Better results through sourcing. Andrew Hewat LODESTAR Advisory Services

Transcription

1 Outsourcing Services What is right for your organisation? Andrew Hewat 1

2 Agenda The changing outsourcing landscape How to decide if outsourcing is right for your organisation The engagement process and governance 2

3 There are different impressions of outsourcing If outsourcing was a tree What type of tree would it be? Why? 3

4 Outsourcing can be viewed in many ways Cherry Blossom Pine The mighty oak Giant Bamboo African Thorn 4

5 The 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 business tool if used appropriately 5

6 THE OUTSOURCING LANDSCAPE THE CHANGING OUTSOURCING LANDSCAPE 6

7 The 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 suppliers Manage processes across the organisation Establish improved processes Don t pick the wrong technologies Don t get consultants t or external expertise to help you formulate decisions i Love Vista, love Windows 7 more 7

8 The IT project promise Increased Risks Increased Productivity Time Decreased Productivity Decreased Risks IT Project 8

9 And the view from the business units Increased Risks Time Decreased Productivity IT Project IT Project IT Project 9

10 How do you make the decision i to Outsource? Very, VERY carefully! 10

11 Lets have a look at the options 1. Traditional outsourcing 2. Selective/project outsourcing 3. Transformational including BPO We will look at the challenges, issues and benefits of each model for Company X. 11

12 Outsourcing drivers over the decadesd 1980s Cost reduction Release of capital 1990s Flexibility Access to expertise Improved services Cost reduction Release of capital Now Cost reduction Focus management time on core processes Flexibility Access to expertise Improved services Release of capital 12

13 Future Cloud Computing 13

14 Typical 1980s scope In scope Data centre including mainframe and servers Data and voice communications Applications maintenance and support Desktop Helpdesk Out of scope Architecture and design Security 14

15 Typical 1990 s scope In scope Focus on best of breed Product consultants for design work Assets owned by customer Flexibility in services (ARC/RRC) Start of project related sourcing 15

16 Typical scope now In scope Use of Suppliers for the delivery of non-core services Business Support Services IT Services Use of Suppliers for delivery of projects using a combined team and then turning over to Customer for ongoing support 16

17 Outsourcing models Traditional Outsourcing Selective/project sourcing Transformational including BPO Move Operations functions, Assets, People Select a function(s)/ project Identify end state Define new business operating model and processes Issues: Issues: Issues: Redundancy costs Scope definition Clearly define new business Baselines Integration model Service levels Acceptance criteria Define acceptance criteria Loss of knowledge Service levels Communication Time Knowledge transfer Organisational change management challenges Very clear roles and responsibilities 17

18 Customer satisfaction Over 80% of customers stated that outsourcing had not met their expectations 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 why the customers are unhappy 18

19 Typical offerings today IBM IT Business continuity and resiliency services End user services Integrated communications services Internet Security Systems IT strategy and architecture services Middleware services Outsourcing services Server services Site and facilities services Storage and data services Maintenance and technical support services 19

20 IBM outsourcing portfolio Can be tailored to meet tactical and strategic needs Consulting Services & Projectbased Systems Integration Business Transformation Outsourcing Infrastructure Technology Services HR Industry Processes Finance & Accounting Procurement Supply Chain CRM Source: 20 IBM Application Management Services 20

21 OUTSOURCING SERVICES HOW TO DECIDE WHAT IS RIGHT FOR YOUR ORGANISATION? 21

22 How 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 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 savings 22

23 Risk and accountability Share Price Movements on NYSE Supplier Customer Revenue (US$ million) FY2007 FY2008 IBM 98, ,630 HP 104, ,364 CSC 14,585 16,499 Accenture 21,453 25,314 Gross Profit (US$ million) FY2007 FY2008 IBM 41,728 45,661 HP 25,399 28,443 CSC 3,041 3,348 Accenture 6,041 7, Source: Google Finance 23

24 What cannot be outsourced? Risk Accountability 24

25 OUTSOURCING SERVICES THE ENGAGEMENT PROCESS AND GOVERNANCE 25

26 The Polaris2 sourcing methodology Preparation Evaluation Negotiation Transition Governance 26

27 Typical views of the IT budget 2% Directly by BUs 7% Controlled by non- IT Exec People ~36% Software ~32% Hardware ~32% 30% Blended IT and BUs 61% Centrally by IT CONTROL OF IT SPENDING Source: State of the CIO 2007

28 What are the common denominators You need accurate baselines You need to know your service levels You need a contract t to protect t you You need to know your costs 28

29 Strategic t & Tactical Reasons for Outsourcing Strategic Ability to focus on core business differentiators Access to scarce expertise Act as an external change agent Share risks Ability to quickly respond to changing market conditions Transformation of the business processes Tactical Reduce costs Avoid future investments Buy outcomes rather than effort Leverage supplier buying power Remove problem areas Pay for what you use Access to low cost labour (off-shoring) Remove assets from the balance sheet Move fixed costs to variable costs Overcome resource shortages Improve quality Provide clearer accountability Avoid internal politics 29

30 Use a supplier to release cash for transforming the organisation 100% New Solutions Liberated funding for direct saving or transformational ti investment IT Spendin ng Application Enhancements Cost of Operations Strategic Change Capacity New Solutions Operations Support Application Enhancements Operations Maintenance Operations Support Operations Maintenance 30

31 Governance components Relationship Mgt Contract Mgt PMO Performance Mgt Risk Mgt Financial Mgt Strategic Alignment Knowledge Management 31

32 Items to ensure successful outsourcing Know why you are outsourcing Know what you are outsourcing Know what it costs you today Know what service levels you are achieving Know where it is being delivered Do adequate due diligence on the supplier Understand your risks and dependencies Know where your data is and who can access it Assess the supplier s approach to risk management Ensure you have a good sustainable contract Manage the contract AND the relationship Keep control of your PMO and data dictionary Ensure you continue to monitor the Application Portfolio Ensure the supplier earns the right to your business 32

33 Questions? 33