Business-Oriented Trends in IT
Outsourcing
Alan McSweeney
January 30, 2012 2
Objectives
• To identify business-oriented trends in Information
Technology outsourcing
January 30, 2012 3
Topics
• Outsourcing Trends
• Business-Oriented General IT Trends
• Transition and Transformation Withi...
January 30, 2012 4
ITO Trends
January 30, 2012 5
State of Outsourcing in 2011
• Survey conducted by the London School of
Economics Outsourcing Unit
• 1,...
January 30, 2012 6
State of Outsourcing in 2011
• Key points
− Outsourcing increasing across all organisation sizes and
or...
January 30, 2012 7
State of Outsourcing in 2011 – Some Results
• Nearly three quarters or organisations plan to increase o...
January 30, 2012 8
Study Respondents’ Profile
January 30, 2012 9
Buyers’ Organisation Size by Revenue
January 30, 2012 10
Buyers’ Industries
January 30, 2012 11
Outsourcing And Shared Services Delivery
Dominate Global Service Models Over Next 3 Years
• Emerging f...
January 30, 2012 12
Most Organisations With Shared Services Are
Increasing Outsourcing
• Emerging from the recession, will...
January 30, 2012 13
Business Challenges Driving Outsourcing In 2011
• How Important Are The Following Business Drivers Beh...
January 30, 2012 14
Europeans Want To Drive Out Cost And Globalise –
Without Changing Their Processes
• How Important Are ...
January 30, 2012 15
Buyers Achieving Modest Business Results Beyond
Cost-Reduction With Their Outsourcing Initiatives
• Ho...
January 30, 2012 16
What Is Your Primary Sourcing Model For Managing
The Following IT and Business Processes?
• Untapped s...
January 30, 2012 17
Concerns Holding Back Outsourcing In 2011
• How Important Are The Following Factors Preventing Your Or...
January 30, 2012 18
Providers Oblivious To Buyers’ Perception Of Them
• How Important Are The Following Factors In Prevent...
January 30, 2012 19
Demand For Core General And Administrative
Outsourcing Reaches Unprecedented Levels
January 30, 2012 20
First-Time Enterprise Buyers Look To Jump Into BPO
• % Buy-side organizations looking to outsource for...
January 30, 2012 21
Effectiveness Of Current Outsourcing Engagements:
Mid-Market Organisations Benefitting The Most
• How ...
January 30, 2012 22
The Enterprise Market Gears Up For An Aggressive
Spike In Scope-Expansion Across Maturing Functions
• ...
January 30, 2012 23
After Financial Considerations, Buyers Care (Or Say They
Care) About The Governance, Industry Acumen A...
January 30, 2012 24
Providers Underestimate Importance Buyers Place
On Change Management, Governance And Culture
January 30, 2012 25
Advisors Are Buoyant About It When Looking At
Future Outsourcing Plans
• Do You Expect Your Clients To...
January 30, 2012 26
Management Consultants Increasingly Influencing
Outsourcing
• Extent By Which Providers Have Been Seei...
January 30, 2012 27
ITO Concerns
• Transition takes too long
• Not integrated
• Business disruptions
• Increased business ...
January 30, 2012 28
Analysis of Some Information Technology Trends
• AICPA – Survey of members from 2001 to 2011 on initia...
January 30, 2012 29
Gartner – Key IT Trends 2008 - 2011
2011 2010 2009 2008
1 Cloud Computing Cloud Computing Virtualisati...
January 30, 2012 30
AICPA Top 10 IT Initiatives 2001-2011
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
1 Securit...
January 30, 2012 31
AICPA Top 10 IT Initiatives 2005-2011
2011 2010 2009 2008 2007 2006 2005
1 Security Of Data, Code &
Co...
January 30, 2012 32
Security, Privacy, Governance, Disaster Recovery
2011 2010 2009 2008 2007 2006 2005
1 Security Of Data...
January 30, 2012 33
Data, Information and Document Management/
Integration and Analysis and Related Initiatives
2011 2010 ...
January 30, 2012 34
AICPA Top IT Initiatives
• Notice any differences?
• Business-oriented focus of IT initiatives
− Not c...
January 30, 2012 35
Transition and Transformation Within Outsourcing
• Transition is the entire process for assuming opera...
January 30, 2012 36
Transition and Transformation
Transition Transformation
Steady State
Operation
Customer
Infrastructure...
