Ross Tisnovsky, VP-Research, will explain how many buyers’ unclear and inconsistent ADM skill definitions can result in overspending on outsourcing services by as much as 20% and complicated project management.

1. Today’s webinar is brought to you by
Everest Research Institute
Today’s webinar Upcoming webinars
Four Symptoms of Overspending on ADM Vanilla, Chocolate, or Rocky Road: What Flavor
Contracts Of Outsourcing Do You Want?
Synopsis: Ross Tisnovsky, VP-Research, will Date & Time:
explain how many buyers’ unclear and inconsistent April 27, 2010
ADM skill definitions can result in overspending on 10:00 AM CDT/11:00 AM EDT
outsourcing services by as much as 20% and
complicated project management. Speaker:
Eric Simonson, Managing Principal – Research,
Everest Group

2. Q&A
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3. Introduction
Ross Tisnovsky
VP-Research
Everest Group
rtisnovsky@everestgrp.com

4. Four Symptoms of Overspending on
ADM Contracts
April 13, 2010

5. Agenda
Skill portfolio challenge
Diagnostic of the skill portfolio problems
Rationalizing skill portfolio
Q&A
5
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6. Important note
This presentation shows multiple FTE rates and other pricing
information
While many of these rates are sourced from our client deals, most
of them are sanitized and/or modified
These rates are presented purely for illustrative purposes and
should not be perceived as Everest indicative prices or our pricing
benchmarks
Real price benchmarking data is available from Everest upon
request, please do not hesitate to contact us of you need one
6
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7. Aggressive outsourcing adoption may lead to
misalignment of IT skill requirements and rate cards,
creating opportunities for suppliers to take advantage
Large volumes and diversity of IT skills sourced by large buyers
Rate compliance and
give suppliers an opportunity to “build around” existing static rate
inconsistencies
cards, leading to hidden non-compliance and role misalignment
As IT resource requirements evolve buyer’s IT managers often find
“Specialized” skills it impossible t fi d skills th need i th existing rate cards
i ibl to find kill they d in the i ti t d
This leads to requesting “specialized skills” which are often
significantly more expensive
As IT managers build direct relationships with supplier’s resources,
g p pp ,
“Reversed” skill
these resources are getting promoted to more senior roles
pyramid
This often lead to hiring senior supplier resource for lower skill job
at higher rates, reversing the skill pyramid
Supplier-dictated IT managers often engage in a dialog with pre-selected suppliers
process to define roles and reconcile resource requirements
As a result, resource decisions are determined according to
supplier’s nomenclature and methodology
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8. Suppliers can seize an opportunity to “build around”
existing static rate cards
CLIENT EXAMPLE
Examples of inconsistent role definition Rate compliance
“Specialized” skills
Supplier 1
“Reversed” skill
pyramid
Supplier-dictated
process
25% 15% These resource roles
are likely to have
Likely rate cross-subsidization different tenure and
skills, hence should
Supplier 2
have different rates
Inconsistent ratio of
similar roles onsite vs.
