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Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
Business-Oriented Trends in IT Outsourcing
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Business-Oriented Trends in IT Outsourcing

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Identifies business-oriented trends in Information Technology outsourcing

Identifies business-oriented trends in Information Technology outsourcing

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  • 1. Business-Oriented Trends in ITOutsourcingAlan McSweeney
  • 2. Objectives• To identify business-oriented trends in Information Technology outsourcing January 30, 2012 2
  • 3. Topics• Outsourcing Trends• Business-Oriented General IT Trends• Transition and Transformation Within Outsourcing• Outsourcing and Innovation• A (Financial) Tale of Three Outsourcing Vendors January 30, 2012 3
  • 4. ITO Trends January 30, 2012 4
  • 5. State of Outsourcing in 2011• Survey conducted by the London School of Economics Outsourcing Unit• 1,209Buyers, Providers and Advisors of Outsourcing Services• Large study across spectrum of outsourcing industry• Provides insight into market trends and therefore should be part of any organisation’s strategy January 30, 2012 5
  • 6. State of Outsourcing in 2011• Key points − Outsourcing increasing across all organisation sizes and organisations that do not currently outsource − Cost an important factor − After cost, track record, culture, global scale and knowledge are important − Advisors playing an increasingly important role − Outsourcing providers not aware of how they are perceived − Focus is on business benefits rather than technology January 30, 2012 6
  • 7. State of Outsourcing in 2011 – Some Results• Nearly three quarters or organisations plan to increase outsourcing activities• 59% of organisations with a shared services function and planning to increase outsourcing significantly − Shared services function is an organisational infrastructural stepping stone to outsourcing• Key reasons for outsourcing are − Cost reduction - 60-76% view as very important, depending on organisation size − More effective operations - 50-64% view as very important, depending on organisation size • 46% have found outsourcing very effective in reducing costs • 35% have found outsourcing ineffective in innovation • 31% have found outsourcing ineffective in proving access to new technology • 31% have found outsourcing ineffective in proving access to business process knowledge and experience• In-house delivery of IT and Business Processes still dominates with outsourcing limited to Help Desk and application development and support• Factors rated as very important such as not being convinced of service providers’ capabilities (39%), not being convinced of long-term business benefits (30%), insufficient short-term cost savings (37%) and fear of disruption limiting (31%) decisions to outsource• 29% of outsourcing suppliers view buyers not being convinced of their capabilities as being very important - gulf between buyer and provider• IT infrastructure and application development and maintenance outsourcing are seen as the core outsourcing areas by buyers − 68% already outsource infrastructure and will increase or plan to outsource − 62% already outsource application development and maintenance outsourcing and will increase or plan to outsource• 63% of medium-sized companies and 44% of large companies say outsourcing has been very effective in reducing costs• Buyers rate financial stability, track record and change management/governance process delivery, scale, industry specific knowledge and culture as the most critically important skills of outsourcing suppliers• The role of advisor in working with buyers on outsourcing is increasing January 30, 2012 7
  • 8. Study Respondents’ Profile January 30, 2012 8
  • 9. Buyers’ Organisation Size by Revenue January 30, 2012 9
  • 10. Buyers’ Industries January 30, 2012 10
  • 11. Outsourcing And Shared Services DeliveryDominate Global Service Models Over Next 3 Years• Emerging from the recession, will your company increase / reduce its reliance on the following operating models for general and administrative functions, over the next three years? January 30, 2012 11
  • 12. Most Organisations With Shared Services AreIncreasing Outsourcing• Emerging from the recession, will your company increase / reduce its reliance on the following operating models for your general and administrative functions, over the next 3 years? January 30, 2012 12
