Op2i Outsourcing Survey 2008 Exec Report

Outsourcing 2.0 - Survey 2008 Exec Summary Full report available from www.Op2i.com 9th March 2009 Bharat Vagadia Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 1

Op2i - a business improvement firm specialising in outsourcing We provide and combine advisory, training and implementation services throughout the sourcing lifecycle We leverage our experience, tools and relationships to ensure clients outsource the right processes for the right reasons, to the right location and to the right service providers We provide intermediary services to pre-screened service providers which help clients’ go-to market quickly, at reduced cost and risk We offer managed outsourcing solutions from undertaking programme management on behalf of our clients to fully managing the outsourcing contract on a client’s behalf Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 2

Convergence the new driving force - outsourcing will equate to globalisation • Convergence : Interaction, overlap and absorption of different industries converging together in a more competitive and deregulated market • Convergence is happening in a range of forms changing the nature of market structures, demand, competition, competitors and the ways of doing business • Convergence - what the world looks like tomorrow: – Skill sets are available everywhere, Outsourcing and Offshoring can – Everywhere is connected, enable businesses to transform their organisations and become – Knowledge is ubiquitous, flexible, dynamic and globalised. – Everything is now, In the future the terms – Everywhere is here, “outsourcing and offshoring” will replaced simply by globalisation. – Resources are globally distributed. Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 3

Managing Risk – Delivering Value™ www.Op2i.com Convergence Trends © Op2i 2008 No unauthorised reproduction without Trends © Op2i 2008 All rights reserved – Copyright Op2i Ltd Convergence express written permission – 4

Economic downturn and convergence - implications for outsourcing Continuing overcapacity, increasing globalisation, the commoditisation of some services, the emergence of new technologies and what appears to be a prolonged depressing economic outlook, one thing is clear: organisations large and small face an era of exceptional competition – this trend is likely to continue for some time, beyond the current economic cycle The implications for the outsourcing industry are less clear – it is likely that Europe will see some curbs on offshoring, given increasingly protectionist policies and trade union pressure, as unemployment rates rises Requires organisations to become more Forcing organisations to think local and efficient (in all its economic forms) and protect jobs, at higher costs and reduced global efficiency Convergence and competition are long-term trends that will only get more intense with time, whereas the protectionist trends are short- How do you persuade end users Given that a substantial number term, a reaction to the current to incur the substantial initial of outsourcing deals fail, new economic slowdown cost involved in any new and innovative business models outsourcing contract? will be required! Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 5

Key messages from survey - companies need to focus on • Defining what and why activities should be outsourced today and in the future – definitions of core and non-core will change over time • Better and smarter SLAs and measurement systems – without which a contract is useless • Selective use of specialist advisors both pre and post contract – you cannot afford the risks of failure • Flexible contracts – convergence implies constant change – should however not mean lightweight contracts • Management of relationships (partnerships) - communication and culture, especially as clients increasing use multi-shore strategies • Going beyond just labour arbitrage – how can partners help you in improving performance and entering new markets • Ensuring multi-disciplinary teams to manage the programme – outsourcing as a transformational strategy effects the whole organisation • For suppliers, either have scale, deep knowledge or both – competing on the strength and depth of their talent pool, knowledge, technology enabled infrastructure and client relationships – move towards multi-delivery locations Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 6

Economic downturn likely to lead to more outsourcing The general consensus (50% of respondents) believe interest in outsourcing has increased with the economic downturn Which of the following best describes the main effect outsourcing and offshoring has upon domestic businesses 50% The majority of 40% respondents believe outsourcing has a 30% positive effect on domestic businesses 20% 10% 0% Positively helps in Helps cut costs and No real impact Detrimental to all Detrimental to the terms of productivity improve profitability local businesses SME market in the and efficiency local economy Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 8

