Whitepaper 'How Value Driven Sourcing enables you to increase IT Value to the business tenfold' v 1.0
1. Capgemini Nederland
ADM Whitepaper 1.0 February 2016
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Onderzoekleertdate enICT-afdelinggemiddeld71% besteedtaanbeheerenonderhoudendus
maar 29% aan innovatie. Metde ApplicationLifecycleServicesinaBox van Capgemini helpenwij
deze balansterugte brengennaareengewenste 50/50,waardoor de snelheidvan
applicatieontwikkelingtoeneemteneenveel groterdeel vanhetbudgetkanwordenbesteedaan
innovatie enkwaliteit
Application Development & Maintenance
Whitepaper
How Value Driven Sourcing
enables your IT department
to increase its value to the business tenfold
2. Capgemini Nederland
ADM Whitepaper 1.0 February 2016
ii
Auteur:
Co van LeeuwenMBA RM,
Lead Application Development&Maintenance Services
E-mail:co.van.leeuwen@capgemini.com
Telefoon:06-29527660
4. ADM Whitepaper 1.0 February2016 1
1. Management summary
CIOs have enoughchallengesandtoday the biggestone is how to add value to their
organization. Overthe last years cost reduction was the mantra inthe business.But now the
focus ismainly on customer obsessionand radical and incremental innovation,with
informationtechnologyseenas the biggestenabler. It is possible to master all at the same
time,but how do you solve the embeddedparadigm?This whitepaperexplainsthe 3 x 3
approach to create a proven and balanced Digital Transformational journey basedupon Value
Driven Sourcingto realize the newpromise ofIT: to multiply the savingsby 10 by re-investing
them intothe business.
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2. The three key challenges of the CIO: save costs,
improve time to market, enable the business
2.1 Save costs
The dynamicsof the CIOfunctionare irreversiblychanging.Afteradecade of technology
deploymentandrisingcostlevels,costcontrol andfreeingupbudgetforinnovationwerethe key
goalsof the past five years.Fourfifthsof the ITbudgetwasfixed formaintenance andthere was
hardlyanythingleftfornewinitiatives. Allkindsof activitieswere deployedtolower OPEX;
rationalization,portfoliomanagement,industrialization,automationand simplificationof
operatingmodel toname a few.Howeverthe unintendedconsequence of toomuchfocuson
cost savingswasthe growthof unmanagedshadow ITwithinthe business,whosee themselves
more and more as the driversof the digital agenda.Itisinvariablythe businessthatembraces
emerginganddisruptivetechnologysolutions,makingdecisionsonadoptionbasedontangible
revenue growthorbusinesscostresults. Still toooftenwithoutinvolvementof the ITfunction
resultinginpoint,ratherthanintegrated solutions,anincreasinglydiversifiedapplication
landscape,and the corruptionof the CIO’sdrive towards IT operational excellence.
2.2 Improve time to market
But the windsof change are blowingstronglynow.In2015 the hottesttopicsinIT were DevOps
and Bi-modal IT.CreatingflexibleanddynamicITservicesiscurrentlythe meanstothe endof
supportingthe businessneeds.Some CIOsdothinkeverythingshouldbecomeDevOps,but
segmentationof businessneedsandITtechnologydoesn’tsupportthislineof thinking.Andfor
some Bi-modal ITis somethingof anoversimplification.
2.3 Enable the business
What ismore,the strengthof the windsof change causestackingof the boat.Today twoout of
three CIOs say that theirmainobjectiveistoadd value totheirbusiness.You will recognizethe
importance of thisassignment when youconsiderhow manywell knowncompaniesof the past
have gone out of business;small onesandbigones,andthatinthisdigital erathe keyto the
future ishowyou embedITintoyoubusinesstomake the difference andincrease the
performance.Thisrequiresanotherlineof thinking;buyinginsteadof makingandthe change of a
full unit-drivenITdepartmentintoasmall retainedorganization,operatinghorizontallyacross
the companyand consistingof tactical resources withthe rightskillstomake the difference.