offshore is indicative
Supplier
S pplier 3 of cross-subsidization
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9. Some buyers pay a significant premium for
“specialized” skills that are often unwarranted
CLIENT EXAMPLE
Onsite blended
Rate compliance
rate card
Cost Offshore blended
rate card “Specialized” skills
“Reversed” skill
pyramid
17%
Supplier-dictated
process
Specialist Skill
premiums are often
£397 paid on what clients
£339
per day p
perceive as a
per d
day
37% Standard Specialist specialist, not on
£189 Skills Skills what costs more to
per day the supplier
£138 Specialist
per y
p day Skills
Standard
Skills
Source: Everest analysis 9
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10. The practice of allowing “specialized”, off the rate
card roles may lead to significant abuse of this
category CLIENT EXAMPLE
Rate compliance
Client supplier mix
Billed hours “Specialized” skills
“Reversed” skill
Rate that are pyramid
Others not present in Supplier-dictated
rate cards and process
negotiated by
g y
Specialized BUs directly
with the
supplier
Standard
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11. “Reversed pyramid” is a result of a “stickiness“ of
resources and occurs over time
ILLUSTRATIVE
Project pyramid in 2008 Rate compliance
“Specialized” skills
“Reversed” skill
pyramid
Project Supplier-dictated
Manager process
($60/hr)
Team Leads ($45/hr)
Senior Developers ($35/hr)
Developers ($25/hr)
p ($ )
Blended cost: $34.5/ hour
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12. “Reversed pyramid” is a result of a “stickiness“ of
resources and occurs over time
ILLUSTRATIVE
Project pyramid in 2008 Project pyramid in 2010 Rate compliance
“Specialized” skills
“Reversed” skill
pyramid
Project Project Manager Supplier-dictated
Manager ($60/hr) process
($60/hr)
Team Leads ($45/hr)
Team Leads ($45/hr)
Senior Developers ($35/hr) Senior Developers ($35/hr)
Developers ($25/hr)
p ($ ) Developers ($25/hr)
Blended cost: $34.5/ hour Blended cost: $37.3/ hour
8% increase
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13. Agenda
Skill portfolio challenge
Diagnostic of the skill portfolio problems
Rationalizing skill portfolio
Q&A
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14. Diagnostic of client’s portfolio can indicates future
savings potential CLIENT EXAMPLE
Observation No concern
Analysis Significant concern
Summary Opportunity sizing
N/A Information is not available
Rate variations across similar suppliers Small
Rate variation within a supplier
Onsite rate differences across suppliers Large High level
assessment of your
Same rate used for multiple skills Medium current outsourced
skills portfolio
Proliferation of roles Medium suggests medium size
savings opportunity
Multiple role definitions across suppliers
(~10-15%)
Role interpreted differently by suppliers Large
Several analyses
Role descriptions allow too much ambiguity Small were not conducted
due to lack of data
Specialized roles “off the rate card” N/A N/A ( g,
(e.g., billing and time
g
Supplier’s nomenclature forced on the buyer N/A N/A sheet data)
Same resource billed under different roles N/A N/A
Overall assessment Medium
opportunity
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15. Assessment example: onsite rate differences across
suppliers
Onsite rate differences for Project Manager role CLIENT EXAMPLE
$US per hour
57%
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16. Assessment example: roles interpreted differently by
suppliers
CLIENT EXAMPLE
Software Engineer roles perception by suppliers
Role Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Supplier 6
Web - Software Engineer $ 27.94 $ 22.00 $ 21.00 $ 21.00 $ 17.28 $ 18.00
Web - UI Designer $ 27.94 $ 23.00 $ 21.00 $ 22.00 $ 19.20 $ 20.00
Enterprise - Software Engineer $ 22.00 $ 22.00 $ 19.20 $ 20.00
Client/Server - Software Engineer $ 22.00 $ 21.00 $ 20.00 $ 19.20 $ 20.00
Mainframe - Software Engineer $ 22.00 $ 18.00 $ 17.26 $ 17.98
PC/ Office Software - Programmer $ 20.00 $ 11.33 $ 11.80
Role Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Supplier 6
Web - Software Less Less Less
Inconsistent
Engineer
g Average
g Average
g Average expensive expensive expensive
g p p p
More
Consistent
Web - UI Designer Average expensive Average Average Average Average
Enterprise - Software
Consistent
Engineer Average Average Average Average
Client/Server - Software Less
Engineer
E i Average
A Average
A expensive A
i Average Average
A Inconsistent
Mainframe - Software Much less Less Less
Inconsistent
Engineer Average expensive expensive expensive
PC/ Office Software - Less Much less Much less
Inconsistent
Programmer expensive expensive expensive
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17. Savings vary based on complexity and current state of
the client’s environment
CLIENT EXAMPLES
Simple client environment Global client environment Complex client environment
Client US-based bank Global energy company US Healthcare Company
Environment ~ 40 FTE job-roles across ~ 60 job roles in ADM ~ 120 job roles in ADM
business and technical (including SAP support 4 global and Indian
consulting, ADM, ERP 9 global and Indian suppliers suppliers
2 key suppliers, 1 sourcing UK, US, Europe, India, Latin US-centric, delivered mostly
geographyh America i scope
A i in from India
f I di
Objective Identify causes of bank’s Standardize pricing contracts Rationalize current rate
pricing variation from market across multiple suppliers and cards to improve
comparables delivery locations as a part of compliance and eliminate
Rationalize j b roles
R ti li job l a sourcing i iti ti
i initiative specialized roles
i li d l
Outcome Everest mapped ~40 roles to 7 ADM roles were consolidated Roles were consolidated
role families and provided into 6 job groups based on into 11 job families based
benchmarks. Also, provided competency, experience and on competency, experience
estimated price b ff
i d i buffers price ranges.
