Deloitte’s 2014 Global Outsourcing and Insourcing Survey .docx

Deloitte’s 2014
Global Outsourcing
and Insourcing Survey
December 2014
2014 and beyond
Contents
Executive summary
2014 and beyond…
The results of the Global Outsourcing
Survey of 2012 rang loud, identifying a
noticeable market shift towards insourcing
— a response to changes in political
sentiment, wage deflation, and high labor
supply following the Great Recession of
the late 2000’s.
In 2014, however, the sentiment of the
market appears to have changed, signaling
a net increase in outsourcing consumption.
Customers are no longer focusing on
bringing services back in house, but are
focusing on optimizing vendor relationships
and improving operational flexibility.

Beyond 2014, customers are looking
to expand their flexibility to react to
potential changes in the regulatory
and technology environment.
Historically, increases in market
consumption of outsourced services
have been driven predominately by new
customer expansion for mature functions
like Information Technology, Human
Resources, Finance and Accounting,
and Procurement (the ‘Big 4’). As
expected, customer growth in mature
services will likely continue to play a
significant role in growth beyond 2014.
Growth will also be supplemented by an
appetite for newer functional offerings
like Facilities Management and Legal
Process outsourcing and vertical Business
Process Outsourcing (BPO) like Claims
and Mortgage Processing. In addition
to functions, the geographic mix of the
sourcing landscape will continue to evolve,
as customers seek opportunities to expand
their geographic footprint from mature
markets like India, China, Eastern Europe,
and the Philippines, to new locations
in South America. Beyond 2014, the
outsourcing market is projected to grow
by several key dimensions including
functions, services, and locations.
Technological advancements and
innovations including cloud computing,
‘big data’, mobility, business process

as a service (BPAS), are changing the
game as end users and customers alike
are demanding high quality content
and service in real time. Many of these
advancements are having immediate
impacts on the outsourcing landscape,
particularly those which remove barriers
like country of origin, capital investment,
and long implementation horizon. In
addition to enable innovations, companies
are also looking at diversifying their
service delivery footprint by considering
locations that have a reputation for high
service quality and lower cultural barriers.
Countries with an educated technological
workforce, language capabilities,
stable currency, and stable technology
infrastructure are potential candidates for
offshoring. Beyond 2014, technology
will reduce geographic barriers,
encouraging companies to constantly
reassess service delivery options.
Outsourcing growth, in all forms, is
not without risk. New geographies
expose vendors to new geopolitical and
socioeconomic risks which may have not
been previously factored into outsourcing
decisions by customers. In the early years
of outsourcing, companies would turn over
key management responsibilities as part of
their outsourcing transition without making
the ongoing investments in vendor and
service management. This resulted in value
leakage, talent attrition, and service issues.

With a whole host of new risks being
introduced into the outsourcing landscape,
companies must rethink their strategic
investments in vendor management.
Beyond 2014, customers will be better
equipped and positioned to manage
and govern vendors.
In order to make the leap from low
cost and high quality service delivery;
to innovative and proactive business
partnership, vendors and companies
will need to meet in the middle. On
the vendor side, an enhanced focus on
bringing the right skills, innovative ideas,
and industry expertise is required. On the
company side, building a strategic vendor
management and governance capability
is necessary. Beyond 2014, collaborative
relationships between vendors and
companies will help drive service quality.
3
The sourcing landscape
In a perfect world, all of the changes
occurring in the outsourcing landscape
would result in tangible value creation
for end customers and improved
profitability for both the companies and
service provider. Unfortunately, not all
of the changes will result in anticipated
positive change. Potential changes to the

