Session 9 Off-Shoring

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  • We’ve done this a thousand times, can guide clients through the process We can fast-track (3 days, 3 weeks, 3 months) Focus on partnership - outsouricng is more likely to succeed if it’s a soundly based partnership looking for a win-win relationship Sound Bite for Fast Track - 3 days, 3 weeks, 3 months
  • Session 9 Off-Shoring

    1. 1. Welcome Off Shoring & Review Jonathan D. Wareham [email_address]
    2. 2. Business Process Outsourcing “ BPO is the delegation of one or more IT-intensive business processes to an external provider who, in turn, owns, administrates and manages the selected process(es), based upon defined and measurable performance metrics.” Gartner Dataquest
    3. 3. Industry Trends for Application Outsourcing <ul><li>IT application outsourcing </li></ul><ul><ul><li>Inevitable </li></ul></ul><ul><ul><li>One step in a broader evolution </li></ul></ul><ul><ul><li>Related to infrastructure outsourcing and business process outsourcing (BPO), but different </li></ul></ul><ul><li>Who makes the app outsourcing decisions? </li></ul><ul><li>What gets outsourced and why? </li></ul>Look at application outsourcing as another tool in the taming of IT Application Outsourcing is in the cards SERVICE LVLS KNOWLEDGE IT DEPT. GOVERNANCE CEO COMPLIANCE PORTFOLIO HYPE CIO OFFSHORE
    4. 4. Significant Growth in BPO Overall Cost Savings (%) Insurance Banking/ Finance Automotive Telecom Pharmaceuticals Airlines 10.0-15.0 8.0-12.0 5.0-6.5 5.0-6.5 5.0-6.5 5.0-6.5 EBIDTA increase (times) 40-60% cost saving 3.5 x 1.5 x 1.3 x 1.1 x 1.1 x 1.2 x Key opportunity areas <ul><li>Back office processing </li></ul><ul><li>Call Center operations </li></ul><ul><li>Back office processing </li></ul><ul><li>Call Center operations </li></ul><ul><li>Research and Development </li></ul><ul><li>Call Center operations </li></ul><ul><li>Billing </li></ul><ul><li>Engineering & design </li></ul><ul><li>Call Center operations </li></ul><ul><li>Frequent flyer programs </li></ul>* Estimates based on specific representative companies ** Non interest expenses Source: McKinsey analysis; Interviews
    5. 5. BPO Forecast ... Source: NASSCOM Mckinsey Study 2002 and, Gartner 9.5 35.1 15% 234 2005 21 1.5 India ITES Exports 62.0 6.4 Offshored BPO Market 20% 5% Percentage Offshored to Countries such as India, Ireland, etc. 310 127 Total Business Process Outsourcing Market 2008 2001 (US $bn)
    6. 6. Rapid growth in global BPO market to continue Gartner estimates* CAGR 14.7% IDC estimates** CAGR 13.1% * Excludes logistics and manufacturing outsourcing to show addressable market $ Bn $ Bn 109 2000 2004 2005 2000 2004 2005 91 157 181 177 202 Source: Gartner; IDC ** Includes transaction processing
    7. 7. Simplify, Streamline, Consolidate 1 2 3 4 Moving to an outsourced environment brings efficiency gains – thru scale, technology & expertise Moving to lower cost environments brings reduced cost of inputs – Labour Arbitrage Global, centre based distributed delivery brings further economies of scale & process efficiency Further Technology best practice leverage The cost of inefficiency Scale Low cost location High cost location 1 3 4 2
    8. 8. Drivers for Adoption of BPO Controlling cost and integrity are top issues Organisations embark on BPO for cost savings, and then achieve business optimisation &process standardisation
    9. 9. Ratings of “likely to provide best-in-class application management services” Similarly to leadership perceptions, Top-tier Outsourcers face App. Vendors as principal competitors Source: 2003 META Group Application Management Multiclient Study 3.89 3.49 3.43 3.40 3.26 3.26 3.25 3.21 3.18 3.14 3.10 3.09 3.08 2.97 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 IBM Global Services EDS Hewlett Packard Oracle PeopleSoft Accenture SAP CSC Perot Systems JD Edwards Keane Deloitte Consulting BearingPoint (was KPMG) CGI
    10. 10. BPO Value Proposition Source: McKinsey-Nasscom Productivity Cost Quality <ul><ul><li>40-60% cost reduction for offshored process </li></ul></ul><ul><ul><li>Labour cost arbitrage, the reason for cost savings, likely to exist for next 20-30 years </li></ul></ul><ul><ul><li>Faster turnaround time </li></ul></ul><ul><ul><li>Time zone difference </li></ul></ul><ul><ul><li>24 x 7 service </li></ul></ul><ul><ul><li>Learning curve effect </li></ul></ul><ul><ul><li>Established methodologies and processes for better performance </li></ul></ul><ul><ul><li>Well defined quantifiable quality and process metrics </li></ul></ul><ul><ul><li>Access to highly qualified skill pool </li></ul></ul>