i and price ranges.
d i
attributed to role-based drivers Job groups were road-tested New structure was
for each of the role groups with suppliers for buy-in syndicated with internal
Forecasted savings of 5-10% Estimated savings over 2 year users and new rate cards
of the total portfolio period are ~15% designed for the negotiation
Cost saving goal agreed by
sourcing ~12%
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18. Agenda
Skill portfolio challenge
Diagnostic of the skill portfolio problems
Rationalizing skill portfolio
Q&A
18
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19. Rationalizing skill portfolio comes down to four steps
FOR DISCUSSION
Description Rationale
1 Assemble view of demand data by BU, skill Key success factor of the
Develop reliable view
of ADM demand and type, application, etc. over 1-3 years (e.g., exercise is to conduct
consumption supplier’s billing, resource consumption) analysis on REAL
Diagnose key signs of skill portfolio demand data
misalignment; analyze potential savings
2 Analyze current job description to find Job descriptions are key
Assessing and
updating job abnormalities, inconsistencies and potential input into supplier
descriptions sources of misinterpretation compliance assessment
and benchmarking
3
Conduct statistical analysis of the portfolio to Job groups enforce
Developing structure derive a justifiable number of JGs transparency and help
of job groups Map finalized and signed-off IT job roles to job eliminate the “reverse
groups pyramid” effect
4 Benchmark the new skill portfolio Benchmarking can
Benchmarking the Highlight and investigate high rate variances; highlight immediate
new skill portfolio collaborate with suppliers to better understand opportunities and assess
the variances if needed potential savings
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20. We observed several challenges that buyers run into
while rationalizing job descriptions
1 Challenges Details
Develop reliable view
of ADM demand and Ensure that client’s IT units’ buy-in is a critical success factor of the
consumption rationalized j b roles
ti li d job l initiative; early misalignment may practically eliminate
i iti ti l i li t ti ll li i t
and descriptions cover the benefit later
the needs of the IT An explicit IT unit’s sign-off on job roles and
clients descriptions is highly recommended
2
Assessing and Enforce integrity of the Avoid overlaps in terms of competency and experience
updating job job roles and job groups mapping
descriptions Eliminate “dark spots” between the job groups, e.g.,
when one group defines 2-3 years tenure and the next
group starts at 5+ years, leaving a large gap
3 Keep the number and
p Too few/aggressive number of roles will create
gg
Developing structure contents of job groups challenges for the IT; large number of roles will defeat
of job groups actionable the purpose of rationalization
Rolling multiple competencies into one role might
create an “un-benchmarkable” profile, e.g., Junior
Developer with Database Administration experience
4 Avoid leaving scope for A vague terminology might leave ample room for
misinterpretation of job supplier’s interpretation and mispricing, e.g., “4+ years
Benchmarking the tenures of proven experience” can be interpreted as “5 years
new skill portfolio of significant experience” and be priced substantially
higher
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21. Developing Job Groups is an iterative process to
ensure compliance and practicality
1
Develop reliable view
of ADM demand and
Break down the
consumption Assess the required number of existing rates into Map first draft
Job Groups to accommodate Job Groups and Job Groups
the existing range of rates assess usage into Client’s
2 Job Structure
Assessing and
There are three sources
updating job
of input into the Job
descriptions Group exercise:
Iterate Job
Client’s existing Job
3 Groups as
Structure necessary
Developing structure Current suppliers’
of job groups rates
Map of suppliers’
rates into Client Job
Structure
4
Benchmarking the
new skill portfolio
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22. Step 1 includes assessment of job groups requirement
based purely on current rates
