Galit Fein Senior Analyst & VP [email_address] Sourcing Israeli Trends 2008

Agenda WW outsourcing trends Israeli outsourcing trends Selective outsourcing Infrastructure, HD, QA/Testing, BPO Professional Services

WW outsourcing trends

Israeli outsourcing trends

Selective outsourcing

Infrastructure, HD, QA/Testing, BPO

Professional Services

Outsourcing Objectives – Unchanged Cost reduction is most companies' primary objective for pursuing IT outsourcing – 65% Focus on core business – 58% Lack of inhouse resources – 52% Better expertise – 26% Moved fixed cost to variable cost – 15% Avoid capital investment- 10%

Cost reduction is most companies' primary objective for pursuing IT outsourcing – 65%

Focus on core business – 58%

Lack of inhouse resources – 52%

Better expertise – 26%

Moved fixed cost to variable cost – 15%

Avoid capital investment- 10%

Top Factors for Failed Outsourcing Management lacks prior experience with outsourcing Management lacks skill at writing & negotiating outsourcing contracts The work outsourced is difficult to standardize Quality didn’t not meet expectations

Management lacks prior experience with outsourcing

Management lacks skill at writing & negotiating outsourcing contracts

The work outsourced is difficult to standardize

Quality didn’t not meet expectations

What kinds of work are you currently outsourcing or planning to outsource? Source: Cutter

For what reasons have you considered insourcing? Source: Cutter

Outsourcing Model Israeli Trends Outsourcing model evolution or equilibrium? Outsourcing market has matured & customer are deeply aware of the advantaged & risks involved 1/3 of deals were total IT function, especially with SMBs Rest of deals were of transferring processes & specific fields to outsourcer: Help Desk Infrastructure

Outsourcing model evolution or equilibrium?

Outsourcing market has matured & customer are deeply aware of the advantaged & risks involved

1/3 of deals were total IT function, especially with SMBs

Rest of deals were of transferring processes & specific fields to outsourcer:

Help Desk

Infrastructure

Outsourcing Israeli Trends Outsourcing market growth has narrowed: Overcoming recessional economy End of vendors’ “suicidal prices” Extreme changes in the IT executive lead Advertised disagreements & problems with the contract between Mataf & EDS

Outsourcing market growth has narrowed:

Overcoming recessional economy

End of vendors’ “suicidal prices”

Extreme changes in the IT executive lead

Advertised disagreements & problems with the contract between Mataf & EDS

Outsourcing Israeli Trends Most orgs. are successful in achieving their objectives, but in general they feel neutral about the results Companies generally have difficulty evaluating vendor capabilities & outsourcing outcomes

Most orgs. are successful in achieving their objectives, but in general they feel neutral about the results

Companies generally have difficulty evaluating vendor capabilities & outsourcing outcomes

Outsourcing Israeli Trends Companies are choosing vendors with proven abilities to deliver services according to SLA Clients changing preference – smaller contracts~ 3-5 years Highly competitive market with increasing no. of vendors New players are entering the IT arena: Bynet , Taldor

Companies are choosing vendors with proven abilities to deliver services according to SLA

Clients changing preference – smaller contracts~ 3-5 years

Highly competitive market with increasing no. of vendors

New players are entering the IT arena: Bynet , Taldor

Outsourcing Israeli Trends Engagement with multiple vendors Vendor portfolio restructuring Consulting company or dedicated IT Executive are in charge of Client-Vendor negotiation & mngt Main players: Ness, EDS, IBM, Malam-Team, HP

Engagement with multiple vendors

Vendor portfolio restructuring

Consulting company or dedicated IT Executive are in charge of Client-Vendor negotiation & mngt

Main players:

Ness, EDS, IBM, Malam-Team, HP

Selective Outsourcing Israeli Trends Comprehensive outsourcing Loss of Flexibility Increased Risk Loss of Internal Expertise Selective examples: EDS: Kneset HP: Tower Malam – Team: Dan Ness: Tadiran Appliances Selective outsourcing Vendor Competition Shared Objectives Core Competencies Selective examples: Malam-Team: Tel-Aviv municipality HP: Telrad EDS: Alvarion Ness?

Comprehensive outsourcing

Loss of Flexibility

Increased Risk

Loss of Internal Expertise

Selective examples:

EDS: Kneset

HP: Tower

Malam – Team: Dan

Ness: Tadiran Appliances

Selective outsourcing

Vendor Competition

Shared Objectives

Core Competencies

Selective examples:

Malam-Team: Tel-Aviv municipality

HP: Telrad

EDS: Alvarion

Ness?