  • 13. Business Challenges Driving Outsourcing In 2011• How Important Are The Following Business Drivers Behind Your Companys IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important January 30, 2012 13
  • 14. Europeans Want To Drive Out Cost And Globalise –Without Changing Their Processes• How Important Are The Following Business Drivers Behind Your Companys IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important January 30, 2012 14
  • 15. Buyers Achieving Modest Business Results BeyondCost-Reduction With Their Outsourcing Initiatives• How Effective Have Your Current Outsourcing Initiatives Been At Achieving The Following Business Benefits To-Date? January 30, 2012 15
  • 16. What Is Your Primary Sourcing Model For ManagingThe Following IT and Business Processes?• Untapped sourcing potential• In-house delivery of IT and Business Processes still dominant in 2011 January 30, 2012 16
  • 17. Concerns Holding Back Outsourcing In 2011• How Important Are The Following Factors Preventing Your Organisation From IT Outsourcing Or Business Processes Over The Next 12 Months? January 30, 2012 17
  • 18. Providers Oblivious To Buyers’ Perception Of Them• How Important Are The Following Factors In Preventing Your Clients From Outsourcing IT Or Business Processes Over The Next 12 Months? (Outsourcing Providers) January 30, 2012 18
  • 19. Demand For Core General And AdministrativeOutsourcing Reaches Unprecedented Levels January 30, 2012 19
  • 20. First-Time Enterprise Buyers Look To Jump Into BPO• % Buy-side organizations looking to outsource for the first time over the next 12 months January 30, 2012 20
  • 21. Effectiveness Of Current Outsourcing Engagements:Mid-Market Organisations Benefitting The Most• How Effective Have Your Current Outsourcing Initiatives Been For Achieving The Following Business Benefits To-Date? − Answer = Very Effective January 30, 2012 21
  • 22. The Enterprise Market Gears Up For An AggressiveSpike In Scope-Expansion Across Maturing Functions• % Buy-Side Organisations Already Outsourcing And Intending To Increase Scope Over The Next 12 Months January 30, 2012 22
  • 23. After Financial Considerations, Buyers Care (Or Say TheyCare) About The Governance, Industry Acumen And CulturalAttributes Of Providers• How Important Are The Following Attributes To Your Clients Today, When Considering A Service Provider Relationship For IT/BPO Services? January 30, 2012 23
  • 24. Providers Underestimate Importance Buyers PlaceOn Change Management, Governance And Culture January 30, 2012 24
  • 25. Advisors Are Buoyant About It When Looking AtFuture Outsourcing Plans• Do You Expect Your Clients To Increase Or Reduce Their Activity Across The Following Areas, Over The Next 18 Months? − Outsourcing Advisers And Suppliers January 30, 2012 25
  • 26. Management Consultants Increasingly InfluencingOutsourcing• Extent By Which Providers Have Been Seeing The Following Advisors Influence Their Clients Outsourcing Decision-Making Over The Last Six Months January 30, 2012 26
  • 27. ITO Concerns• Transition takes too long• Not integrated• Business disruptions• Increased business risk• Lower service quality• Treatment of acquired employees• Does not deliver value• High cost of operation• Confusion over what is being sold January 30, 2012 27
  • 28. Analysis of Some Information Technology Trends• AICPA – Survey of members from 2001 to 2011 on initiatives in IT that are of concern to their 370,000 members − http://www.aicpa.org/INTERESTAREAS/INFORMATIONTECHNOLOGY/RESOURC ES/TOPTECHNOLOGYINITIATIVES/Pages/2011TopTechInitiatives.aspx• Gartner – well known analyst company• Two very different views of information technology trends − Business-oriented − Technology-oriented• IT tends to be concerned with technology trends for themselves rather than their application to business• IT outsourcing needs to concern itself with business needs rather than just pure IT January 30, 2012 28
