adopting multi-sourcing strategies, with more

transactions split among selected outsourcing service providers

delivering services in the less-risky, commodity-oriented services

Increasing recognition multi-vendor strategies have increased

integration costs

Management Practices

5. Savings Targets Many organizations are not tracking or capturing ROI over the

transaction term

Large focus in pursuit phase and in first year of service

Declining tracking and accountability in later years

ROI is wide ranging:

i. 10%-15% in ITO with onshore (onsite or near-shore) delivery

ii. 20%-30% in ITO with pure offshore delivery

iii. 15%-25% in ADM

iv. BPO, including the related applications, at 25%-40%

6. Offshore Delivery Acceptance

Most advisors and service providers reported steady acceptance of

offshoring

Even the public sector in some provinces has offshoring interest

Financial services has broad penetration and experience, but activity

has slowed as a result of the economic downturn

Increased acceptance of savings opportunity and quality/efficiency,

but risk/reward balance heightened

Management Practices

7. Emerging Industries Government, education, non profit, and Financial Services sectors are

key industries for vendors

One-third estimated these sectors constituted over 20% of total client

base in 2008

Other major industries included business services/consulting and

entertainment/media, and hospitality

8. Innovation in Outsourcing

Organizations consider innovation vital for continuous improvement

and for building longer relationships

Most organizations consider innovation ability to think beyond contract

Some organizations believe innovation not achieved in outsourcing

agreements. Vendors not willing to invest outside defined scope of

services

Most organizations consider monetary rewards a key driver in

promoting innovation in outsourcing agreement

Participants