January 30, 2012 37
Evaluation and
Decision
Negotiation and
Contract Signing
Pre-Operation and
Pre-Integration
Start
Trans...
January 30, 2012 38
Propose, Negotiate and Close
Planning
Research, Analysis, Identification
Preliminary Transition and
Tr...
January 30, 2012 39
Types of Outsourcing Arrangement
• Efficiency/Utility (Make it Cheaper) arrangement outsourcing
focuse...
January 30, 2012 40
Problems With Outsourcing
• Many organisations take a “fire and forget” approach to
outsourcing
• Prob...
January 30, 2012 41
Outsourcing and Innovation
• Outsourcing is not viewed by buyers or suppliers as a
source of innovatio...
January 30, 2012 42
Business Challenges Driving Outsourcing In 2011
• How Important Are The Following Business Drivers Beh...
January 30, 2012 43
Europeans Want To Drive Out Cost And Globalise –
Without Changing Their Processes
• How Important Are ...
January 30, 2012 44
Buyers Achieving Modest Business Results Beyond
Cost-Reduction With Their Outsourcing Initiatives
• Ho...
January 30, 2012 45
Effectiveness Of Current Outsourcing Engagements:
Mid-Market Organisations Benefitting The Most
• How ...
January 30, 2012 46
After Financial Considerations, Buyers Care (Or Say They
Care) About The Governance, Industry Acumen A...
January 30, 2012 47
Providers Underestimate Importance Buyers Place
On Change Management, Governance And Culture
• Buyers ...
January 30, 2012 48
Transformation Process Introduces Standardisation
and Enables Innovation
• Takes disparate set of
sour...
January 30, 2012 49
A (Financial) Tale of Three Outsourcing Vendors
• Sample analysis of three vendors involved in outsour...
January 30, 2012 50
Vendor Comparison Summary
• Outsourcing Revenue for Dell includes all services including
outsourcing
•...
January 30, 2012 51
Vendor Comparison
• Compare Dell, HP and IBM
• Comparisons taken from 10-K filings
• Difficult to make...
January 30, 2012 52
Vendor Comparison
• Which vendor can articulate a transformation vision for
your organisation?
January 30, 2012 53
IBM
• Revenue from
− Hardware – classified as Systems and Technology
− Software
− Services – divided i...
January 30, 2012 54
IBM – Financial Summary
2010 2009 2008 2007 2006
Revenue 99,870 95,758 103,630 98,786 91,424
Gross Mar...
January 30, 2012 55
IBM – Financial Summary
January 30, 2012 56
IBM – Financial Summary
January 30, 2012 57
IBM – Financial Summary
• Consistent performance
• Balanced across product and service areas
• C. 22% ...
January 30, 2012 58
HP
• Revenue from
− Services – classified under:
• Infrastructure Technology Outsourcing
• Business Pr...
January 30, 2012 59
HP – Financial Summary
2010 2009 2008
Revenue 126,033 114,552 118,364
Gross Margin 29,996 27,034 28,64...
January 30, 2012 60
HP – Financial Summary
January 30, 2012 61
HP – Financial Summary
January 30, 2012 62
HP – Financial Summary
• Substantial increase in outsourcing revenue after EDS
acquisition
• Services ...
January 30, 2012 63
Dell – Financial Summary
2010 2009 2008
Revenue 52,902 61,101 61,133
Gross Margin 9,261 10,957 11,671
...
January 30, 2012 64
Dell – Product/Software/Services Breakdown
January 30, 2012 65
Dell – Product/Software/Services Breakdown
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Business-Oriented Trends in IT Outsourcing

  1. 1. Business-Oriented Trends in IT Outsourcing Alan McSweeney
  2. 2. January 30, 2012 2 Objectives • To identify business-oriented trends in Information Technology outsourcing
  3. 3. January 30, 2012 3 Topics • Outsourcing Trends • Business-Oriented General IT Trends • Transition and Transformation Within Outsourcing • Outsourcing and Innovation • A (Financial) Tale of Three Outsourcing Vendors
  4. 4. January 30, 2012 4 ITO Trends
  5. 5. January 30, 2012 5 State of Outsourcing in 2011 • Survey conducted by the London School of Economics Outsourcing Unit • 1,209 Buyers, 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
  6. 6. January 30, 2012 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
  7. 7. January 30, 2012 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
  8. 8. January 30, 2012 8 Study Respondents’ Profile
  9. 9. January 30, 2012 9 Buyers’ Organisation Size by Revenue
  10. 10. January 30, 2012 10 Buyers’ Industries
  11. 11. January 30, 2012 11 Outsourcing And Shared Services Delivery Dominate 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?