  • 29. Gartner – Key IT Trends 2008 - 2011• How relevant are these trends to the business and to end-user organisations?• Where have the old trends gone to – lack of continuity between years?• Are they fads more than trends? 2011 2010 2009 20081 Cloud Computing Cloud Computing Virtualisation Green IT2 Mobile Applications and Media Advanced Analytics Cloud Computing Unified Communications Tablets3 Social Communications and Client Computing Servers - Beyond Blades Business Process Modelling Collaboration4 Video IT for Green Web-Oriented Metadata Management Architectures5 Next Generation Analytics Reshaping the Data Centre Enterprise Mashups Virtualisation 2.06 Social Analytics Social Computing Specialised Systems Mashup and Composite Applications7 Context-Aware Computing Security – Activity Social Software and Social Web Platform and Web- Monitoring Networking Oriented Architectures8 Storage Class Memory Flash Memory Unified Communications Computing Fabric9 Ubiquitous Computing Virtualisation for Business Intelligence Real World Web Availability10 Fabric-Based Infrastructure and Mobile Applications Green IT Social Software Computers January 30, 2012 29
  • 30. AICPA Top 10 IT Initiatives 2001-2011 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Security Of Data, Code Control and Use of Information Information Information Information Information Information Information Business And Information1 & Communications / Mobile Devices Security Security Security Security Security Security Security Financial Reporting Security And Data Security & Management Management Management Applications Controls Document Retention / Security Threats Connectivity / WirelessInformation Privacy IT Governance Identity And Access Assurance And Electronic Spam Technology Business Training And E-Business2 Access / High Speed Security Management Management Compliance Document Information Technology Internet Connections / Applications Management Management Competency Voice And Data Backup Solutions/ Data Retention Secure Data File Business Continuity Conforming To Disaster And Data Integration Digital OptimisationApplication Information Electronically-3 Disaster Recovery/ Policies and Storage, Management And Assurance And Business Continuity Integration Security and based Business and Business Continuity Structure Transmission And Disaster Recovery Compliance Planning Controls Financial Reporting Exchange Planning Standards Secure Electronic Remote Access Business Process Privacy Privacy IT Governance Spam Technology Database and Web Services Quality of Service Privacy4 Collaboration With Improvement, Management Management Application Clients – Client Portals Work Flow and Integration Process Exception Alerts Paperless Workflow/ Staff and Mobile and Remote Business Process Disaster Recovery Privacy Disaster Recovery Wireless Disaster Recovery Disaster Recovery Training and5 Paperless Technology Management Computing Improvement, Planning and Management Technologies Planning and Technology Training Workflow and Business Continuity Business Continuity competency Process Exception Management Management Alerts Laptop Security / Process Training and Identity and Access IT Governance Digital Identity and Collaboration and Disaster Recovery Wireless Communication Disaster Recovery6 Encryption Documentation andCompetency Management Authentication Messaging Technologies Technologies improvements Technologies Technologies Bandwidth Small Business Saving and Making Identity and Access Conforming to Securing and Wireless Wireless Data Mining Intrusion Detection Remote Qualified IT7 Software / Office 2010 Money Management Assurance and Controlling Technologies Technologies Connectivity Tools Personnel / Windows 7 w/Technology Compliance Information Standards Distribution User Mobility/ Mobile Technology Cost Improved Business Mobile and RemoteApplication and Authentication Virtual Office Intrusion Detection Web-Based and Quality of Service8 Computing/ Mobile Controls Application and Intelligence Computing Data Integration Technologies Web-Enabled Devices Data Integration Applications Tax Software/ Budget Processes Document, Forms, Mobile and Remote Electronic Archiving Paperless Digital Storage Business Exchange Customer Qualified IT Electronic Audit9 Electronic Transmittals Content and Computing and Data Retention Technologies Technologies Technology Relationship personnel Trail Of Tax Forms Knowledge Management Management Server Virtualization Project Electronic Data Document, Forms, Document, Content Spyware Detection Learning and Messaging Privacy Messaging Application Service10 And Consolidation Management & Retention Strategy Content and and Knowledge and Removal Training Applications Applications (e- Provider Deployment of Knowledge Management Competency mail, faxing, New Systems Management voicemail, instant messaging) January 30, 2012 30