6. ADM Whitepaper 1.0 February2016 3
3. Unlocking the value of IT demands a 3 x 3
approach
How doyou masterthe paradigmof combining savingcosts,improvingtime tomarketand
enablingthe businessintoone,well balancedplan? Capgemini’s researchshowsthatthe majority
of CIOsare still onlystartingtoaddressthischallenge.AlthoughITdepartmentsworkveryhard,
theypredominantlyhave aninternal ITfocus.Costlevelsare graduallydecreasing butbecause of
the distance fromthe businessalotof shadow IT spend isoccurring;the businessbuysitsownIT
to getwhat isneeded. Tobreak thisstatus quo one needstounderstandthree ingredients.The
firstishow to drive ITExcellence (somethingmostCIOsare veryfamiliarwith).The secondisto
understandwhatwill materiallyaddvalue tothe business.Andthird,the completionof the
necessarypreconditionstocombine the previoustwointoagradual andprosperousevolution.
Today onlyone outof five CIOshasachieved the
mature state of combiningthese three elements.
MasteringIT Excellence isacommon,regular
managerial initiativetoimprove the costsand
qualityof the IT department.Todayeverybodyis
drivingITportfolioanalysistocreate abaseline
and define rationalizationopportunities.Here a
newpragmaticapproach isthe ‘elephantpath’
to quickwinsusinga listof itemsthatcan create
savingsat shortnotice.Gartneris buzzingitsBi-
modal operatingmodelstodeliveryourIT
services,butCapgeminirecognizesatleastthree flavorsof operatingmodels,baseduponthe
dynamicsandtechnical integrationof the portfolio.Lastbutnotleast,inline withthe ITPortfolio
and the IT OperatingModels,the ITOrganizationneedstoevolve.Outsourcingcanbe considered
as an option,butactuallyitis a prerequisite fortrue ITexcellence.Therefore the unitbasedIT
departmentwill needtochange intoa horizontal operatingfunction. Keystrategicelements
withinthe department will be the managementof demand,projectportfoliomanagement,
creatingtransparentperformance andadirectcostingmodel.Importantcapabilitiesof the
retainedorganizationare businessknowledge,andchange managementortransformation
capabilities.
Masteringwhatadds value tothe business isthe real challenge.We –IT adepts– feel itandwe
needtobelieve it.Happily forus, studiesshow more andmore evidence of it.Majorinitiatives
are centeredonre-envisioningcustomerexperience,operational processesandbusinessmodels.
Companiesare changinghowfunctionswork,redefininghow functionsinteract,andeven
7. ADM Whitepaper 1.0 February2016 4
evolvingthe boundariesof the firm basedupontechnology.Butgenericinsightisgettingmore
and more specific.ForexamplejustimplementingERPisnotenough,itneedstobe combined
witha leanapproach.Or, reportinghasbeenoutthere fora longwhile butnow we are evolving
intoa state of operational intelligence of (nearly) real-timeinsightsandrootcause analysison
the fly.And,with‘bigdata’we can learnto understandourclientsbetter,althoughsimply
analyzingapile of data isnot the rightway forward.Last butnot leastcompaniescando much
more to gainvalue frominvestmentstheyhave alreadymade,evenastheyenvisionradically
newwaysof working.
Havingaddressedthe twoareasof drivingITExcellenceandidentifyingtrue BusinessValue,now
it becomesmore difficult;managingthe twotogether.Itisthe opposite of trial anderror;
requiringasemi plannedchange thatinvolvesall stakeholders. Ittakesreorganizationand
resilience. Researchhasidentifiedthreeelements(asmentionedinthe figure above),all aspects
of a transformational programtoalignbusinessandITefforts. Withoutvisionandsomeoneto
lead,andwithoutthe abilitytoarticulate directionandofferaconvincingglimpse of ’the road
ahead’,generallyacourse of ‘businessasusual’will be followed. A change of course requiresthe
collaborationbetweenthe differentdepartmentstoensure aconsistentcustomerexperience
rather than managingtheirrespective touchpoints differently andcreatinganinconsistent,
fractioningexperience thatfrustratescustomers.Itwill require boardroominvolvementaswell
as involvementof demandmanagement,supplymanagementandservice providers(as
partners).
Some self-explanatoryexamples:
In searchof the lowestcostspossibleaglobal manufacturerdecidedtoreorganise their
IT departmentasa Global BusinessService line suchasisoftendone forFinance andHR.