  12. 12. January 30, 2012 12 Most Organisations With Shared Services Are Increasing 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?
  13. 13. January 30, 2012 13 Business Challenges Driving Outsourcing In 2011 • How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important
  14. 14. January 30, 2012 14 Europeans Want To Drive Out Cost And Globalise – Without Changing Their Processes • How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important
  15. 15. January 30, 2012 15 Buyers Achieving Modest Business Results Beyond Cost-Reduction With Their Outsourcing Initiatives • How Effective Have Your Current Outsourcing Initiatives Been At Achieving The Following Business Benefits To-Date?
  16. 16. January 30, 2012 16 What Is Your Primary Sourcing Model For Managing The Following IT and Business Processes? • Untapped sourcing potential • In-house delivery of IT and Business Processes still dominant in 2011
  17. 17. January 30, 2012 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?
  18. 18. January 30, 2012 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)
  19. 19. January 30, 2012 19 Demand For Core General And Administrative Outsourcing Reaches Unprecedented Levels
  20. 20. January 30, 2012 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
  21. 21. January 30, 2012 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
  22. 22. January 30, 2012 22 The Enterprise Market Gears Up For An Aggressive Spike In Scope-Expansion Across Maturing Functions • % Buy-Side Organisations Already Outsourcing And Intending To Increase Scope Over The Next 12 Months
  23. 23. January 30, 2012 23 After Financial Considerations, Buyers Care (Or Say They Care) About The Governance, Industry Acumen And Cultural Attributes Of Providers • How Important Are The Following Attributes To Your Clients Today, When Considering A Service Provider Relationship For IT/BPO Services?
  24. 24. January 30, 2012 24 Providers Underestimate Importance Buyers Place On Change Management, Governance And Culture
  25. 25. January 30, 2012 25 Advisors Are Buoyant About It When Looking At Future 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
  26. 26. January 30, 2012 26 Management Consultants Increasingly Influencing Outsourcing • Extent By Which Providers Have Been Seeing The Following Advisors Influence Their Clients' Outsourcing Decision-Making Over The Last Six Months
  27. 27. January 30, 2012 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
  28. 28. January 30, 2012 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
  29. 29. January 30, 2012 29 Gartner – Key IT Trends 2008 - 2011 2011 2010 2009 2008 1 Cloud Computing Cloud Computing Virtualisation Green IT 2 Mobile Applications and Media Tablets Advanced Analytics Cloud Computing Unified Communications 3 Social Communications and Collaboration Client Computing Servers - Beyond Blades Business Process Modelling 4 Video IT for Green Web-Oriented Architectures Metadata Management 5 Next Generation Analytics Reshaping the Data Centre Enterprise Mashups Virtualisation 2.0 6 Social Analytics Social Computing Specialised Systems Mashup and Composite Applications 7 Context-Aware Computing Security – Activity Monitoring Social Software and Social Networking Web Platform and Web- Oriented Architectures 8 Storage Class Memory Flash Memory Unified Communications Computing Fabric 9 Ubiquitous Computing Virtualisation for Availability Business Intelligence Real World Web 10 Fabric-Based Infrastructure and Computers Mobile Applications Green IT Social Software • 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?