regulatory landscape including data privacy
legislation in the European Union (EU), as
well as, pending immigration legislation in
the United States (US) may hinder business
economics and increase outsourcing
related risks.
Key trends in outsourcing
To understand the dynamics of the
outsourcing market, Deloitte surveyed 140
companies in nearly 30 different countries,
on specific dimensions representing
changes affecting the outsourcing industry.
These categories included: regulation
and legislation, functions and services,
geography, and innovation and technology.
Based on the results of the questionnaire,
the following key trends emerged:
Technology: Recent developments and
innovations, like cloud computing and
business process as a service (BPAS), are
driving growth within the outsourcing
space while innovations like gamification
and ‘Bring Your Own Device’ (BYOD)
are having less influence on outsourcing
decisions. New and emerging innovations
like mobility and big data are also
having a pervasive impact on sourcing
decisions; however, they are not the
primary innovations that respondents are
focusing on. As big data and mobility gain
additional popularity, these technologies
should begin to have a larger impact on
sourcing outcomes.

Location strategy: India continues to
represent the primary destination for
offshoring (especially for English language
operations) and a global hub for multi-
location sourcing strategy. In addition to
India, respondents have indicated that they
are continuing to pursue opportunities in
Poland, Philippines, and China. Over the
past decade, new markets for outsourcing
opportunities have emerged in Romania,
Mexico, and Brazil, and these are expected
to see continued growth. Countries within
South America and Asia remain as high
potential opportunities, however, further
development is required before they are
viewed as viable sourcing options.
Legislation and regulation: Respondents
are unanimously not in favor of legislation
to limit offshoring. If legislation is enacted
to curb offshoring, respondents believe
they may face an increase in costs, which
they intend to pass through to consumers.
Some participants indicated that they will
absorb the impact through a reduction in
profitability. In Europe, the Middle East and
Africa (EMEA), relaxation of employment
related regulation (e.g. immigration
controls, ARD/TUPE) is expected to lead to
an increase in outsourcing, while increased
data privacy regulation is likely to reduce
the use of outsourcing globally.
As used in this document, “Deloitte” means Deloitte
Consulting LLP, a subsidiary of Deloitte LLP. Please see
www.deloitte.com/us/about for a detailed description

of the legal structure of Deloitte LLP and its subsidiaries.
Certain services may not be available to attest clients
under the rules and regulations of public accounting.
4
Structural change
The last two decades have seen a
significant rise in offshoring to external
service providers. The driver for this
trend has been largely economic, since
offshoring often offers more competitive
price points for the same service levels.
Beyond cost savings, companies often
also use outsourcing to support their
strategy — in this case the choice of
focusing on core, strategic competencies
and relying on a global network of
external service providers to perform less
strategic functions. In recent years we have
witnessed a small but growing reversal
of this trend where companies that have
previously offshored functions are bringing
them back to their home country
(also known as “onshoring”).1
Based on the results of the 2014 Survey,
a significant majority of respondents have
not and do not plan to move work from
offshore locations back to their domicile
country locations. Those in the minority,
who do plan to move things back onshore,

cited supplier performance and inability to
achieve cost targets as the primary drivers
for reverting or pursuing an alternative
sourcing strategy.
• Only 16% of respondents have moved work back to their home
country.
• Most of the respondents who have moved work back to the
home country have done so due to offshore supplier
performance.
• Government incentives provide less motivation for
respondents to move work back to their home country than other
driving factors.
No
84%
Have you moved
work or are planning
to move work back to
your home country?
Inability to realize cost advantage
Customer perceptions
Time zone considerations
Social beliefs
Government incentives
Offshore supplier performance

What are the main drivers of such a decision?
Yes
16%
72%
44%
28%
28%
17%
11%
1 From Bangalore to Boston, Deloitte 2013
5
Drivers for change
Technology
The coupling of traditional outsourcing
(e.g. services plus staff enablement
technology) with cloud-based offerings has
both advanced and complicated the latest,
cutting-edge data center deals. Both are
required components to encompass the
end-to-end scope of services. Historically,
this has been achieved through traditional
outsourcing alone, but we are seeing
increased pockets of cloud products
embedded in data center scope, with the

vendor’s solution providing economies of
scale by leveraging virtualized servers on
standardized architectures, technologies,
and interfaces. The result is a lower
infrastructure cost to the company (along
with decreased applications costs when
standardized development methods are
applied) and the flexibility for companies
to cease running their own data centers.
According to respondents, end user
engagement innovations (gamification and
crowdsourcing) and hardware flexibility
innovations (BYOD) are not expected
to lead to an increase in outsourcing
in the foreseeable future. Given the
nascent nature of these innovations,
many respondents are unable to predict
what influence they will have on future
outsourcing decisions.
To what extent will the following technology developments
impact your future outsourcing decisions
(% of respondents more likely to oursource as result of
development)?
Cloud
computing
Business
process as
a service
Hosted virtual
desktop