CLIENT EXAMPLE
Full portfolio of current Client rates ranges from $25 to
Assess the required Break down the $416. Covering this range with job groups of appr. 20%
number of Job existing rates;
Groups assess usage
First draft rate difference requires ~15 job groups; the first draft
Job Groups
was based on 13 Job Groups p
Iterate Job Rate Range ($/hr)
Groups as
necessary Job Group Lower Limit Upper Limit
1 23.01
23 01 27
2 27.01 32
3 32.01 40
4 40.01 50
5 50.01
50 01 60
6 60.01 72
7 72.01 86
8 86.01 105
9 105.01 130
10 130.01 160
11 160.01 200
12 200.01 250
13 250.01 450
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23. Step 2 creates in the first job group structure based
purely on existing supplier rates CLIENT EXAMPLE
Distribution of Job Groups in Aggregated Role Portfolio
Number of roles
Break down
Assess the
the existing First draft
required number
rates; assess
of Job Groups
usage
Job Job group Job groups 9-13
Groups
p
6 was split were rationalized
into two groups
Iterate Job
Groups as
necessary
Proportion of Hours Billed for each Job Group in June 2010
First cut of Job Groups showed
Percentage
potential for further
rationalization (e.g., combining
or eliminating groups/roles)
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24. Step 3 includes multiple iterations between Client Job
Structure and map of existing supplier’s rates
Job G
J b Groups structure was iterated several times
t t it t d l ti
to arrive at the proposed combination
CLIENT EXAMPLE
Assess the required Break down the
number of Job existing rates; First draft
Groups assess usage Job Groups
Iterate Job
Groups as
necessary
Proposed distribution of Job Groups Job Groups without roles:
J bG ith t l
Number of roles
Job Groups 3,4, 9 and 10 did not
accommodate any procured ADM
roles
Through our deal experience
experience,
Everest has observed multiple
roles procured in this price range,
hence we recommended “future-
proofing” the structure by retaining
these Job Groups
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25. Job groups bring a very simple view of the skill
pyramid, highlighting misalignment in a simple way
ILLUSTRATIVE
Project pyramid Job Groups
JG 9: 1 FTE 5%
Project Manager ($60/hr)
Software Lead ($49hr)
JG 9: 6 FTE 29%
Team Leads ($45/hr)
Architect ($47hr)
Analysts ($38/hr) JG 9: 9 FTE 43%
Junior architects
($37/hr)
Se o e e ope s ($35/hr)
Senior Developers ($35/ )
JG 9: 5 FTE 24%
Developers ($25/hr)
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26. Benchmarking of job groups can highlight immediate
opportunities and assess potential savings
CLIENT EXAMPLE
1 JGs 2 and 3 show low standard
Develop reliable view deviation of rates within the groups
of ADM demand and and appear well within (or lower) the
consumption benchmark range, indicating
compliance
2 Job characteristics Rate Rate BMing BMing Assessment
Assessing and Ave StdDev high low
Location JG Number
updating job range range
Level of FTEs
descriptions
United JG 1 0
States JG 2 11 103 14 188 126 complied
3
JG 3 36 89 27 121 97 complied
Developing structure
JG 4 10 71 16 79 54 opportunity
of job groups
JG 5 6 67 38 analysis needed
JG 6 29 53 19 41 29 opportunity
4
Large standard deviation of Average rates within JGs 4
Benchmarking the
prices within JG 5 indicate and 6 appear too high
new skill portfolio
lack of consistency within the compared to the benchmark
group and need further range,
range indicating savings
analysis opportunity
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27. Agenda
Skill portfolio challenge
Diagnostic of the skill portfolio problems
Rationalizing skill portfolio
Q&A
27
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28. Q&A
Attendees will receive an email with a link to download today’s webinar presentation. To access a
recorded audio version of this webinar, please contact Mark Williamson,
mark.williamson@everestgrp.com
For advice or research on skill portfolio rationalization, please contact Everest:
Ross Tisnovsky, rtisnovsky@everestgrp.com
For background information on Everest, please visit:
g ,p
www.everestgrp.com
www.everestresearchinstitute.com
Thank you for attending today
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