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IAOP Chicago Chapter April 28


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Outsourcing Re-assessments

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IAOP Chicago Chapter April 28

  1. 1. Offshoring Benefits and Advantage, Still the Same in 2011 as they were in 2001?<br />H. Curtis Herge, Jr., COP<br />Director, Solutions Development<br />CDI IT Solutions<br />17177 Preston Road <br />Suite 300<br />Dallas, TX 75248-1243<br /> <br />(585) 260-3261 Mobile<br />(972) 728-8310 Dallas TX Office<br /> <br />1<br />
  2. 2. CDI IT SOLUTIONS<br />2<br />
  3. 3. with CURT HERGE<br />April 28, 2011: The Situation<br />3<br />
  4. 4. Complications?Momentum & Reluctance to Change<br />IAOP<br />4<br />
  5. 5. Outsourcing Still Makes Perfect Sense, But From Where?<br />Evolve With the Times / Technology?<br /><ul><li>80% of the people who work in mainframe support are 50 years of age or older.</li></ul>“The Mainframe Skills Shortage”, William Hoffman<br /><ul><li>A perplexing combination of factors … is compounding the ability to add mainframe talent, including companies trying to reduce costs through outsourcing mainframe jobs to independent service organizations or offshore, an increasing but still inadequate infrastructure within universities to teach mainframe capabilities.</li></ul>InformationWeek <br />1979, Michael E. Porter, “How Competitive Forces Shape Strategy” Harvard Business Review<br />“Threat of new Entrants”<br />Internet, VoIP<br />New competitors are just a mouse-click away<br />Business strategies mustevolve with the times / technology <br />Problem: Outsourced Mainframe operations require skills like MVS, CICS, IMS, DB2. <br />They will remain critical for many companies to remain a “going concern” for another 10+ years. <br />Offshore supply is fixed. USA demand is growing logarithmically due to demographics/retirements.<br />Solution: Re-onshoring to a new workforce service delivery model.<br />5<br />
  6. 6. Your Role in the 5-Stage Outsourcing Process<br />Business<br />Strategy<br />The process forms a closed loop as the management of the current relationship sets the stage for what’s strategically possible in the future.<br />9.6 Ability to develop a ‘transition back’ plan and model in event of termination and including the plan as a part of the contract model. © IAOP OPBOK<br />6<br />
  7. 7. 4 Reasons to Re-Assess Outsourced Offshoring Decisions<br />Offshoring unto itself is not an inherently bad option!<br />However, megatrends taken together cause the need to reconfirm old assumptions and decisions made are still on solid foundations: <br /><ul><li> transformative patterns of economic, social or environmental activity
  8. 8. changes in the way successful businesses operate
  9. 9. adjustments to how consumers live and make buying decisions
  10. 10. how populist politicians address social and economic issues
  11. 11. why core technologies used are creating demands for skills that are quickly becoming scarce</li></ul>Four Reasons to Re-Assess:<br />Offshoring savings are often not realized as assumed by their initial business case<br />Offshoring has placed corporate reputations in jeopardy<br />US Federal, State and Local Governmental actions now prohibit or have created barriers to IT offshoring<br />New offshoring business risks have arisen<br />7<br />
  12. 12. Offshoring Savings Are Often Not Realized as Assumed<br />Inflation in India is more than double that in US. <br />As offshore locations grow and westernize, prices and wages increase. <br />India’s CPI was 10.9% (2009 est.).<br />Over the last three years, U.S. firms also had to contend with a weak dollar against foreign currencies, resulting in higher-than-expected invoices paid in U.S. dollars. <br />The Indian rupees per US dollar exchange has changed 13% in three years. <br />“Hidden Cost” industry averages of offshoring lost productivity (2 – 4%) and cost of Governance (3-5%) bring into question any business case’s assumptions for offshoring that were written years ago. IAOP<br />© <br />8<br />
  13. 13. Impact of economics on offshoring<br /><ul><li> Massive wage jumps in India and China of up to 100% a year mean that cost advantages of offshoring to these countries is rapidly disappearing.
  14. 14. Huge salary inflation impact for senior executives in India and China make offshoring economics harder.
  15. 15. Up to 100% wage inflation in China and 40% in India for experienced business leaders.
  16. 16. Operating costs of managing offshore outsourced operations.</li></ul> Impact of low cost workers arriving in places like UK, France, Germany, Italy driving down labor charges and altering costs of services in … Chicago. <br /><ul><li> Offshore outsourcing business efficiency and strategy needs review. </li></ul>9<br />
  17. 17. Offshoring Has Placed Corporate Reputations in Jeopardy<br />"Outsourced" is an NBC comedy<br />AFL-CIO created a searchable database <br />Young workers’ optimism has slumped over the past 10 years. Buying attitudes reflect brand awareness. <br />Financial services customers seek reassurance that their data is safe, even though it is being maintained thousands of miles away<br />ISO 26000: Companies are thinking twice about employing workers in some countries. Mutual funds now evaluate companies against social criteria. <br />10<br />