    11. 11. Top 5 Outsourcing Objectives Source Gartner
    12. 12. Decide Scope <ul><li>Delivering step change in performance </li></ul><ul><li>Enabling transformation & re-transformation capability </li></ul><ul><li>Deep, broad and enduring partnership </li></ul><ul><li>Targeting cost reduction in smooth running areas </li></ul><ul><li>Accessing best practice and economies of scale </li></ul><ul><li>Shedding non-core services </li></ul>Traditional as-is Outsourcing Problem-solving Outsourcing Transformational Outsourcing <ul><li>Targeting operational fixes in problem areas </li></ul><ul><li>Delivering cost reduction and operational performance improvement </li></ul>“ Sweating assets” Operational performance improvement Changing the model
    13. 13. BPO What?? <ul><li>Commodities: IT Enterprise applications and infrastructure, IT support </li></ul><ul><li>Mature Markets: HR – payroll, benefits, admin. HR training, finance services and analysis, call center, customer service </li></ul><ul><li>Growth markets: Accounting, Corp. finance, check processing, claims processing, Legal & Medical Records management & transcription, telemarketing </li></ul><ul><li>Early Adoption: tax planning, budgeting & reporting, risk management, operations planning, scheduling </li></ul>
    14. 14. Making the App Outsourcing Decisions Involve the right management – both business and IT – to select the best application outsourcing candidates Source: 2003 META Group Application Management Multiclient Study Involved Final decision maker 42% 26% 58% 18% 21% 17% 32% 34% 58% 29% 8% 4% 9% 40% 0% 1% 0% 5% 2% 4% 3% 0% 31% 5% 27% 4% 0% 10% 20% 30% 40% 50% 60% 70% CEO CFO CTO CIO Sales VP/Director/Manager Service VP/Director/Manager Marketing VP/Director/Manager LOB VP/Director/Manager Other non-IT management Other IT professionals Application strategy team (internal) 3rd party assessment service (external) Other (specify)
    15. 15. BPO Advantage Source: Mckinsey & Co. A Mckinsey study shows that when processes are outsourced to India, companies not only get the advantage of low cost but also experience improvement in productivity and Quality .
    16. 16. BPO Leaders Survey respondents shows the following outsourcing destination: India has transformed into the global outsourcing center of choice. It employs world class technology and efficient delivery mechanisms to ensure that clients get cost effective solutions for all their BPO needs. And more ……… Source: Computer world and InterUnity Group Inc., Concord 4% Singapore 4% Russia 4% Philippines 4% Malaysia 5% Canada 5% Ireland 5% Mexico 6% China 38% India
    17. 17. India's dominance
    18. 18. Top Drivers for Outsourcing to India <ul><li>Two million graduates each year (Existing Pool: over 25 million) </li></ul><ul><li>120,000 Engineers every year vs. 63000 in US </li></ul><ul><li>English speaking and IT savvy workforce </li></ul><ul><li>Cost reduction up to 50% </li></ul><ul><li>Government support for IT and BPO industry </li></ul><ul><li>Improving telecom infrastructure </li></ul><ul><li>Lower infrastructure costs </li></ul><ul><li>Favorable time lag: 12 hours with US & 5 hours with Europe </li></ul><ul><li>Overnight turnarounds possible </li></ul><ul><li>Resources with experience of financial and legal systems similar to the west </li></ul><ul><li>Strong domestic IT services industry to support IT led BPO </li></ul>
    19. 19. Political backlash
    20. 20. Indian Outsourcing American Backlash <ul><li>Highly visible issue due to steady American unemployment levels </li></ul><ul><li>Campaign issue for Presidential Candidates </li></ul><ul><li>Rise in anti-Outsourcing websites </li></ul><ul><ul><li>http://nojobsforindia.com </li></ul></ul><ul><ul><li>http://yourjobisgoingtoindia.com </li></ul></ul><ul><ul><li>http://www.nomoreh1b.com </li></ul></ul><ul><li>Consultants predict large numbers of varied Professional jobs to be outsourced as well as Information Technology jobs </li></ul>
    21. 21. Managing Indian Resources <ul><li>Cross-Cultural Difficulties </li></ul><ul><ul><li>Indians use the word “Yes” to acknowledge understanding </li></ul></ul><ul><ul><li>Indian employees rarely disagree </li></ul></ul><ul><li>Knowledge Transfer </li></ul><ul><ul><li>Most difficult aspect of offshoring </li></ul></ul><ul><ul><li>Western employees often reluctant to participate fully </li></ul></ul>