Big data Enterprise
mobility
Open
innovation
Crowdsourcing Bring Your
Own Device
(BYOD)
Gamification
69% 66%
59% 55% 53%
41%
35%
28%
13%
• Over 50% of respondents have indicated that
developments in enterprise mobility, big data, hosted
virtual desktop, business process as a service, and
cloud computing will increase outsourcing.
• Less mature technology developments like BYOD and
gamification are not likely to affect respondents’
decisions to outsource.
6

Drivers for change
Location strategy
India has been traditionally the preferred
choice for many offshoring and outsourcing
activities. Even though high labor costs,
high withholding tax, currency volatility and
inflation in Latin America are inhibitors for
outsourcing as compared to established
outsourcing destinations like India and China;
other factors like proximity and time-zone
make Latin America an attractive option for
offshoring. Latin American governments
continue to support free trade and promote
various English language support programs
to attract global service providers and
companies alike. The Finance and Accounting
Outsourcing (FAO) market in Latin America
emerged from the earlier success of captive/
shared-service center pioneers in the region
and now third-party outsourcing providers
are increasing their presence in the region.
The market is currently driven by intra-region
outsourcing demand; however, as global
FAO providers scale up their presence in
the region, Latin America is soon expected
to become one of the major hubs for FAO.
While this region is flush with opportunities,
firms looking to outsource to Latin American
should proceed with caution, as countries
like Brazil, although ripe with opportunity,
are also subject to variable tax structures.
While emerging markets with low labor
costs locations receive considerable
attention, established offshore, near-shore,

and even onshore locations still provide
compelling opportunities to support business.
Outsourcing location decisions today are
driven by not just labor-cost arbitrage
opportunities, but critical operating
factors, risk appetite, and
corporate growth strategy.
India
United States
China
Poland
Philippines
Romania
Mexico
Australia
Brazil
Malaysia
South Africa
Guatemala
Israel
Ecuador
Panama
Iceland
Nicaragua
Developed
Developing

Future
opportunities
0 20 40 60 80 100
Already there
Planning to go or would consider
59%
52% 16%
40% 27%
35% 27%
24% 31%
21% 26%
21% 27%
19% 29%
17% 36%
14% 38%
8% 20%
5% 18%
4% 21%
4% 20%

2% 29%
2% 28%
0% 20%
22%
• Developed sourcing locations like India,
the U.S., China and Poland can be
expected to see continued growth of
15%-27%.
• Developing sourcing locations like
Philippines, Romania, Mexico, Brazil and
Malaysia can be expected to achieve
higher rates of growth, leading to a
potential doubling of the outsourcing
market in these countries.
• Future opportunities exist in areas with
low levels of current offshore service
delivery, with upwards of 20% of
respondents stating that they plan
to source, or would consider sourcing,
from these countries.
50% of respondents indicated that future
technology advancements will diminish
the importance of service delivery
locations, with a further 12% suggesting
that location may become somewhat or
completely irrelevant.
7