  30. 30. January 30, 2012 30 AICPA Top 10 IT Initiatives 2001-2011 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 1 Security Of Data, Code & Communications / Data Security & Document Retention / Security Threats Control and Use of Mobile Devices Information Security Management Information Security Management Information Security Management Information Security Information Security Information Security Information Security Business And Financial Reporting Applications Information Security And Controls 2 Connectivity / Wireless Access / High Speed Internet Connections / Voice And Data Information Security Privacy Management IT Governance Identity And Access Management Assurance And Compliance Applications Electronic Document Management Spam Technology Business Information Management Training And Technology Competency E-Business 3 Backup Solutions/ Disaster Recovery/ Business Continuity Data Retention Policies and Structure Secure Data File Storage, Transmission And Exchange Business Continuity Management And Disaster Recovery Planning Conforming To Assurance And Compliance Standards Disaster And Business Continuity Planning Data Integration Digital OptimisationApplication Integration Information Security and Controls Electronically- based Business and Financial Reporting 4 Secure Electronic Collaboration With Clients – Client Portals Remote Access Business Process Improvement, Work Flow and Process Exception Alerts Privacy Management Privacy Management IT Governance Spam Technology Database and Application Integration Web Services Quality of Service Privacy 5 Paperless Workflow/ Paperless Technology Staff and Management Training Mobile and Remote Computing Business Process Improvement, Workflow and Process Exception Alerts Disaster Recovery Planning and Business Continuity Management Privacy Management Disaster Recovery Wireless Technologies Disaster Recovery Disaster Recovery Planning and Business Continuity Management Training and Technology competency 6 Laptop Security / Encryption Process Documentation and improvements Training and Competency Identity and Access Management IT Governance Digital Identity and Authentication Technologies Collaboration and Messaging Technologies Disaster Recovery Wireless Technologies Communication Technologies Bandwidth Disaster Recovery 7 Small Business Software / Office 2010 / Windows 7 Saving and Making Money w/Technology Identity and Access Management Conforming to Assurance and Compliance Standards Securing and Controlling Information Distribution Wireless Technologies Wireless Technologies Data Mining Intrusion Detection Remote Connectivity Tools Qualified IT Personnel 8 User Mobility/ Mobile Computing/ Mobile Devices Technology Cost Controls Improved Application and Data Integration Business Intelligence Mobile and Remote Computing Application and Data Integration Authentication Technologies Virtual Office Intrusion Detection Web-Based and Web-Enabled Applications Quality of Service 9 Tax Software/ Electronic Transmittals Of Tax Forms Budget Processes Document, Forms, Content and Knowledge Management Mobile and Remote Computing Electronic Archiving and Data Retention Paperless Digital Technologies Storage Technologies Business Exchange Technology Customer Relationship Management Qualified IT personnel Electronic Audit Trail 10Server Virtualization And Consolidation Project Management & Deployment of New Systems Electronic Data Retention Strategy Document, Forms, Content and Knowledge Management Document, Content and Knowledge Management Spyware Detection and Removal Learning and Training Competency Messaging Applications Privacy Messaging Applications (e- mail, faxing, voicemail, instant messaging) Application Service Provider
  31. 31. January 30, 2012 31 AICPA Top 10 IT Initiatives 2005-2011 2011 2010 2009 2008 2007 2006 2005 1 Security Of Data, Code & Communications / Data Security & Document Retention / Security Threats Control and Use of Mobile Devices Information Security Management Information Security Management Information Security Management Information Security Information Security 2 Connectivity / Wireless Access / High Speed Internet Connections / Voice And Data Information Security Privacy Management IT Governance Identity And Access Management Assurance And Compliance Applications Electronic Document Management 3 Backup Solutions/ Disaster Recovery/ Business Continuity Data Retention Policies and Structure Secure Data File Storage, Transmission And Exchange Business Continuity Management And Disaster Recovery Planning Conforming To Assurance And Compliance Standards Disaster And Business Continuity Planning Data Integration 4 Secure Electronic Collaboration With Clients – Client Portals Remote Access Business Process Improvement, Work Flow and Process Exception Alerts Privacy Management Privacy Management IT Governance Spam Technology 5 Paperless Workflow/ Paperless Technology Staff and Management Training Mobile and Remote Computing Business Process Improvement, Workflow and Process Exception Alerts Disaster Recovery Planning and Business Continuity Management Privacy Management Disaster Recovery 6 Laptop Security / EncryptionProcess Documentation and improvements Training and Competency Identity and Access Management IT Governance Digital Identity and Authentication Technologies Collaboration and Messaging Technologies 7 Small Business Software / Office 