Risk Advisory Services Strategic Operations Outsourcing IT OFFSHORE OUTSOURCING SURVEY German view St. Petersburg, Monday, June 07, 2004
Introduction to Ernst & Young General statements / information Major conclusions Threats and recommendations 2
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Our proposal for offshore software development Management advice project management / project coaching project risk & quality management design of test case, procedure & acceptance criteria independent support of acceptance tests & procedures Legal advice Provement of the legal and regulatory requirements, e.g. Data Protection, Labor Law, Import/Export regulation Performance of the legal Due Diligence Legal advice during the RfP phase Draftment and negotiation of the Outsourcing Agreement and SLAs Establishement of New Companies or Joint Ventures Coordination and negotiation with the supervisory bodies & workers` council Registration of rights to software and other intellectual property objects, in Russia and abroad Enhancement of financial flows, tax and customs payment schemes Evaluation of and accounting for intellectual property objects 7
Technology & Security Risk Services CIS Team 8 In the CIS, Ernst & Young has a team of about 40 technology professionals who help clients solve comprehensive information technology issues to support business growth. Key core competencies include: Moscow "Ethical Hacking" Lab and IT Security team with the tools and skills needed to conduct computer security assessments of corporate networks. Proven skills and methodologies for providing advisory services in Information Security Strategy, Organization and Policy & Procedure Development, Business Continuity & Disaster Recovery Planning, Incident Response. Market leadership position in the provision of CyberProcess Certification services, a "seal of quality" on a company's website that builds stakeholders' confidence in the integrity, security, privacy, availability and maintainability of its business systems and on-line transactions. A dedicated ERP advisory team with the tools, proven methodology, experience and ERP skills needed to provide independent assurance and risk management associated with for Enterprise Resource Planning Systems (SAP, Oracle) around data integrity, process integrity, application integrity, and infrastructure & interface integrity. An IT Audit team with the tools and skills need to perform IT due diligence and general information technology audits.
Contact TSRS in Moscow Michelle Moore Partner Technology & Security Risk Services Ernst & Young (CIS) Ltd. michelle.moore@ru.eyi.com Telefon 095 705 9749 9
General statements / information There is just no way to beat the cost model. We save 50 cents on a dollar. CIO of an American insurance company 10
General statements / information Whoever claims to save 50 percent by offshore outsourcing lies. Philippe De Geyter, CIO of Deutsche Leasing, January 2004 11
General statements / information Outsourcing as a part of IT strategy All respondents 246 companies codify especially offshore outsourcing 20,0% codify outsourcing in strategy 52,0% 28,0% no consideration 12
General statements / information Outsourcing as a part of IT strategy offshore experienced offshore inexperienced No 20,0% 31,0% especially offshore outsourcing No 9,0% especially offshore outsourcing 36,0% 49,0% 55,0% codify outsourcing in strategy codify outsourcing in strategy 13
Major conclusions 1. Offshore outsourcing is an economical and political factor currently 60 % of companies plan an outsourcing project abroad follow up projects already have higher budgets (average amount up to 1 Mio EUR) as a trend jobs will be transferred abroad 14
Major conclusions 2. Profitability is deciding 15 decisive argument for offshore outsourcing projects is potential in saving costs level of satisfaction depends on price and on compliance with budget although it has been decided that communication and reliability during the project is insufficient, around 67 % of the companies are satisfied with offshore as the price is reasonable; 70 % are satisfied because the project budget is in compliance with time and money spent
Major conclusions 3. Eastern Europe nearer than Asia more offshore outsourcing projects are with countries in Eastern Europe companies are more satisfied with outsourcing to Eastern Europe than to Asia as the conflict situation is believed to be higher in Asia (e.g. language, culture) 16
Major conclusions Eastern Europe is ahead of Asia 52 24 17 7 32 32 25 11 very rather rather very satisfied dissatisfied Eastern Europe very rather rather very satisfied dissatisfied Asia 17
Major conclusions 4. Blue-eyed contract agreements only 53 % of companies have agreed upon German court of jurisdiction only one third have fixed conditional penalties in contracts safety mechanism should be used in order to minimize risks in offshore outsourcing as budgets range between 1m and 40m Euro 18
Major conclusions 5. Risk of communication 55 % of the companies judge the highest risk to be communication problems as a result the IT-competence of outsourcing provider is evaluated favorably better than project management and risk management methods investment in training and development is necessary 19
Major conclusions 6. Smaller and bigger companies take the role of pioneer most companies practicing offshore outsourcing have: -turnover around 25m EUR -turnover above 1b EUR middle class companies are coming soon and actually already 56 % of them are currently planning an offshore outsourcing project 20
Major conclusions 7. Tasks for IT offshore outsourcing 75 % of the companies state that the development of software is main priority 47 % of companies state the software maintenance (assumption: software maintenance as a second phase of the currently new developed software?) already 33 % realized the parameterization and the customizing of their standard software through offshore outsourcing 21
Major conclusions Development of Software 75 Continuous software maintenance 47 Migration of data /data entry 41 Adaptation/parameterization of software 33 Test and systems integration 30 Migration of software packages 23 Business processes Consulting services Other significant contract details 16 13 13 22 Source: CIO 2004
Offshore Threats non- user* offshore user * communication problems 2,4 2,1 qualitative concerns 2,7 2,6 strategic concerns 2,9 2,5 delayed settlement of projects 3,0 2,7 legal concerns/ contract design 3,3 2,4 security concerns 3,2 2,6 compliance with resources 3,3 2,9 average 3,0 2,5 * average of allocated points 23
Offshore Threats Communication (offshore-user: 2,4 non-user: 2,1)* lack of reach ability of the outsourcing-team lack of presence of the project manager on site long response times linguistic barriers * average of allocated points 24
Recommendations Communication install project office on site (incl. project call center) adapt onsite-part to project requirements pay attention to the time zones of the offshore-partner offer language courses for project team * average of allocated points 25
Offshore Threats Quality (offshore-user: 2,7 non-user: 2,6)* lack of understanding of the assignment non-compliance with international standards insufficient testing or general lack of reliability * average of allocated points 26
Recommendations Quality prepare detailed requirement specifications (incl. a list of functions and test scenarios) develop acceptance concept and process (not only acceptance of functions) choose suitable project method (review the waterfall-method) 27
Offshore Threats Strategy (offshore-user: 2,9 non-user: 2,5)* cultural differences between contract partners lack of economic stability by the outsourcer lack of project prioritisation by the outsourcer lack of acceptance by company-own employees * average of allocated points 28
Recommendations Strategy define project break points, not only the mile stones do not tie know-how to persons the project sponsor has to have the employees standing behind him 29
Contact Diplom-Mathematiker Oleg Brodski Senior Manager Risk Advisory Services Ernst & Young AG Wirtschaftsprüfungsgesellschaft Uerdingerstraße 88 40474 Düsseldorf Oleg.Brodski@de.ey.com Telefon +49 (211) 9352 10130 Telefax +49 (211) 9352 18814 Mobil +49 (160) 939 10130 30