Drivers for change
Legislation and regulation — offshoring
Cyclical downturns in the US and global
economy will likely continue to increase
the political pressure for prohibitive anti-
offshoring legislation to be passed in the
future, even though it has been historically
difficult, particularly in North America.2
According to survey respondents, anti-
offshoring legislation will have negative
financial, economic, and competitive
impact on corporations.
• Almost all respondents (89%) believe
that offshoring will continue to grow
unless legislation is enacted to curb it.
However, only 1 out of 4 respondents
support such legislation.
• More than half of responding companies
will be negatively impacted by anti-
offshoring legislation. In the event of
anti-offshoring legislation, 18% of
organizations anticipate cost increase will
be passed to the consumers. A further
50% anticipate increased costs which will
not be passed to the consumers, possibly
resulting in competitive disadvantage.
• Among large organizations (greater

than 100,000 employees), 90%
are opposed to anti-offshoring
legislation, while small organizations
(fewer than 1,000 employees)
are the more favorable to anti-
offshoring legislation.
• According to the survey results,
companies in Asia and Americas
are less concerned about anti-
offshoring legislation as compared
to Europe.
• Despite limited support for legislation
to curb offshoring, nearly 40% of
respondents expect such legislation
to be enacted in their home country.
• Half of U.S. respondents believe the
U.S. will enact regulation, and 60%
of U.S. respondents believe such
regulation would have a negative impact
to consumers or to top line growth.
However only 10% characterize the
impact as significant.
• Government incentives to promote
repatriation of jobs have not
motivated respondents to
move work back to their home
countries (less than 2% reporting
that they did so as a result).

2 Anti-Offshoring Bill Unlikely to Impact Call Center
Industry, CIO Magazine, 2013
No
11%
Yes
25%
Yes
37%
Yes
89%
Impact will
be significant
Impact will
be minimal
32%
68%
No
75%
No
63%
Will offshoring continue to
grow unless legislation is
enacted to curb it?
Do you believe your home country
will enact regulations to restrict offshoring?

Should legislation be enacted
to curb offshoring?
Do you believe there will
be a significant impact to
your business?
Americas
Asia-Pacific
EMEA
55% 45%
58% 42%
74% 26%
Yes No
8
23%
18%
35%
31%
28%

24%
Drivers for change
Legislation and regulation — data privacy
With the latest host of data breaches at
some of the largest corporations within
the Fortune 500, data privacy and security
has become a major priority amongst both
technologists and back-office leadership
alike. With concerns regarding private
protections of Personally Identifiable
Information (PII), governments globally
are exploring opportunities to bolster
and enhance existing consumer data
protections. While it is unclear what future
data privacy legislation may look like, it is
clear that any future legislative changes
will have an immediate impact on the
consumption of outsourced services —
particularly those directly dealing with
customer information.
According to survey respondents, increased
data privacy regulation will have a material
impact on whether or not a respondent
chooses to outsource to a third party.
• Of the regulations surveyed, increased
data privacy regulation is projected
to have the greatest impact on the
outsourcing decisions.
• U.S. organizations are three times more
likely to decrease, rather than increase,
outsourcing due to an increase in data

privacy regulation. EMEA organizations
are almost twice as likely to decrease,
rather than increase, outsourcing.
• The majority of respondents felt
that increased anti-corruption
regulations would be unlikely to
impact their decision to outsource.
• Organizations outside of the U.S. are
three times more likely to increase,
rather than decrease, outsourcing, due
to relaxation of hiring and termination
restrictions. In the U.S., most
respondents (71%) anticipate no
impact on the outsourcing decision.
• In the U.S., health care reform
is expected to result in a moderate
increase of outsourcing.
• Relaxation of immigration policy
will result in a moderate increase in
outsourcing, driven primarily by the Asia
Pacific region with 45% of participants
indicating they are likely to increase use
of outsourcing versus 28% across all
geographies combined. This sentiment
is lead primarily by responses from India,
Pakistan, South Korea, and Japan. Less
than 5% of organizations are likely to
decrease outsourcing as a result of a
relaxation in immigration policy.
• Relaxation of export controls

will result in a moderate increase in
outsourcing activity, driven primarily
by the Asia Pacific region with 45% of
participants indicating that they are likely
to increase use of outsourcing versus
24% across all geographies combined.
Less than 10% of organizations are likely
to decrease outsourcing as a result of
relaxed export controls.
Likely to decrease use of outsourcing
(% of respondents)
Likely to increase use of outsourcing
(% of respondents)
Increased data privacy regulation
Increased anti-corruption regulation
(e.g. UK Bribery Act, BSA/AML, FCPA)
Relaxed restrictions on hiring and
termination of new employees
(e.g. ARD/TUPE)
In the U.S., impact of health care
reform (e.g. PPACA)
Relaxed immigration policy
Relaxed export control (e.g. ITAR)
40%
13%

