IT&Telecommunications Outsourcing

1. CHAPTER 9
OUTSOURCING & MANAGED PROCUREMENT SERVICE
Operator’s success will depend on their ability to significantly reduce their cost structures to free up investments
for future service offerings that really add customer value. A major Risk is a loss of skills and knowledge from the
organization which need to planned as a core process.
OUTSOURCING METHODOLOGY & STRATEGY

2. Missing Bricks for Value Creation
GUIDLINES
ASSESSING POTENTIAL OUTSOURCING OPPORTUNITIES
Make or buy analysis - NOT JUST TARGETING COST REDUCTION
Examples of value creation
- Providing access to leading technology or a service critical to customers value perception
- Contributing to innovation
- Offering a real value to end customers and providing competition advantages
- Concerning a core Domain/Activity not technically stable
- Risks in supply dependency in case of outsourcing
- Contributing to corporate transformation strategy
Detailed cost and activities review (in IT, Network, CC, other) and guidelines definition
Outsourcing prioritization & high level quantification based on CLIENT operating model (current
and planned ) and strategic pillars
Outsourcing strategy development
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Definition of strategic rationale
Outsourcing model definition (directional)
Governance model definition
Commercial model definition
Initial potential vendor listing
Identification of potential collaboration models
Total spend and high level savings potential
Operational benefits and risks
QUANTIFICATION AND ASSESSMENT OF OPPORTUNITIES AT DEPT (IS, NETWORK, ETC) LEVEL) BASED
ON DEFINED OUTSOURCING MODEL, GOVERNANCE MODEL & COMMERCIAL MODEL
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Detailed costing & operational model definition
Vendor collaboration models definition
Definition of critical KPIs and SLA per activity
Detailed outsourcing solutions definition
o Guidelines on operational model key process interfaces
IMPLEMENTATION OF SELECTED OUTSOURCING OPPORTUNITIES
Deal structuring process management
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3. Missing Bricks for Value Creation
MANAGED PROCUREMENT SERVICES
What is Managed Procurement Services (MSP) ?
Orange FT, Vodafone Group, Southwest Airlines, UK Hospital
NHS Trust
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MPS is not only about traditional outsourcing but about
focusing on the right set of initiatives and leveraging the
tools and expertise of a partner to drive ongoing results
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Partner to own the results and savings
Hybrid approach delivering the maximum value to the
bottom line
Tailored solution by management of categories,
processes & procurement infrastructure
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MSP Outsourcing approach
Transfer of responsibility for Specified category
outsourcing
Expert third party provider
Sustainable, ongoing purchasing improvement
Reduction or/and stabilization of headcounts
Lowering risk
Measurable business results
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Best fit commodities for MPS outsourcing
Maintenance, Repair & Operations
Global Travel
Marketing & Advertising
HR benefits & Services
Facilities & Property Services
Temporary Labor
Telecom & Network Services
Capital equipment & Leasing
Transportation & Logistics
HR benefits, insurances & Services
Business & Professional Services
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4. Missing Bricks for Value Creation
OUTSOURCING NETWORK OPERATIONS AND MAINTENANCE
Outsourcing elements of network and maintenance operations. Many outsourcing manufacturing partners
claim that they are able of cutting costs and expenses by 20 to 30 percent, reducing headcount by 30-40
percent, improving lines per employee by 50 percent and increasing revenues per employee by upwards of 50
percent. Lifting operating profits by 10 to 20 percent. Combined with improved cash flows, reduction in capital
expenses and freeing up management to focus on customer-centric issues, the impact on shareholder value
has been extremely positive.
OUTSOURCING NETWORK MAINTENANCE AND OPERATIONS
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Reducing resources and OPEX and CAPEX investments. The supplier takes on the costs and
responsibilities for process improvements, cross-training, investments in new automation, and most
light assets such as tools, vehicles and PCs. No capital investment.