  • 31. AICPA Top 10 IT Initiatives 2005-2011 2011 2010 2009 2008 2007 2006 20051 Security Of Data, Code & Control and Use of Information Security Information Security Information Security Information Security Information Security Communications / Data Mobile Devices Management Management Management Security & Document Retention / Security Threats2 Connectivity / Wireless Information Security Privacy Management IT Governance Identity And Access Assurance And Electronic Document Access / High Speed Management Compliance ApplicationsManagement Internet Connections / Voice And Data3 Backup Solutions/ Disaster Data Retention Policies Secure Data File Business Continuity Conforming To AssuranceDisaster And Business Data Integration Recovery/ Business and Structure Storage, Transmission Management And And Compliance Continuity Planning Continuity And Exchange Disaster Recovery Standards Planning4 Secure Electronic Remote Access Business Process Privacy Management Privacy Management IT Governance Spam Technology Collaboration With Clients – Improvement, Work Client Portals Flow and Process Exception Alerts5 Paperless Workflow/ Staff and Management Mobile and Remote Business Process Disaster Recovery Privacy Management Disaster Recovery Paperless Technology Training Computing Improvement, Planning and Business Workflow and Process Continuity Management Exception Alerts6 Laptop Security / Encryption Process Documentation Training and Identity and Access IT Governance Digital Identity and Collaboration and and improvements Competency Management Authentication Messaging Technologies Technologies7 Small Business Software / Saving and Making Identity and Access Conforming to Securing and Controlling Wireless Technologies Wireless Technologies Office 2010 / Windows 7 Money w/Technology Management Assurance and Information Distribution Compliance Standards8 User Mobility/ Mobile Technology Cost Improved Application Business Intelligence Mobile and Remote Application and Data Authentication Computing/ Mobile Devices Controls and Data Integration Computing Integration Technologies9 Tax Software/ Electronic Budget Processes Document, Forms, Mobile and Remote Electronic Archiving and Paperless Digital Storage Technologies Transmittals Of Tax Forms Content and Knowledge Computing Data Retention Technologies Management10 Server Virtualization And Project Management & Electronic Data Document, Forms, Document, Content and Spyware Detection and Learning and Training Consolidation Deployment of New Retention Strategy Content and Knowledge Management Removal Competency Systems Knowledge Management January 30, 2012 31
  • 32. Security, Privacy, Governance, Disaster Recovery 2011 2010 2009 2008 2007 2006 20051 Security Of Data, Code & Control and Use of Information Security Information Security Information Security Information Security Information Security Communications / Data Mobile Devices Management Management Management Security & Document Retention / Security Threats2 Connectivity / Wireless Information Security Privacy Management IT Governance Identity And Access Assurance And Electronic Document Access / High Speed Internet Management Compliance ApplicationsManagement Connections / Voice And Data3 Backup Solutions/ Disaster Data Retention Secure Data File Business Continuity Conforming To AssuranceDisaster And Business Data Integration Recovery/ Business Policies and Structure Storage, Transmission Management And And Compliance Continuity Planning Continuity And Exchange Disaster Recovery Standards Planning4 Secure Electronic Remote Access Business Process Privacy Management Privacy Management IT Governance Spam Technology Collaboration With Clients – Improvement, Work Client Portals Flow and Process Exception Alerts5 Paperless Workflow/ Staff and Management Mobile and Remote Business Process Disaster Recovery Privacy Management Disaster Recovery Paperless Technology Training Computing Improvement, Planning and Business Workflow and Process Continuity Management Exception Alerts6 Laptop Security / Encryption Process Training and Identity and Access IT Governance Digital Identity and Collaboration and Documentation and Competency Management Authentication Messaging Technologies improvements Technologies7 Small Business Software / Saving and Making Identity and Access Conforming to Securing and Controlling Wireless Technologies Wireless Technologies Office 2010 / Windows 7 Money w/Technology Management Assurance and Information Distribution Compliance Standards8 User Mobility/ Mobile Technology Cost Improved Application Business Intelligence Mobile and Remote Application and Data Authentication Computing/ Mobile Devices Controls and Data Integration Computing Integration Technologies9 Tax Software/ Electronic Budget Processes Document, Forms, Mobile and Remote Electronic Archiving and Paperless Digital Storage Technologies Transmittals Of Tax Forms Content and Knowledge Computing Data Retention Technologies Management10 Server Virtualization And Project Management Electronic Data Document, Forms, Document, Content and Spyware Detection and Learning and Training Consolidation & Deployment of New Retention Strategy Content and Knowledge Management Removal Competency Systems Knowledge Management January 30, 2012 32