13%
4%
5%
5%
9
Managing change
A typical Fortune 500 organization may
use as many as 10,000 suppliers to meet
its business objectives.3 As capabilities and
offerings of third-party providers become
more sophisticated, the management
of outsourced and out-tasked services
becomes more complicated and risky.
Nowadays, Regulators and customers,
expect organizations to be accountable for
the actions of their third-party providers.
For example, the Office of the Comptroller
of the Currency and Federal Reserve
hold the board of directors of financial
institutions responsible and accountable for
risks taken by the organization including
those taken via third-party engagements.
Hence, corporations should make Vendor
Management as an integral part of their
business strategy.
Key trends in Vendor Management

Vendor Management: The market is
currently under-invested in the area of
vendor management, particularly when it
comes to tools, methods, and processes.
Despite the lack of investment, companies
generally believe that their vendor
management capabilities are equal to or
better than their peers. These trends clearly
articulate that a lot of the underinvestment
in vendor management, may be a direct
result of a general market consensus that
each company is equal to or better off
than their peers, regardless of whether or
not they assign any additional resources
to improve their vendor management
process maturity.
Issue and Dispute Management: In
addition, to evaluating performance,
companies are expanding their capabilities
in terms of managing and resolving issues
or disputes. Where historically, companies
were fairly quick to terminate a vendor
contract or drastically reduce vendor
services, they are now pursuing a series
or preliminary options before terminating
contract. In circumstances, where contracts
are terminated, companies prefer to stick
with a predominately outsourced strategy
versus trying to insource their services.
3 Vendor Management Program Office — Five
Deadly Sins of Vendor Management, Deloitte 2013
10

Managing change
Vendor management
Historically companies have extended
onshore sourcing and procurement
functions to include a Vendor Management
capability. With increasing demand for
outsourcing and offshoring and growing
complexity, Vendor Management functions
have evolved and established their own
identity (including specialized skills and
tools). The next stage of outsourcing
journey has seen a small but growing
trend of organizations moving Vendor
Management functions and processes
to near shore or offshore centers. Just
as companies have evaluated benefits
for outsourcing IT and non IT services,
in addition to realizing cost benefits,
the same approach can be applied to
Vendor Management.
According to the survey respondents,
Financial, Commercial and Contract
Management capabilities are perceived
to be above average in terms of
quality and maturity. However, other
processes including Governance,
Service Performance, Issue and Dispute
Management, and Transition Management
require additional improvement.
• Respondents believe that they are

the most mature in Financial and
Commercial Management with nearly
93% of respondents indicating that they
are at or above their peers.
• Respondents believe that they are
the least mature in Issue and Dispute
Management with nearly 26% of
respondents indicating that they are
below the market.
• Vendor Management organizations
continue to be most effective at
traditional Vendor Management
(e.g. financial management,
contract management), however
few organizations rate themselves
above average in Multi-Service
Provider Integration and Supplier
Risk Management.
Below average (% of respondents) Above average (% of
respondents)
Financial and commercial management
Contract management and compliance
Governance
Service performance management
Issue and dispute management
Transition and transformation management