As a resultthe IT Excellencedrive washierarchically separatedfromthe BusinessValue
drive.Thisledtofragmentationof new initiativesand the failuretosupportthe topline
growth.Thishas since beenfixedsimply bycombiningthe both functions intothe
responsibility of asingle director.
A local Dutch retailerwas onan aggressive drive toincrease marketshare.The IT
departmentsensedthisverywellandputall itsenergyinsupportingnew business
initiatives.Asaresultthe qualityandcostsof maintenance were neglectedandincident
managementwasmore or lessseenasa project.As a resultthe qualityandcost of IT
were poorlymanaged.
Anda global foodcompanylearnedthatwhatcan be done to addvalue isnot about
deployingavailable toolsandplatforms.Itratherisan ‘outside in’view of the customer
behaviour,thatcontinuouslywill change,translatedintoappropriate technology
solutions.
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4. The financial value: IT savings can be reinvested so
they multiply by 10
Slowlymore andmore researchisbecomingavailablethatreallyprovesthatitispossible to
increase businessperformance viaIT.Somasteringthe 3x3 challenge becomesevermore
attractive.Forexample companiesthathave a data officer,developinghow the businesscan
profitfromthe available insights,have showntoperformbetter.Andanotherexampleisthatthis
performance increase happensalsoatcompanieswhere the reportingline of the CIOisin synch
withthe corporate strategy.So,if the strategyisCost Excellence areportingline tothe CFOdoes
make sense.If ProductExcellence isthe keystrategy, areportingline tothe CEOis more
beneficial.
There isevenmore specificdataavailable.Firstthe journeytowardsITExcellence canbe really
beneficial.We have identifiedfivestagesof outsourcingandeverystage roughlyrepresents
incremental 10%costssavings.Stage one isDIY; i.e.a fullyinsourcedmodel,stage twois‘co-
sourcingto obtainthe rightskills’,thirdis‘firstgenerationoutsourcingformore efficiency’,
fourthis‘outsourcingtocut cost for innovation’andfifthisthe currentbest practice of
outsourcingincludingautomation,serviceintegrationanddrivingvalue fromanIT perspective.
Provingthe value of IT isa bit more difficult.Tostartaddingvalue,we firstneedtospecifywhat
value comesfromwhere.Whatare we lookingfor?Everybusinessprocesshasnecessary
activitiesanddifferentiatingactivities( as
illustrated inthe figure onthispage).The
necessarypart,typicallythe backoffice and
representingupto68% of the total processcosts,
principallyare the focusforcost reduction
initiatives.In2014 a studywasconductedwith
1,000 businessexecutives.Theyconveyeda 27%
cost savingpotential forbusinessprocessesby
radical applicationof technology.The
differentiatingactivitiesprincipallyare the focusof investmentstoincrease the competitiveness
of the organizationandespeciallyinthose areasthatare alignedtothe corporate strategy.Other
studiesshowthatincreasingthe customerexperiencewillenforce brandloyaltyleadingto20%
more sales.Andthe MIT & Capgemini studyin2011 proclaimsa performance increase of 26%
comparedto peersif youmanage it all well atthe same time.
Takingthese as examplestoa consumerproductcompany,how doesthistranslate intofinancial
benefits?We willapplythree leversatthe same time to the businessandITprocesses.Leverone
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isloweringthe ADMspendby one third(canbe upto 50%) andreinvestthisina Digital
Transformationprogram.Levertwoisrealizingone thirdof the potential 27% savingsonthe non-
differentiatingprocesses.Andleverthree isaddingaquarterof the potential 20% revenue
increase to the topline asa resultof improvementof differentiatingprocesses,aswe have
accomplishedata retailer. Asaresultthe operatingmarginwill notbe increasedbythe ADM
savingsonly,butbya tenfold. (Nottakenintoaccountthat the Digital Transformationprogram
can require additionalCAPEXinvestments.)
Some self-explanatoryexamples:
The marketshare of a financial companywasslipping.The CEOdecidestouse IT as an
acceleratorandtransformthe business.Theystartedwiththe basicsandcreatedan
sharedservice center.Theydrove duplicative applicationsoutof the processingnetwork
and streamlinedworkflows.Thenthe CEOandthe provider’sleadershipkickedoff
technology-enabledchange programsdesignedtocutdownthe dysfunctional
organizational silosandchange the company’sfocusfromprotectingturf to
performance.Theyalsoimplementedareportcard that measuredcontributionto
strategicgoals. In three years the operatingmargins doubled,marketshare grew by50%
and share price doubled.