  • 33. Data, Information and Document Management/Integration and Analysis and Related Initiatives 2011 2010 2009 2008 2007 2006 20051 Security Of Data, Code & Control and Use of Information Security Information Security Information Security Information Security Information Security Communications / Data Mobile Devices Management Management Management Security & Document Retention / Security Threats2 Connectivity / Wireless Information Security Privacy Management IT Governance Identity And Access Assurance And Electronic Document Access / High Speed Internet Management Compliance ApplicationsManagement Connections / Voice And Data3 Backup Solutions/ Disaster Data Retention Policies Secure Data File Business Continuity Conforming To AssuranceDisaster And Business Data Integration Recovery/ Business and Structure Storage, Transmission Management And And Compliance Continuity Planning Continuity And Exchange Disaster Recovery Standards Planning4 Secure Electronic Remote Access Business Process Privacy Management Privacy Management IT Governance Spam Technology Collaboration With Clients – Improvement, Work Client Portals Flow and Process Exception Alerts5 Paperless Workflow/ Staff and Management Mobile and Remote Business Process Disaster Recovery Privacy Management Disaster Recovery Paperless Technology Training Computing Improvement, Planning and Business Workflow and Process Continuity Management Exception Alerts6 Laptop Security / Encryption Process Training and Identity and Access IT Governance Digital Identity and Collaboration and Documentation and Competency Management Authentication Messaging Technologies improvements Technologies7 Small Business Software / Saving and Making Identity and Access Conforming to Securing and Controlling Wireless Technologies Wireless Technologies Office 2010 / Windows 7 Money w/Technology Management Assurance and Information Distribution Compliance Standards8 User Mobility/ Mobile Technology Cost Improved Application Business Intelligence Mobile and Remote Application and Data Authentication Computing/ Mobile Devices Controls and Data Integration Computing Integration Technologies9 Tax Software/ Electronic Budget Processes Document, Forms, Mobile and Remote Electronic Archiving and Paperless Digital Storage Technologies Transmittals Of Tax Forms Content and Computing Data Retention Technologies Knowledge Management10 Server Virtualization And Project Management Electronic Data Document, Forms, Document, Content and Spyware Detection and Learning and Training Consolidation & Deployment of New Retention Strategy Content and Knowledge Removal Competency Systems Knowledge Management Management January 30, 2012 33
  • 34. AICPA Top IT Initiatives• Notice any differences?• Business-oriented focus of IT initiatives − Not concerned with IT plumbing and infrastructure (such as cloud) but on business concerns - running the business - and business- related IT concerns – potential impact of IT systems on the wider business − Security, privacy, disaster recovery/business continuity and governance concerns dominate• How will pure technology trends assist in delivering these initiatives?• Effective IT outsourcing assist with addressing these concerns January 30, 2012 34
  • 35. Transition and Transformation Within Outsourcing• Transition is the entire process for assuming operational responsibility for the acquired entity − Transition moves the acquired entity organization from its current mode of operation to an integrated managed mode of operation − Transition includes the takeover of the “as-is” business and operating environment as well as contractual requirements necessary to facilitate the transfer.• Transformation is the implementation of completed integrated solution within a specified time, that lead to entirely integrated operation, service enhancements and/or quality, productivity, technology improvements and cost savings/reductions• An approach to transformation is very important for successful outsourcing• Transformation is the basis for greater cost savings and innovation• Outsourcing without transformation is a risk as what is outsourced can stagnate over time January 30, 2012 35