2010 / Windows 7 Saving and Making Money w/Technology Identity and Access Management Conforming to Assurance and Compliance Standards Securing and Controlling Information Distribution Wireless Technologies Wireless Technologies 8 User Mobility/ Mobile Computing/ Mobile Devices Technology Cost Controls Improved Application and Data Integration Business Intelligence Mobile and Remote Computing Application and Data Integration Authentication Technologies 9 Tax Software/ Electronic Transmittals Of Tax Forms Budget Processes Document, Forms, Content and Knowledge Management Mobile and Remote Computing Electronic Archiving and Data Retention Paperless Digital Technologies Storage Technologies 10 Server Virtualization And Consolidation Project Management & Deployment of New Systems Electronic Data Retention Strategy Document, Forms, Content and Knowledge Management Document, Content and Knowledge Management Spyware Detection and Removal Learning and Training Competency
  32. 32. January 30, 2012 32 Security, Privacy, Governance, Disaster Recovery 2011 2010 2009 2008 2007 2006 2005 1 Security Of Data, Code & Communications / Data Security & Document Retention / Security Threats Control and Use of Mobile Devices Information Security Management Information Security Management Information Security Management Information Security Information Security 2 Connectivity / Wireless Access / High Speed Internet Connections / Voice And Data Information Security Privacy Management IT Governance Identity And Access Management Assurance And Compliance Applications Electronic Document Management 3 Backup Solutions/ Disaster Recovery/ Business Continuity Data Retention Policies and Structure Secure Data File Storage, Transmission And Exchange Business Continuity Management And Disaster Recovery Planning Conforming To Assurance And Compliance Standards Disaster And Business Continuity Planning Data Integration 4 Secure Electronic Collaboration With Clients – Client Portals Remote Access Business Process Improvement, Work Flow and Process Exception Alerts Privacy Management Privacy Management IT Governance Spam Technology 5 Paperless Workflow/ Paperless Technology Staff and Management Training Mobile and Remote Computing Business Process Improvement, Workflow and Process Exception Alerts Disaster Recovery Planning and Business Continuity Management Privacy Management Disaster Recovery 6 Laptop Security / Encryption Process Documentation and improvements Training and Competency Identity and Access Management IT Governance Digital Identity and Authentication Technologies Collaboration and Messaging Technologies 7 Small Business Software / Office 2010 / Windows 7 Saving and Making Money w/Technology Identity and Access Management Conforming to Assurance and Compliance Standards Securing and Controlling Information Distribution Wireless Technologies Wireless Technologies 8 User Mobility/ Mobile Computing/ Mobile Devices Technology Cost Controls Improved Application and Data Integration Business Intelligence Mobile and Remote Computing Application and Data Integration Authentication Technologies 9 Tax Software/ Electronic Transmittals Of Tax Forms Budget Processes Document, Forms, Content and Knowledge Management Mobile and Remote Computing Electronic Archiving and Data Retention Paperless Digital Technologies Storage Technologies 10 Server Virtualization And Consolidation Project Management & Deployment of New Systems Electronic Data Retention Strategy Document, Forms, Content and Knowledge Management Document, Content and Knowledge Management Spyware Detection and Removal Learning and Training Competency
  33. 33. January 30, 2012 33 Data, Information and Document Management/ Integration and Analysis and Related Initiatives 2011 2010 2009 2008 2007 2006 2005 1 Security Of Data, Code & Communications / Data Security & Document Retention / Security Threats Control and Use of Mobile Devices Information Security Management Information Security Management Information Security Management Information Security Information Security 2 Connectivity / Wireless Access / High Speed Internet Connections / Voice And Data Information Security Privacy Management IT Governance Identity And Access Management Assurance And Compliance Applications Electronic Document Management 3 Backup Solutions/ Disaster Recovery/ Business Continuity Data Retention Policies and Structure Secure Data File Storage, Transmission And Exchange Business Continuity Management And Disaster Recovery Planning Conforming To Assurance And Compliance Standards Disaster And Business Continuity Planning Data Integration 4 Secure Electronic Collaboration With Clients – Client Portals Remote Access Business Process Improvement, Work Flow and Process Exception Alerts Privacy Management Privacy Management IT Governance Spam Technology 5 Paperless Workflow/ Paperless Technology Staff and Management Training Mobile and Remote Computing Business Process Improvement, Workflow and Process Exception Alerts Disaster Recovery Planning and Business Continuity Management Privacy Management Disaster Recovery 6 Laptop Security / Encryption Process Documentation and improvements Training and Competency Identity and Access Management IT Governance Digital Identity and Authentication Technologies Collaboration and Messaging Technologies 7 Small Business Software / Office 2010 / Windows 7 Saving and Making