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Improving customer focus. By outsourcing network operations, operators increase the number of
employees directly involved in customer activities, thus formally changing the organization to one that is
customer centric.
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Establishing a variable rather than a fixed cost structure. Outsourcing provides for a variable cost
structure that allows Operators to be more flexible and better align their costs with actual market
demand.
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Meeting the demands of a dynamic market. With new competitors on their heels, operators have to
stay a step ahead. They must be able to influence product rollouts such as DSL, and create special offers
or bundles that address changing market conditions.
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Improving cash flow. Slashing operating expenses combined with the reduced need to purchase light
assets quickly improves cash flow.
By outsourcing network maintenance and operations, operators are supporting a customer-centric strategy
while setting the strategy for future competitive advantage.
Operators have been handing over much of the network deployment function to technology partners, allowing
them to design, build and install core telecom equipments and infrastructures. Network maintenance contracts
usually cover third-level maintenance support, spare parts and technical support for major problem. And most
manufacturers outsource the construction function to subcontractors during Greenfield and Brownfield telecom
network roll-out projects.
As core business, there are potential risks that require a strategic and longer-term transformation plan.
Deciding what makes the most sense to include in an outsourcing initiative often depends on corporate
strategies, and its explicit labor and vendor situations.
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5. Missing Bricks for Value Creation
NETWORK MAINTENANCE AND OPERATIONS ELEMENTS
Network planning and development. This function typically incorporates the network planning and design
activities, which most operators view as strategic and are therefore not willing to consider for outsourcing.
However, a few operators are beginning to change their minds—believing that certain technology providers can
perform this function more effectively if they openly agree to best design criteria.
Network engineering. Operators are split as to whether or not the actual engineering of the network must be
retained in-house, with some operators expressing concerns about the security of the network if it is
outsourced. Ensuring security and protecting network integrity are elements to be considered in case of
outsourcing option.
Construction. Most operators already outsource network construction to partner manufacturer who are
outsourcing it to subcontractors but continue to manage it to control quality and performance. These
manufacturers retain the materials management function to ensure quality and price.
Network documentation. An electronic format that is outsourced to a qualified provider. Supporting the
improvement of service provisioning, and key performance indicators (KPIs) for repair and maintenance.
Operators must keep ownership of the database for maintaining the value of outsourcing.
Network management NOC. Operators oversee routing traffic by handling peak surges, establishing network
priorities and restoring service as strategic functions.
Service provisioning and assurance.
Service activation. Thousands of work orders are issued, each of which require special skills and expertise to
complete. By necessity, service provisioning is decentralized and comprises the largest segment of the network
workforce. Operators that outsource this function do so because they recognize that an outside provider can
increase efficiencies by automating processes, improving records management and cross training the workforce.
Service assurance is divided into on-demand and non-demand activities. On-demand activities have a direct
impact on customer satisfaction, while non-demand activities are preventive maintenance calls, which have a
direct impact on the demand activity and can extend the life of network components. As with service
provisioning, this is a decentralized function that encompasses a significant part of the workforce.
Dispatch. The daily scheduling of customer provisioning and repairs is integrally linked to an operator's
workforce management system. Dispatch is typically integrated with service provisioning and assurance and has
an impact on the overall network KPIs. Therefore, an operator that decides to outsource service provisioning
and assurance should outsource dispatch to the same provider.
Logistics and warehousing. Operating a network requires a significant logistics capability. Maintaining inventory
levels requires considerable amounts of capital, which only creates value once it is activated. Warehouse
operations are expensive and do not provide much in the way of customer value. Lost, inactive or underused
inventory is not an easily identified expense—and few operators are able to track assets at the item level.
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6. Missing Bricks for Value Creation
Operators that outsource this function to network infrastructure suppliers achieve more efficient logistics and
warehouse operations and maintain lower levels of inventory that could potentially be used across multiple
customers.