A searchengine companycompletedantransformationaloutsourcing.Conventional
outsourcingwouldhave broughtthem20-50% cost savings,accesstobestpractices,
betterservice quality,improvedcareeropportunitiesforITandmore managementfocus.
The transformational outsourcing,includingaperformance programtoimprove the
businessbyIT,providedalsoflexibility,speed,sharedstrategicriskanda growthof 50%
marketshare and doublingof the revenue.
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5. Future state design of the IT operations
Managing the IT functionisbecomingincreasinglymore difficultasa result of thisanalysis.
Breakingoutof setpatternsandsolvingcomplex paradigmsare necessarytobe able totake a
goodstepforward.Thispresumesleadershipandthe abilitytomake clearchoices.Forexample
for the operatingmodel (orworkingmodel),inordertoimprove efficiency,sourcingonthe basis
of real partnership,aclearstrategywithanidentifiablepointonthe horizonandthe structuring
of a powerful leadership
organizationwithinthe IT
departmentandinthe business.
We brieflyoutlinethe seven
changeswe see coming.The sum
total of these changeswill define
the newformof the IT department
(as picturedinthe figure):
Change one:IT investment
focusesoninformation,
interaction, transactionandstraight-throughprocessingtounderpinperformance;
Change two:usage of IT technology determinesthe addedvalue,sobusiness managers
will determine more andmore the ITchoices and will become the ownerof the IT budget
unlessthe maturityof the IT departmentkeepspace;
Change three:toincrease the performance of the ITdepartmentlevelfiveoutsourcing is
relevantandservicesmodelsdeliveredwill resonatewiththe businessstrategyand
operational dynamics.Therefore organizedperend-to-endprocessdomain;
Change four:thisimpliesan increasingresponsibilityforservice providers,especiallyfor
commoditizedbusinessprocessesand - technology.;
Change five:strengtheningof demand&supplyisneeded tomanage the journey to
increasedperformance andcanbe simplifiedonce itisaccomplished.Thenthe business
can work directlywithexternal providers –partners – to define the requirements;
Change six:The IT departmentwill become aretainedorganizationandco-producerand
tactical centre to alignthe IT activities.MostlikelymanagedbyaCIO withbusiness
knowledge andwhohasbecome memberof the board;
Change seven:where dynamicsmeetcomplexity,opportunitiesarise,butalsopresenta
great degree of uncertainty. Three directmanagerialcountermeasuresare possible for
this.The firstis to improve the transferof informationbetweenparties.The secondisto
carve departmentsandactivitiesupintosmallerpieces.The thirdistomake decision
makinglessformal andmore localized. Sowhilethe ITdepartmentmostlyiscentralized
the setupof governance ismore agile,decentralizedandtransparent.
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6. Start your journey with value driven sourcing
There isno doubt digital transformationisan unstoppable,irresistible catalystforchange.Study
afterstudypresentsclearandconvincingevidence of the digital datatsunami anditsimpacton
businessesandorganizationsof everyshape andsize.Evenmore important isthateverypartof
the businesswillrecognizethatwe are enteringthe nextphase of the digital innovationcurve—
movingfromearlyadoptiontobroadergrowththroughthe earlymaturity.True digital
transformation,however,demandsmore thanthe exploitationof existinginnovative digital
servicesandtools.Italsorequiresestablishingnew operatingmodels,implementingnew
governance structuresandcrucially,creatingnew,value-drivensourcingmodels.The traditional
approachesto outsourcingwill impede,notfacilitate successfulmigrationtothe Digital Business
era.
Simplystated,avalue drivensourcingmodelchangesthe businessvalue focusfromprimarilyone
dimension—costreductionandefficiencies—tothe three dimensions of the 3x3approach.
Althoughcostsavingsandhigher IT efficiencieswill remainanimportantelementinanymanaged
servicesoffering,sourcinginthisnewdigital erawill equallybe drivenbythe realizationof
additional benefitsstreams:increasedrevenues,improvementsinworkingcapital orincrease of
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