  • 36. Transition and Transformation Steady State Transition Transformation Operation Customer Customer Standardised Primary Infrastructure Infrastructure Infrastructure Support and and Through Transferred to Applications, Applications, Refresh, Appropriate Staff, Support Transferred Customer Cost Location Processes and and Being Support Tools Supported by Processes and Supplier Tools Replaced by Supplier Standards• Transition and transformation is a process that must be articulated effectively to customers• Customer must understand the implications and must accept the process• Delays or stoppages affect supplier’s costs January 30, 2012 36
  • 37. Outsourcing Process Contract Service Effective Date Commencement Date Pre-Operation and Steady StateEvaluation and Negotiation and Pre-Integration Transition Transformation Operation of Decision Contract Signing Start Integrated Entity Due Diligence Preliminary Transformation Final Transition Plan Review and Transition Plan Planning Confirmation Integration Transformation Due Diligence Contract Review Preparation Delivery Transition Transformation Transition Initiation Completed Completed Finalise Integration Solution Architecture January 30, 2012 37
  • 38. Transition and Transformation Management Integration Start Transition Transformation Transformation Signed Contract Review Criteria Achieved Review Criteria Achieved Transformation Terms and Transition to to Delivery Conditions Delivery Handoff Handoff Propose, Negotiate and Close Delivery Ongoing Planning Transition Transformation OperationResearch, Analysis, Identification Transition Initiation/Kick-off Transformation Initiation/Kick-off Preliminary Transition and Post Contract Verification Stabilisation Transformation Plans Due Diligence Solution Handoff Standardisation Transformation CloseFinal Integrated Transition Plan Acquisition Management Office Transfer Quality Review Acquisition Milestone Engagement Stage Operation Commencement Preparation Key Reporting Transition and Events Transformation Phase Final Integrated Transition Plan Handoff Events Activity January 30, 2012 38
  • 39. Types of Outsourcing Arrangement• Efficiency/Utility (Make it Cheaper) arrangement outsourcing focuses primarily on cost control and, over time, cost reduction, with the goal of maintaining consistency in the delivery of services• Business Enhancement (Make it Better) arrangement is about business productivity. The organisation’s performance, as compared with their competitors, will improve, resulting in movement toward defined business goals• Transformational (Make me Money) arrangement is characterised by a partnership between the service provider and service recipient that is focused on innovation and new business, changing the very basis on which an organisation competes• Which arrangement are you looking for?• Clearly understand what your expectations are January 30, 2012 39
  • 40. Problems With Outsourcing• Many organisations take a “fire and forget” approach to outsourcing• Problems with outsourcing are as much the fault of the outsourcing organisation as they are of the supplier• Outsourcing organisation need to define an operating model and be engaged with the outsourcing relationship• You can outsource anything except the management of the outsourcing relationship January 30, 2012 40
  • 41. Outsourcing and Innovation• Outsourcing is not viewed by buyers or suppliers as a source of innovation − Not seen as an agent of change, innovation, transformation, access to new technology• Outsourcing is seen as “your mess for less”• Buyers neglect the value of transformation and how it can contribute to innovation and generate real business benefits• Providers do not sell transformation as a pre-requisite for innovation as well as further cost savings• Companies looking to outsource should look for a transformation and innovation vision from their supplier January 30, 2012 41
  • 42. Business Challenges Driving Outsourcing In 2011• How Important Are The Following Business Drivers Behind Your Companys IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important• Innovation, Change, Access to New Technology, Transformation seen as relatively unimportant January 30, 2012 42