    22. 22. Indian Outsourcing Worldspan Experience <ul><li>Pilot project involved two Indian Quality Assurance Engineers </li></ul><ul><li>Communication is largest problem </li></ul><ul><li>Two hours of overlapping schedules between Indian employee and Atlanta headquarters </li></ul><ul><li>Tendency to not ask questions even when there is incomplete understanding </li></ul>
    23. 23. Location, Location, Location… <ul><li>Offshore = Offsite </li></ul><ul><ul><li>Geography is but one variable to consider </li></ul></ul><ul><ul><li>Distance = complexity </li></ul></ul><ul><li>Location-related issues </li></ul><ul><ul><li>Intellectual property laws </li></ul></ul><ul><ul><li>Legal jurisdiction </li></ul></ul><ul><ul><li>Regulatory compliance </li></ul></ul><ul><ul><ul><li>EU Data Privacy Initiative </li></ul></ul></ul><ul><ul><ul><li>Patriot Act </li></ul></ul></ul><ul><ul><ul><li>more to follow </li></ul></ul></ul>The right mix of polygeographic resources enables application outsourcing strategy(ies) Offshore, Near Shore, Best Shore, No Shore,
    24. 24. Rationales and Risks <ul><li>Reduce costs: Are we just outsourcing a broken process? </li></ul><ul><li>Focus on Core Competencies : Do we outsource something that is critical if controls breakdown? </li></ul><ul><li>Introduce market discipline: do bad practices become right if we just move them outside the company? </li></ul><ul><li>Improve Flexibility: Are we really eliminating fixed costs? </li></ul><ul><li>Improve Technology: Will the applications and processes need fixing anyway? </li></ul>
    25. 25. BPO Failure: Bargain Shopping <ul><li>Find highest quality provider- go after lowest cost from them </li></ul><ul><li>More difficult: highest quality from cheapest provider </li></ul><ul><li>Due Diligence: references, employee churn, financial health, security procedures, Int Prop protection, </li></ul>
    26. 26. BPO Failure: Security <ul><li>Political and economic stability: </li></ul><ul><ul><li>Canada and Ireland, high </li></ul></ul><ul><ul><li>Russia, China, India, Brazil, Philippines, low </li></ul></ul><ul><li>Stability of government, asset nationalization, threat of war, strikes, terrorism, medical outbreaks </li></ul><ul><li>Disaster recovery procedures, reliability of infrastructure, security procedures </li></ul>
    27. 27. BPO Failure: Poor planning <ul><li>Outsource processes, not strategy </li></ul><ul><li>Management of expectations </li></ul><ul><li>SLAs: </li></ul><ul><ul><li>Start and end date for service </li></ul></ul><ul><ul><li>Schedule for reviewing performance </li></ul></ul><ul><ul><li>Documentation & metrics to be used for measuring performance </li></ul></ul><ul><ul><li>Penalties and procedure for underperformance </li></ul></ul><ul><ul><li>Procedures for conflict resolution </li></ul></ul>
    28. 28. BPO Failure: Internal Communication <ul><li>Focus on your own employees!! </li></ul><ul><li>Unhappy employees can wreck BPO transition process </li></ul><ul><li>Outsourcing treated like a dark secret: fear and distrust </li></ul><ul><li>Tell them what, why and how </li></ul><ul><li>Consider extra compensation for employees that train offshore counterparts. </li></ul>
    29. 29. BPO Failure: Poor transition Management <ul><li>Most difficult stage, taking 3 months to 1 year. </li></ul><ul><li>Detailed, knowledge transfer and documentation of all tasks, technologies, workflows and functions </li></ul><ul><li>Motivating current employees to share knowledge </li></ul><ul><li>May include legal obligations, licenses, infrastructure and assets </li></ul>
    30. 30. BPO Processes.. 1. Scoping Refinement of scope Benefits case Commercial framework Risk management HR approach Service parameters Business objectives Participants Key issues Initial scope and constraints HR implications High level service requirements Service consolidation Transfers of: - staff - responsibilities - assets New service start-up Service management and reporting Benefits realisation Continuous improvement Due Diligence Service definition HR preparations Contract preparation Agreed budget Business case update Fast-track 8 weeks to contract signature 2. Feasibility 1. Scoping 4. Transition 5. Delivery 3.Preparation 2. Feasibility 1. Scoping 4. Transition 5. Delivery 3. Preparation Typical 6 months to contract signature 2 weeks 2 weeks 3 months Ongoing 4 weeks 2 months 2 months 6 months Ongoing 2 months 2. Feasibility 4. Transition 5. Delivery 3. Preparation

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