Data protection however remains a real concern Which of the following best describes your view of Data Protection and Intellectual theft within off-shoring 50% How do emerging destinations overcome 40% data protection concerns? 30% 20% 10% 0% It is a real problem and I believe it may be a I don't believe it is The government is Not sure threat problem in some cases actually that important probably actually worse It has been blown out of proportion by the media Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 9

Propensity to outsource and offshore business functions - the usual suspects Propensity to Outsource by location Marketing, media management, IT security and Onshore Offshore Never virtual PA functions are the 100% least likely activities to be outsourced 80% Six activities dominate the offshoring space: 1.Software 60% Development, Testing & Management, 2.IT support, 3.Email customer support, 40% 4.Documentation and Knowledge Mngt 5.Call centres 6.Invoicing, 20% Bookkeeping and Accounting 0% Activities most likely to be Development, Testing and Marketing Product Development Facilities Management Sales Lead Generation HR – training and HR – payroll, benefits etc Documentation/Knowledge Customer Support – email IT Support Finance and Treasury Media Management Logistics and Procurement Invoicing, Bookkeeping, Ac Customer Support – call IT Security Virtual PA MKT Res / Comp Intelligence recruitment outsourced onshore include: Software , Web functions Management centres HR recruitment and training, Mngt c Facilities Management, and Logistics Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 10

Loss of control and conflicting management styles remains biggest vulnerability faced by businesses Biggest vulnerability faced by business when outsourcing on-shore 40% 30% 20% 10% 0% The biggest vulnerability faced Service Provider Strategic Conflicts in Data protection Compliance by businesses when for Performance Information management styles Dependence outsourcing onshore or offshore includes: dependence on the service provider for Biggest vulnerability faced by business when outsourcing off-shore performance and conflicts in communications and management styles 40% 30% 20% 10% 0% Service Provider Strategic Conflicts in Data protection Compliance Performance Information management style Dependence Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 11

Benefits realisation and reintegration are largest financial risks Largest financial risk when outsourcing onshore The greatest financial risk remains the 60% possibility of not achieving the cost 50% 40% benefit, followed by cost of reintegration 30% 20% of processes on termination of the 10% outsourcing agreement 0% High up front capital and Cost of reintegration of Cost associated with Not achieving the cost transition costs - e.g. IT processes on managing the service benefits systems. termination of the provider. outsourcing agreement Largest financial risk when outsourcing offshore 50% For offshoring, costs associated with 40% managing the service provider rank 30% higher than up front capital and 20% 10% transition costs 0% High up front capital and Cost of reintegration of Cost associated with Not achieving the cost transition costs - e.g. IT processes on managing the service benefits systems. termination of the provider. outsourcing agreement Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 12

Inadequate internal skills and expertise, together with poor contracts and SLAs source of largest internal risks Source of largest internal risks when outsourcing onshore 40% 30% 20% 10% 0% Poorly constructed contracts and Insufficient internal project Inadequate skills, proficiency Service Level Agreements management skills and experience in outsourcing All three areas remain a concern for many organisations Source of largest internal risks when outsourcing offshore 40% 30% 20% 10% 0% Poorly constructed contracts Insufficient internal project Inadequate skills, proficiency and Service Level Agreements management skills and experience in outsourcing Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 13

Partnerships approach, secondment and seeking specialist advice are the most effective risk mitigation strategies Most impacting outsourcing risk mitigation actions 80% Development of a partnership 60% relationship between customer 40% and supplier – easier said than 20% done however.. … 0% Negotiate strong Build Partnership Manage public Impose legal Place limitations on contract relationship relations and press obligation on subcontracting by supplier supplier Most effective risk reduction actions when outsourcing 60% 40% Seconding staff and consulting 20% specialist outsourcing intermediary 0% Consulting with a Obtaining professional Accessing information Seconding staff to specialist outsourcing training in outsourcing from a trade association provider intermediary Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 14