Change and request management
Multi-service provider integration
Supplier risk management
Documents management
49%7%
39%16%
38%13%
33%14%
33%26%
31%23%
30%16%
28%25%
22%18%
19%25%
How would you rate your vendor management capabilities?
11
As companies move beyond ‘Managing
to the Contract’, they will continue to

look at and evaluate vendors on multiple
dimensions. During the early stages
of outsourcing, vendor performance
was measured predominately through
quantitative measures, e.g. service levels;
however, companies are now beginning to
further expand performance management
programs by evaluating providers based
on a variety of different measurements
including end-to-end business outcomes
and results.
According to survey respondents, most
issues are derived from the service provider
being reactive rather than proactive or
from the provider delivering poor service
despite achieving service levels. Cost
related metrics and culture compatibility
are least commonly cited as the cause of
service provider related issues.
Managing change
Issue and dispute management
• Nearly 50% of respondents cited that the
reactive vs. proactive nature of their
service providers and poor service quality
despite achieving service levels as reasons
for issues surfacing with service providers.
• Nearly 40% of respondents cited a lack
of innovation and underqualified
resourcing as reason for complications
with service providers.
• Despite the focus on attrition and cost,

less than 30% of survey respondents cited
these reasons as a cause for issues
surfacing with providers.
Reactive vs proactive
Poor service quality (despite achieving Service Levels)
Lack of innovation
Unqualified resources
Lack of responsiveness
Failure to meet Service Levels
Ineffective issue resolution
Communication barriers
Poor quality of relationship
High service provider attrition
Too costly
Incompatible culture
49%
48%
37%
36%

34%
33%
33%
30%
30%
28%
21%
19%
Please identify issues that you are currently facing with your
outsourcing providers
12
Managing change
Issue and dispute management (continued)
Once an issue has been identified with a
service provider, companies may pursue
several alternative strategies to address
and remediate the issue before it escalates
to a dispute. The primary option for the
company is to ‘Manage to the Relationship’,
whereby they leverage informal channels
to identify an immediate resolution which
may or may not fall within the guardrails of
the contract. The secondary option for the

company is to ‘Manage to the Contract’,
often a more contentious approach,
requiring them to leverage contractual
mechanisms, rights and obligations to
resolve the issue. As a tertiary option,
companies may choose to resolve the issue
through conclusive actions like terminating
the contract in part or in its entirety. All
options are viable, however, given the
hierarchical nature, and challenges posed
by each, companies generally choose less
contentious methods first.
According to respondents, the preferred
approach for resolving conflict with
providers is to first ‘Manage to the
Relationship’, then ‘Manage to the
Contract’, and leverage any ‘Last Resort’
options where needed. Additionally, nearly
70% of respondents choose to continue
outsourcing upon termination of the
agreement, indicating that many of the
unresolved issues are vendor specific and
not attributed to outsourcing specifically.
• Over 60% of respondents,
indicated that escalating
issues to vendor
leadership is the best
method for resolving
issues and disputes
with vendors.
• Last resort options
including termination for
cause and termination

for convenience were
taken by 13% and 9% of
respondents, respectively.
• Of respondents who
elect to terminate their
agreement, 70% continue
to contract with a 3rd
party to achieve their
post contract service
strategy.
Escalation of issues to vendor leadership
Enhanced governance processes
Provided additional training
Restructured/renegotiated the deal
Restructured service levels
Increased competition
Added vendor management capability
Reduced the scope of services
Terminated for cause
Terminated for convenience
Manage to
relationship
Manage to

contract
Last resort
0 10 20 30 40 50 60 70 80
63%
58%
40%
39%
35%
33%
32%
23%
13%
9%
What steps have you taken, if any, to remediate outstanding
issues with your providers?
Post contract insourcing vs. outsourcing
What was your post contract
termination strategy?
Were you satisfied with
the results?

Outsource
69%
Satisfied
62%
Insource
25%
Neutral
32%
Other 6% Dissatisfied
6%
13
Functions and services
In spite of the structural (e.g. legislation,
regulation, and technology) and cultural
(e.g. location) changes influencing
outsourcing decisions, the market appears
to demanding more outsourcing.
Information Technology (IT) continues to
be the most commonly outsourced
function, at nearly 60% penetration.
While IT services are highly mature in the
market place, to gain a better perspective,
it is necessary to evaluate functions
like Human Resources, Legal, and Real