Money w/Technology Identity and Access Management Conforming to Assurance and Compliance Standards Securing and Controlling Information Distribution Wireless Technologies Wireless Technologies 8 User Mobility/ Mobile Computing/ Mobile Devices Technology Cost Controls Improved Application and Data Integration Business Intelligence Mobile and Remote Computing Application and Data Integration Authentication Technologies 9 Tax Software/ Electronic Transmittals Of Tax Forms Budget Processes Document, Forms, Content and Knowledge Management Mobile and Remote Computing Electronic Archiving and Data Retention Paperless Digital Technologies Storage Technologies 10 Server Virtualization And Consolidation Project Management & Deployment of New Systems Electronic Data Retention Strategy Document, Forms, Content and Knowledge Management Document, Content and Knowledge Management Spyware Detection and Removal Learning and Training Competency
  34. 34. January 30, 2012 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
  35. 35. January 30, 2012 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
  36. 36. January 30, 2012 36 Transition and Transformation Transition Transformation Steady State Operation Customer Infrastructure and Applications, Staff, Support Processes and Tools Customer Infrastructure and Applications, Transferred and Being Supported by Supplier Standardised Infrastructure Through Refresh, Customer Support Processes and Tools Replaced by Supplier Standards Primary Support Transferred to Appropriate Cost Location • 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
  37. 37. January 30, 2012 37 Evaluation and Decision Negotiation and Contract Signing Pre-Operation and Pre-Integration Start Transition Transformation Steady State Operation of Integrated Entity Preliminary Transition Plan Due Diligence Final Transition Plan Integration Preparation Transition Initiation Finalise Integration Solution Architecture Due Diligence Review and Confirmation Transformation Planning Contract Effective Date Service Commencement Date Outsourcing Process Contract Review Transformation Delivery Transition Completed Transformation Completed
  38. 38. January 30, 2012 38 Propose, Negotiate and Close Planning Research, Analysis, Identification Preliminary Transition and Transformation Plans Due Diligence Final Integrated Transition Plan Transition Transformation Ongoing Operation Transition Initiation/Kick-off Post Contract Verification Solution Handoff Acquisition Management Office Transfer Operation Commencement Preparation Final Integrated Transition Plan Transformation Initiation/Kick-off Stabilisation Standardisation Transformation Close Signed Contract Integration Start Review Transition Criteria Achieved Terms and Conditions Transition to Delivery Handoff Transformation Review Transformation Criteria Achieved Transformation to Delivery Handoff Delivery Quality Review Milestone Handoff Events Key Reporting Events Acquisition Engagement Stage Transition and Transformation Phase Activity Transition and Transformation Management
  39. 39. January 30, 2012 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
  40. 40. January 30, 2012 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
  41. 41. January 30, 2012 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
  42. 42. January 30, 2012 42 Business Challenges Driving Outsourcing In 2011 • How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important • Innovation, Change, Access to New Technology, Transformation seen as relatively unimportant
  43. 43. January 30, 2012 43 Europeans Want To Drive Out Cost And Globalise – Without Changing Their Processes • How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important • Innovation, Change, Access to New Technology, Transformation seen as relatively unimportant outside Asia
  44. 44. January 30, 2012 44 Buyers Achieving Modest Business Results Beyond Cost-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
  45. 45. January 30, 2012 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
  46. 46. January 30, 2012 46 After Financial Considerations, Buyers Care (Or Say They Care) About The Governance, Industry Acumen And Cultural Attributes 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
  47. 47. January 30, 2012 47 Providers Underestimate Importance Buyers Place On 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
  48. 48. January 30, 2012 48 Transformation Process Introduces Standardisation and Enables Innovation • Takes disparate set of 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 From … To …
  49. 49. January 30, 2012 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
  50. 50. January 30, 2012 50 Vendor Comparison Summary • 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 2010 2009 2008 Dell HP IBM Dell HP IBM Dell HP IBM Revenue 52,902 126,033 99,870 61,101 114,552 95,758 61,133 118,364 103,630 Gross Margin 9,261 29,996 46,040 10,957 27,034 43,761 11,671 28,644 45,701 Gross 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 12,334 Net 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 22,733 Outsourcing Revenue % 10.60% 14.90% 22.30% 8.80% 16.30% 22.60% 8.10% 6.90% 21.90%
  51. 51. January 30, 2012 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
  52. 52. January 30, 2012 52 Vendor Comparison • Which vendor can articulate a transformation vision for your organisation?