  • 43. Europeans Want To Drive Out Cost And Globalise –Without Changing Their Processes• How Important Are The Following Business Drivers Behind Your Companys IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important• Innovation, Change, Access to New Technology, Transformation seen as relatively unimportant outside Asia January 30, 2012 43
  • 44. Buyers Achieving Modest Business Results BeyondCost-Reduction With Their Outsourcing Initiatives• How Effective Have Your Current Outsourcing Initiatives Been At Achieving The Following Business Benefits To-Date?• Existing outsourcing suppliers not seen as effective in delivering Innovation, Change, Access to New Technology, Transformation January 30, 2012 44
  • 45. Effectiveness Of Current Outsourcing Engagements:Mid-Market Organisations Benefitting The Most• How Effective Have Your Current Outsourcing Initiatives Been For Achieving The Following Business Benefits To-Date? − Answer = Very Effective• Existing outsourcing initiatives not seen as effective in delivering Innovation, Change, Access to New Technology, Transformation January 30, 2012 45
  • 46. After Financial Considerations, Buyers Care (Or Say TheyCare) About The Governance, Industry Acumen And CulturalAttributes Of Providers• How Important Are The Following Attributes To Your Clients Today, When Considering A Service Provider Relationship For IT/BPO Services?• Buyers of outsourcing services do not rate Innovation and Transformation as important supplier attributes January 30, 2012 46
  • 47. Providers Underestimate Importance Buyers PlaceOn Change Management, Governance And Culture• Buyers of outsourcing services do not rate Innovation and Transformation as important supplier attributes but suppliers still underestimate the important of Innovation January 30, 2012 47
  • 48. Transformation Process Introduces Standardisationand Enables Innovation • Takes disparate set of From … To … sources and creates standard model • Effective transformation is an enabler of innovation with IT function − On-demand self- service − Elastic − Measured and metered usage and pricing − Scale − Resilience − Available − Secure January 30, 2012 48
  • 49. A (Financial) Tale of Three Outsourcing Vendors• Sample analysis of three vendors involved in outsourcing − Dell – small outsourcing practice based on acquisition of Perot Systems and legacy outsourcing business − HP – large outsourcing vendor with expanded practice since the acquisition of EDS − IBM – large outsourcing vendor• By no means exhaustive – there are many outsourcing service providers January 30, 2012 49
  • 50. Vendor Comparison Summary 2010 2009 2008 Dell HP IBM Dell HP IBM Dell HP IBMRevenue 52,902 126,033 99,870 61,101 114,552 95,758 61,133 118,364 103,630Gross Margin 9,261 29,996 46,040 10,957 27,034 43,761 11,671 28,644 45,701Gross Margin % 17.5% 23.8% 46.1% 17.9% 23.6% 45.7% 19.1% 24.2% 44.1%Net Income 1,433 8,761 14,833 2,478 7,660 13,425 2,947 8,329 12,334Net Income % 2.7% 7.0% 14.9% 4.1% 6.7% 14.0% 4.8% 7.0% 11.9%Outsourcing Revenue 5,622 18,835 22,241 5,351 18,692 21,620 4,980 8,211 22,733Outsourcing Revenue % 10.60% 14.90% 22.30% 8.80% 16.30% 22.60% 8.10% 6.90% 21.90%• Outsourcing Revenue for Dell includes all services including outsourcing• Dell performing poorly relative to its competitors: − Lower margins − Lower proportion of service and outsourcing revenues January 30, 2012 50
  • 51. Vendor Comparison• Compare Dell, HP and IBM• Comparisons taken from 10-K filings• Difficult to make exact comparison − Major service-related takeovers • Dell acquire Perot in Nov 2009 • HP acquire EDS in Aug 2008• Classification of revenues not consistent between years• Restatement of revenues − Dell 2010 10 K • Services revenue for 2009 = 5,351 • Services revenue for 2008 = 4,980 • Dell 2009 10 K • Services revenue for 2009 = 5,715 • Services revenue for 2008 = 5,320 January 30, 2012 51
  • 52. Vendor Comparison• Which vendor can articulate a transformation vision for your organisation? January 30, 2012 52
  • 53. IBM• Revenue from − Hardware – classified as Systems and Technology − Software − Services – divided into: • Global Technology Services - provides IT infrastructure services and business process services, including outsourcing and other services • Global Business Services - provides professional services and application management services − Outsourcing classified as: • Strategic Outsourcing Services - existing infrastructure • Global Process Services - standardised processing platforms and business process outsourcing• Gross margins not reported down to outsourcing business area January 30, 2012 53