Good governance, measurement and monitoring systems seen as being critical to success Means of achieving low risk outsourcing project implementation 60% Combination of a well defined governance structure and 40% sufficient SLA measurement and 20% monitoring systems. 0% Audit of vendor Shared quality Well defined SLA measurement and processes and security management system governance structures monitoring systems arrangements and process Means of gaining maximum return from outsourcing investment 80% 60% Selecting the right 40% process and functions to outsource in the first 20% place 0% Exhaustive business Prior process Selecting right Rigorous quality Reintegration plan of plan optimisation processes/function for planning, systems and processes outsourcing processes Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 15

India remains in the lead, but number of destinations on the increase, and clients becoming more selective India was ranked number one choice by a long way First choice destination: India - why? China comes a very Existing track record distant second place as the first choice Skilled work force destination, with UK, Language Poland, Costa Rica, Philippines, Bulgaria and Labour costs Romania each figuring, primarily on the basis of Access to resources availability of skilled workforces 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% China competes with the Philippines for second choice, but primarily driven by the search for lower labour costs Most organisations choose Philippines for its language capability Ireland/UK, China and the Philippines were equal third choices. The reasons for choosing Ireland are varied and show a degree of maturity of the country as an offshoring destination. Like the UK and Northern Ireland as destinations, Ireland’s skilled workforce, proximity to UK, cultural alignment, language and access to resources all figure as strong drivers Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 16

Most seek specialist help in accessing skills, knowledge and developing good governance structures Preferred mode of accessing outsourcing skills and knowledge? Niche outsourcing specialists and In-house resources only management consultants ranked highly Single domain specialists e.g. lawyer, consultant, trainer .... Niche Outsourcing Specialist Management Consultant National Outsourcing Association 0% 10% 20% 30% 40% 50% Perceived good outsourcing governance model? Other a) Mediated governance model Mediated governance model provided by an experienced provided by an experienced outsourcing specialist outsourcing specialist Independently developed bespoke governance model b) Negotiated with vendor Negotiated with vendor Home grown 0% 10% 20% 30% 40% 50% Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 17

Summary • Outsourcing has been gaining momentum in the last decade, with the emergence of more services, more company types engaging in and more destinations to choose for outsourcing. As Bruce noted “outsourcing has become more interesting over time, but BPO investment has been around for many years. If you were to choose sub-sectors to invest your money, it is a good place to put your money, because you have contractual income, an industry where there will be growth over the long term. However, return on investment multiples are coming down and are becoming more realistic. • There is no doubt the outsourcing industry is still learning and has yet to mature sufficiently for there to be a body of knowledge on what constitutes best practice - for a variety of firms. • Deciding what to outsource, where to outsource and identifying the right provider are simply the opening challenges. Making outsourcing happen provides further potential pitfalls – it calls for strong project, change and governance management skills that probably don’t exist internally. Firms must start viewing outsourcing as a strategic partnership approach, utilising advisors to complement and enhance internal teams. • Challenging times will call for radical changes to business practice and business models. • Outsourcing 2.0 will require different business models, greater risk sharing, better management of SLAs / measurement systems and of the relationship itself • Is your company still a dinosaur when it comes to outsourcing? Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 18

An appropriate African Proverb: – Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. – Every morning a lion wakes up. It knows it must run faster than the slowest gazelle or it will starve to death. – It doesn’t matter whether you are the lion or the gazelle. – When the sun comes up, you had better start running. Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 19

Contact Op2i to find out how we can help you run faster http://www.Op2i.com Constructive Reintegration = Outsourcing 2.0 Bharat Vagadia CEO Op2i Board Director UK National Outsourcing Association Author: Outsourcing to India – a Legal Handbook T: +44 207 193 4339 M: +44 7711 898089 E: Bharat.Vagadia@Op2i.com Managing Risk – Delivering Value™ www.Op2i.com No unauthorised reproduction without express written permission – All rights reserved – Copyright Op2i Ltd 20

Op2i Outsourcing Survey 2008 Exec Report

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