These are the major elements of a network. But given the number of full-time employees in the network unit of
an operator, other support functions are also necessary. Activities such as IT, human resources and finance,
which are dedicated to the network unit, need to be identified, isolated and incorporated into any network
outsourcing evaluation.
Building the Business Case
An initial due diligence provides a basis for building a strong outsourcing business case. This should incorporate
all "in-scope" activities, such as identifying all costs including:
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Support costs
Outlining forecasts
Potential rate of return,
Valuing all assets,
Construction & Civil Works,
Logistics and materials procurement
A well-defined program management plan will ensure that the business case is developed around actual costs
that can be offset by network outsourcing. It will also identify potential risks. These mostly involve process and
governance issues.
Internal improvements prior to outsourcing
Employees might reject outsourcing strategy, claiming the benefits can be achieved without outsourcing. It is
key that improvement is made prior to an outsourcing strategy rollout.
Formal performance evaluation process
This will alleviate confusion brought on by outsourcing suppliers that have a slightly different approach to
network outsourcing and will try to steer operators accordingly.
During this process, the operator should ensure that the potential provider can meet the required
responsibilities, can be held accountable for its performance as measured by defined service level agreements
(SLAs) or key performance indicators, and has the scale necessary to achieve the expected cost reductions.
Commercial aspects: Operators should pay special attention to the commercial aspects of the outsourcing
provisions. For example, it is critical to split the scope of work into distinct services, identify a clear scope of
work and define responsibilities for each service. Make it "modular" to provide the flexibility necessary to
accommodate changes in market conditions, technology and services.
For compensation, it is best to establish a fixed/variable scheme. This provides the flexibility that fluctuating
markets require and the month-to-month predictability that an operator needs. Also, firms that establish
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7. Missing Bricks for Value Creation
specific KPIs that properly reflect the targets of their sales and marketing organizations have a better chance of
meeting their goals. Strict forecasting requirements will ensure that providers deliver the expected services with
the targeted KPIs and SLAs, while penalties for falling short should be incorporated into the agreement.
In addition, if tangible financial rewards can be linked to the provider's overall performance, put them into the
agreement as well. All of the commercial elements should be incorporated into a master agreement with
supporting service documents that can be modified as conditions for a specific service change. Step-in rights and
governance along with exit, liability, renewal and key operating provisions should be addressed in the master
agreement.
Finally, given the complexities of most outsourcing agreements, a strong legal team, supported by experienced
outside legal counsel, is generally required. The commercial terms should be agreed upon during the evaluation
process and nailed down in a detailed memorandum of understanding early in the process.
Ensure executive-level involvement. Top executives must be involved from the beginning of the network
outsourcing project. The board of directors and, if appropriate, supervisory boards need to be advised and
updated throughout the process.
Clearly define the operating model. The scope of activities to be outsourced and the interfaces that will be
required are central elements in the network outsourcing operating model, aligned with specific service
offerings such as DSL provisioning or assurance. The operating model should be designed to give the provider
the flexibility to make it work and to ensure financial success.
Design the outsourcing process. The right design has a major impact on the overall benefit to the operator even
if the project is stopped at one of the go or no-go decision points. The four main outsourcing process steps are:
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Optimize relevant processes before outsourcing
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Define distinct phases and make go or no-go decisions at the end of each phase
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Assess what outsourcing offers against the internal improvement options
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Plan implementation on a phased basis to test the operational quality of the selected provider
Create a life cycle process. Finally, the outsourcing process has to be understood as a lifecycle that requires reassessments over time based on changing conditions. Management needs to continuously monitor the
outsourcing agreement and the supplier to ensure the company is achieving maximum benefits.
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8. Missing Bricks for Value Creation
Case Study
MAKE OR BUY ANALYSIS OF WORKFORCE
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9. Missing Bricks for Value Creation
Case Study
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10. Missing Bricks for Value Creation
Case Study
Case study
Network & Service outsourcing
CHAPTER 10
Page 9