  53. 53. January 30, 2012 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
  54. 54. January 30, 2012 54 IBM – Financial Summary 2010 2009 2008 2007 2006 Revenue 99,870 95,758 103,630 98,786 91,424 Gross Margin 46,040 43,761 45,701 41,688 38,307 Gross Margin % 46.1% 45.7% 44.1% 42.2% 41.9% Net Income 14,833 13,425 12,334 10,418 9,492 Net Income % 14.9% 14.0% 11.9% 10.5% 10.4% Global Technology Services Revenue Total 38,201 37,347 39,264 36,103 32,322 Global 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 13,433 Outsourcing Revenue 22,241 21,620 22,733 20,995 18,889 Outsourcing Revenue % 22.3% 22.6% 21.9% 21.3% 20.7% Global Business Services 18,223 17,653 19,628 18,041 15,969 Global Business Services Gross Margin % 46.1% 45.7% 26.70% 23.50% 23.10% Software 22,485 21,396 22,089 19,982 18,161 Software Gross Margin % 86.9% 86.0% 85.40% 85.20% 85.20% Systems and Technology 17,973 16,190 19,287 21,317 21,970 Systems and Technology Gross Margin % 46.1% 45.7% 38.10% 39.70% 37.70% Global Financing 2,238 2,302 2,559 2,502 2,365 Global Financing Gross Margin % 51.3% 47.5% 51.30% 46.70% 50.30%
  55. 55. January 30, 2012 55 IBM – Financial Summary
  56. 56. January 30, 2012 56 IBM – Financial Summary
  57. 57. January 30, 2012 57 IBM – Financial Summary • Consistent performance • Balanced across product and service areas • C. 22% revenue from outsourcing
  58. 58. January 30, 2012 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%
  59. 59. January 30, 2012 59 HP – Financial Summary 2010 2009 2008 Revenue 126,033 114,552 118,364 Gross Margin 29,996 27,034 28,644 Gross Margin % 23.8% 23.6% 24.2% Earnings from Operations 11,479 10,136 10,473 Earnings from Operations % 9.1% 8.8% 8.8% Net Income 8,761 7,660 8,329 Net Income % 7.0% 6.7% 7.0% Total Services (Including Outsourcing) Revenue 34,935 34,693 20,977 Total Services (Including Outsourcing) Earning from Operations 5,609 5,044 2,518 Total Services (Including Outsourcing) Earning from Operations % 16.1% 14.5% 12.0% Infrastructure Technology Outsourcing 15,963 15,751 7,488 Business Process Outsourcing 2,872 2,941 723 Total Outsourcing 18,835 18,692 8,211 Total Outsourcing % 14.9% 16.3% 6.9% ESS Revenue 18,651 15,359 19,400 ESS Earnings from Operations 2,402 1,518 2,577 ESS Earnings from Operations % 12.9% 9.9% 13.3% Software Revenue 3,586 3,572 4,220 Software Earnings from Operations 759 684 499 Software Earnings from Operations % 21.2% 19.1% 11.8% Personal Systems Revenue 40,741 35,305 42,295 Personal Systems Earnings from Operations 2,032 1,661 2,375 Personal Systems Earnings from Operations % 5.0% 4.7% 5.6% Imaging and Printing Revenue 25,764 24,011 29,614 Imaging and Printing Earnings from Operations 4,412 4,310 4,559 Imaging and Printing Earnings from Operations % 17.1% 18.0% 15.4% Financing Revenue 3,047 2,673 2,698 Financing Earnings from Operations 281 206 192 Financing Earnings from Operations % 9.2% 7.7% 7.1%
  60. 60. January 30, 2012 60 HP – Financial Summary
  61. 61. January 30, 2012 61 HP – Financial Summary
  62. 62. January 30, 2012 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
  63. 63. January 30, 2012 63 Dell – Financial Summary 2010 2009 2008 Revenue 52,902 61,101 61,133 Gross Margin 9,261 10,957 11,671 Gross Margin % 17.5% 17.9% 19.1% Net Income 1,433 2,478 2,947 Net Income % 2.7% 4.1% 4.8% Product Revenue 43,697 52,337 53,728 Product Revenue % 82.6% 85.7% 87.9% Product Revenue Gross Margin 6,163 7,667 8,579 Product Revenue Gross Margin % 14.1% 14.6% 16.0% Service Revenue Including Software 9,205 8,764 7,405 Service Revenue Including Software % 17.4% 14.3% 12.1% Service Revenue Gross Margin 3,098 3,290 3,290 Service Revenue Gross Margin % 33.7% 37.5% 44.4% Service Revenue Excluding Software 5,622 5,351 4,980 Service Revenue Excluding Software % 10.6% 8.8% 8.1%
  64. 64. January 30, 2012 64 Dell – Product/Software/Services Breakdown
  65. 65. January 30, 2012 65 Dell – Product/Software/Services Breakdown
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