  18. 18. US Federal, State and Local Governmental Actions<br />A Hypothetical<br />US Federal Senate bill S. 3816 "Creating American Jobs and Ending Offshoring Act“<br />The Reality<br />ITT paid a $100 million penalty, one of the largest penalties ever in a criminal case. violation of the Arms Export Control Act<br />ITT exported or caused to be exported defense-related technical data to China, Singapore, and the United Kingdom without having first obtained a license or written authorization from the State Department. <br />The technical data included information about a laser counter measure known as a "light interference filter" for military night vision goggle systems.<br />State of Ohio “Executive Order 2010-09S”<br />The December 2010 State of Ohio Request for Proposal “ODJFS HATS II System – 0A1080” specifically states: “Data and work performed must remain within the boundaries of the continental United States for this Project.” <br />11<br />
  19. 19. New Offshoring Business Risks<br />Strategic Risks: <br />JPMorgan Chase’s decision to first outsource IT and then bring it back in-house stands as a cautionary tale for any CIO considering an outsourcing megadeal. A strategic risk is accepted when outsourcing offshore. CIO Magazine<br />Operational Risks: <br />Impact on the organization’s people <br />Integrating the offshore provider’s processes into the business’s<br />Performance, security, data protection and privacy, business disruption, etc. <br />Transactional Risks: <br />Internal controls<br />Termination clauses<br />Dispute resolution, liability, indemnity, warranties<br />Asset transfers<br />Sarbanes-Oxley<br />HIPAA<br />Basel II <br />12<br />
  20. 20. Offshoring Factoids to Consider <br />"... 60 percent of organizations that outsource parts of the customer-facing process will encounter customer defections and hidden costs that outweigh any potential savings they derive from outsourcing...“ <br />Gartner<br />“The truth is, no one saves 80 percent by shipping IT work to India or any other country.” <br />“The Hidden Cost of Offshore Outsourcing”, CIO Magazine, Jagdish Dalal, International Association of Outsourcing Professionals<br /> “… 53 percent of customers have not realized business value/return on investment from offshore outsourcing.” <br />CIO Magazine <br />"...the number of buyers prematurely terminating an outsourcing relationship has doubled to 51 percent while the number of buyers satisfied with their offshoring providers has plummeted from 79 percent to 62 percent.“ <br /> Gartner <br />13<br />
  21. 21. What Needs To Be Done?<br />This IAOP Framework Was Used To Make the Outsourcing Decision. It is time to plan for contract renewal. Ask:<br /><ul><li>How has our business strategically changed since our decision?
  22. 22. Have our requirements and objectives evolved as a result? How?
  23. 23. Problem Evidence
  24. 24. Results Evidence
  25. 25. Has the Business Case been realized? If not, why?
  26. 26. Internal: Changes to the business and/or sourcing baseline
  27. 27. External: Economic factors
  28. 28. Assumptions were flawed
  29. 29. What services can this and other suppliers offer today that were not available then? Should we take advantage of this evolution?
  30. 30. Are there new onshore options we should consider?
  31. 31. What external environmental factors, such as legislation, have changed? How do they impact our decision, or risks, now?
  32. 32. Is a change worth the risk?</li></ul>14<br />
  33. 33. Fukushima Prefecture, Japan<br />March 12, 2011<br />15<br />Your IAOP professional role in Contract Renewal is to facilitate the reassessment decision process.<br />© IAOP OPBOK<br />
  34. 34. RFI/RFQ<br />(Optional)<br /><ul><li>Evaluate
  35. 35. Due Diligence
  36. 36. Scorecard
  37. 37. Select</li></ul>Rollout<br />Ongoing Support<br />Transition? Onshoring?<br />RFP<br />Contract Negotiation/Award<br /> Research<br />How?<br />What to look for in a partner to help?<br />Demonstrated Competencies<br />Total Capabilities<br />Transition alone?<br />Solution itself?<br />Relationship Management<br />You<br />Your current provider<br />New supplier<br />Relative Importance (Size, as a Client)<br />Need for Risk Management<br />Special Areas of Focus:<br /><ul><li>Contract strategy
  38. 38. Current provider
  39. 39. New provider
  40. 40. Transition planning
  41. 41. Knowledge & Assets
  42. 42. Pilot
  43. 43. Rollout
  44. 44. Governance and metrics
  45. 45. Operating model / roles during Transition
  46. 46. Disengagement considerations</li></ul>16<br />
  47. 47. 17<br />
  48. 48. Call To Action<br /><ul><li>What new external drivers must be considered in our decision making?
  49. 49. Has the foundation for old decisions shifted?
  50. 50. Was the Business Case delivered?
  51. 51. Was the Quality delivered?
  52. 52. Were the Other objectives achieved? (e.g., sales channel, innovations, access to skills)
  53. 53. What are today’s new business requirements / objectives?
  54. 54. What actions have our competitors taken?
  55. 55. What do self assessments against Benchmarks and eSCM Best Practices tell us?
  56. 56. What new supplier offerings are available now that were not available then?
  57. 57. What other Lessons Learned were discovered that we must fix?
  58. 58. How can we improve engagement governance, ease of communication and reduce Hidden Costs?</li></ul>Problem Evidence<br />How specifically does _______ show up? <br />How did you become convinced that ______ is a problem? <br />What lets you know ______ is a problem? <br />What is there too much of (or too little of)? <br />What measures, if any, prove that ____ is a problem?<br />Results Evidence<br />How will we know we are successful? <br />What would let us know we had achieved our desired results? <br />What would there be more of (or less of)? <br />Looking back, what would we see that would be different from today?<br />18<br />
  59. 59. Discussion?The Momentum is Yours!<br />19<br />