  • 54. IBM – Financial Summary 2010 2009 2008 2007 2006Revenue 99,870 95,758 103,630 98,786 91,424Gross Margin 46,040 43,761 45,701 41,688 38,307Gross Margin % 46.1% 45.7% 44.1% 42.2% 41.9%Net Income 14,833 13,425 12,334 10,418 9,492Net Income % 14.9% 14.0% 11.9% 10.5% 10.4%Global Technology Services Revenue Total 38,201 37,347 39,264 36,103 32,322Global Technology Services Total Gross Margin 34.7% 35.0% 32.60% 29.90% 29.80%Global Technology Services Revenue (Excluding Outsourcing) 15,960 15,727 16,531 15,108 13,433Outsourcing Revenue 22,241 21,620 22,733 20,995 18,889Outsourcing Revenue % 22.3% 22.6% 21.9% 21.3% 20.7%Global Business Services 18,223 17,653 19,628 18,041 15,969Global Business Services Gross Margin % 46.1% 45.7% 26.70% 23.50% 23.10%Software 22,485 21,396 22,089 19,982 18,161Software Gross Margin % 86.9% 86.0% 85.40% 85.20% 85.20%Systems and Technology 17,973 16,190 19,287 21,317 21,970Systems and Technology Gross Margin % 46.1% 45.7% 38.10% 39.70% 37.70%Global Financing 2,238 2,302 2,559 2,502 2,365Global Financing Gross Margin % 51.3% 47.5% 51.30% 46.70% 50.30% January 30, 2012 54
  • 55. IBM – Financial Summary January 30, 2012 55
  • 56. IBM – Financial Summary January 30, 2012 56
  • 57. IBM – Financial Summary• Consistent performance• Balanced across product and service areas• C. 22% revenue from outsourcing January 30, 2012 57
  • 58. HP• Revenue from − Services – classified under: • Infrastructure Technology Outsourcing • Business Process Outsourcing • Technology Services • Application Services − ESS – Enterprise Systems, Storage and Networking − Software − Personal Systems − Imaging and Printing − Financing• Does not report Net Income for individual business lines − Earning from Operations rather than Net Income – includes acquired intangible assets, pension settlements, etc. − Earning from Operations greater than Net Income by c 30% January 30, 2012 58
  • 59. HP – Financial Summary 2010 2009 2008Revenue 126,033 114,552 118,364Gross Margin 29,996 27,034 28,644Gross Margin % 23.8% 23.6% 24.2%Earnings from Operations 11,479 10,136 10,473Earnings from Operations % 9.1% 8.8% 8.8%Net Income 8,761 7,660 8,329Net Income % 7.0% 6.7% 7.0%Total Services (Including Outsourcing) Revenue 34,935 34,693 20,977Total Services (Including Outsourcing) Earning from Operations 5,609 5,044 2,518Total Services (Including Outsourcing) Earning from Operations % 16.1% 14.5% 12.0%Infrastructure Technology Outsourcing 15,963 15,751 7,488Business Process Outsourcing 2,872 2,941 723Total Outsourcing 18,835 18,692 8,211Total Outsourcing % 14.9% 16.3% 6.9%ESS Revenue 18,651 15,359 19,400ESS Earnings from Operations 2,402 1,518 2,577ESS Earnings from Operations % 12.9% 9.9% 13.3%Software Revenue 3,586 3,572 4,220Software Earnings from Operations 759 684 499Software Earnings from Operations % 21.2% 19.1% 11.8%Personal Systems Revenue 40,741 35,305 42,295Personal Systems Earnings from Operations 2,032 1,661 2,375Personal Systems Earnings from Operations % 5.0% 4.7% 5.6%Imaging and Printing Revenue 25,764 24,011 29,614Imaging and Printing Earnings from Operations 4,412 4,310 4,559Imaging and Printing Earnings from Operations % 17.1% 18.0% 15.4%Financing Revenue 3,047 2,673 2,698Financing Earnings from Operations 281 206 192Financing Earnings from Operations % 9.2% 7.7% 7.1% January 30, 2012 59
  • 60. HP – Financial Summary January 30, 2012 60
  • 61. HP – Financial Summary January 30, 2012 61
  • 62. HP – Financial Summary• Substantial increase in outsourcing revenue after EDS acquisition• Services Earning from Operations % substantially greater than average Earning from Operations % across all business areas − Services including outsourcing more profitable January 30, 2012 62
  • 63. Dell – Financial Summary 2010 2009 2008Revenue 52,902 61,101 61,133Gross Margin 9,261 10,957 11,671Gross Margin % 17.5% 17.9% 19.1%Net Income 1,433 2,478 2,947Net Income % 2.7% 4.1% 4.8%Product Revenue 43,697 52,337 53,728Product Revenue % 82.6% 85.7% 87.9%Product Revenue Gross Margin 6,163 7,667 8,579Product Revenue Gross Margin % 14.1% 14.6% 16.0%Service Revenue Including Software 9,205 8,764 7,405Service Revenue Including Software % 17.4% 14.3% 12.1%Service Revenue Gross Margin 3,098 3,290 3,290Service Revenue Gross Margin % 33.7% 37.5% 44.4%Service Revenue Excluding Software 5,622 5,351 4,980Service Revenue Excluding Software % 10.6% 8.8% 8.1% January 30, 2012 63
  • 64. Dell – Product/Software/Services Breakdown January 30, 2012 64
  • 65. Dell – Product/Software/Services Breakdown January 30, 2012 65

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