Infrastructure Outsourcing TACTICAL IT Tactical functions simply keep the business up & running on a day-to-day basis: HW/ SW maintenance DBA System management Network management Security ERP STRATEGIC IT Strategic functions drive the company’s dollar, stock value , & competitive advantage: Business development New system development Product marketing support Sales force automation R&D Business & IT alignment Outsourcing In-house Perform similar activities better than rivals -Perform different activities than rivals do. -Perform same activities but in different ways than rivals

TACTICAL IT

Tactical functions simply keep the business up & running on a day-to-day basis:

HW/ SW maintenance

DBA

System management

Network management

Security

ERP

STRATEGIC IT

Strategic functions drive the company’s dollar, stock value , & competitive advantage:

Business development

New system development

Product marketing support

Sales force automation

R&D

Business & IT alignment

Service Desk Israeli Trends IT service & support represents up to 10% of IT operating budget ITOs that do not manage operating costs efficiently will likely find themselves outsourced Selective examples: Calanit-Carmon – IAI; Malam-Team-Tel-Aviv Municipality, EDS - Alvarion Personalized service does not equal higher quality of service

IT service & support represents up to 10% of IT

operating budget

ITOs that do not manage operating costs efficiently will likely find themselves outsourced

Selective examples:

Calanit-Carmon – IAI; Malam-Team-Tel-Aviv Municipality, EDS - Alvarion

Service Desk Israeli Trends To compete with outsourcers ITO must: Manage Labor Resource Career Pathing Leverage technology to automate the processes (self-service, integration between the HD, asset & change) Adopt methodology (ITIL)

To compete with outsourcers ITO must:

Manage Labor Resource Career Pathing

Leverage technology to automate the processes (self-service, integration between the HD, asset & change)

Adopt methodology (ITIL)

Service Desk Israeli Trends Labor Resource Career Pathing Vendors expertise in managing problematic HD 1 st level support: High turnover Lack of loyalty Lack of vivid career path Dedicated HR & specific qualification Mngt of the career paths of staff Rotation of 36 month

Vendors expertise in managing problematic HD 1 st level support:

High turnover

Lack of loyalty

Lack of vivid career path

Dedicated HR & specific qualification

Mngt of the career paths of staff

Rotation of 36 month

QA/Testing Management Israeli Trends Rapidly growing field Acknowledging the advantage & cost saving by outsourcing: the transition from PS to outsourcing Israeli near shore: Main Player: Matrix (Talpiot) Malam (Ma’alot) Ness (EDC) Aman (Tehila) Main Players: Ness & Tescom, Malam-Team, Matrix

Rapidly growing field

Acknowledging the advantage & cost saving by outsourcing: the transition from PS to outsourcing

Israeli near shore:

Main Player: Matrix (Talpiot)

Malam (Ma’alot)

Ness (EDC)

Aman (Tehila)

Main Players:

Ness & Tescom, Malam-Team, Matrix

Business Process Outsourcing BPO adoption: unraised in past two years Strategic concerns about losing their core capabilities Intellectual property, privacy, & security issues BPO will increase in markets dependent on unskilled labor

BPO adoption: unraised in past two years

Strategic concerns about losing their core capabilities

Intellectual property, privacy, & security issues

BPO will increase in markets dependent on unskilled labor

Measurement Major obstacle - measurement ITOs are not satisfied with their abilities to acquire & use productivity metrics ITOs still struggle with metrics design & implementation ITOs mostly rely on the vendor's estimate The measurement problem pertains not only to outsourcing but also to the overall operation of a firm

Major obstacle - measurement

ITOs are not satisfied with their abilities to acquire & use productivity metrics

ITOs still struggle with metrics design & implementation

ITOs mostly rely on the vendor's estimate

The measurement problem pertains not only to outsourcing but also to the overall operation of a firm

Professional Services Israeli Trends Professional services growth has narrowed In-sourcing trend as management perception Opposite trends in private versus public sectors Need for flexibility & specific proficiency: Demand on professional niche experts (BI, SQL, Security, Oracle Applications, etc)

Professional services growth has narrowed

In-sourcing trend as management perception

Opposite trends in private versus public sectors

Need for flexibility & specific proficiency:

Demand on professional niche experts (BI, SQL, Security, Oracle Applications, etc)

Professional Services Israeli Trends ITOs prefer fix prices ( overtime hours, sick pay, miluim ) Transparency with the suppliers Paradoxical situation PS Advantages Employee’s preservation ( training, professional support, excursions, pay increase, high mobility) FTE Advantages Employee’s sense of belonging Cost saving

ITOs prefer fix prices ( overtime hours, sick pay, miluim )

Transparency with the suppliers

Paradoxical situation

PS Advantages

Employee’s preservation ( training, professional support, excursions, pay increase, high mobility)

FTE Advantages

Employee’s sense of belonging

Cost saving

Professional Services Trends Increase in professional services rates: BI– major increasing: 15-20% Programming .NET & Java ~ 10% Oracle Apps ~ 10% System ~ 10% QA – increasing demand ~ 10% HD & PC technicians - no change

Increase in professional services rates:

BI– major increasing: 15-20%

Programming .NET & Java ~ 10%

Oracle Apps ~ 10%

System ~ 10%

QA – increasing demand ~ 10%

HD & PC technicians - no change

Which IT skills are you planning to outsource? Source: Cutter

Thank you! Galit Fein Senior Analyst & VP [email_address]