Estate and Facilities Management where
outsourcing is expected to grow by
12%-26% per annum.
This growth is redefining what traditionally
outsourced tasks were within each function,
e.g. from transactional to increasingly
complex work based on judgment.
14
Finance
Finance and Accounting (F&A) services
outsourcing is expected to increase in
growth over the next few years. 30% of
respondents expect to outsource additional
services across all areas of F&A, with the
least historically outsourced services,
Accounts Receivable and Billing, seeing a
planned increase above the 30% mark.
This trend suggests outsourced F&A
will continue to see strong growth and
become more standard practice for
many companies.
Increasing availability of global service
providers in non-traditional locations
will support this fast-growing functional
area. Currently many activities are basic
transactional finance and accounting
processes such as accounts payable,
however companies are starting

to experiment with outsourcing
non-transactional financial functions
like financial analysis. Outsourcing
knowledge-based financial services
is still a nascent business practice, but
as the comfort level of organizations
rise it should become a more
common practice.
50%
29%
49%
33%
41%
22%
41%
24%
40%
31%
38%
23%
36%
32%

32%
34%
Current outsourcing (% of respondents)
Plan to outsource (% of respondents)
Travel and entertainment
Accounts payable
Collections
General accounting
Payroll
Fixed asset accounting
Accounts receivable
Billing
Travel and entertainment
Accounts payable
Collections
General accounting
Payroll
Fixed asset accounting

Accounts receivable
Billing
15
Legal opinions
Legal counsel
Patent review/drafting
Legal research and analysis
Negotiation support
Paralegal support
Contracting drafting
e-Discovery
Billing services
Legal
Corporate legal departments are faced
with a number of issues that require
them to evaluate and implement Legal
Process Outsourcing (LPO) solutions.
Key concerns include resource allocation,
inefficiencies in processes and project

management, and technological
investments such as automation and
document standardization.4 The solutions
offered by outsourcing Legal services
have led to a rise in tactical Legal services
such as e-Discovery, Billing, and Research
and Analysis.
E-Discovery is one of the largest growth
opportunities within legal services
outsourcing. Among respondents who
plan to outsource legal services, 25%
plan to outsource e-Discovery.
As the LPO market becomes more mature,
corporate legal departments are starting to
move outsourcing beyond transaction-
based legal processes to judgment based
processes, such as Contract Drafting which
is expected to grow by 18%.
4 Implementing a corporate legal process
outsourcing solution, Deloitte 2013
67% 23%
65% 15%
57% 14%
56% 26%
43% 14%
43% 17%

37% 18%
35%
18% 21%
25%
Current outsourcing (% of respondents) Plan to outsource (% of
respondents)
Legal opinions
Legal counsel
Patent review/drafting
Legal research and analysis
Negotiation support
Paralegal support
Contracting drafting
e-Discovery
Billing services
16
Real estate and facilities management

Real Estate and Facilities Management
(RE&FM) spend is typically the second
largest administrative cost for companies.
Design and Construction are the most
commonly outsourced services in RE&FM
with 53% of respondents indicating
that they are currently outsourcing
these services.
While RE&FM services like Design and
Construction and Document Services
are reaching saturated levels of a
mature market, there are still
significant opportunities for growth.
Of all RE&FM services polled, Asset and
Lease Management is the greatest area
of expected growth. While only 13% of
the respondents currently outsource
Asset and Lease Management Services;
37% of those who plan to outsource,
are considering doing the same.
Another notable service is Financial
Performance Management and Reporting,
which is projected to grow nearly 19%.
53%
43%
39%
35%

31%
21%
20%
13%
11%
Manage design and construction services
Document services
Manage transaction processing for real estate
Develop and manage real estate portfolio
Reception/guest services
Office/meeting scheduling
Define and develop real estate financials
Manage assets/leases
Manage and report financial performance
17%
14%
18%

24%
14%
13%
20%
37%
19%
Manage design and construction services
Document services
Manage transaction processing for real estate
Develop and manage real estate portfolio
Reception/guest services
Office/meeting scheduling
Define and develop real estate financials
Manage assets/leases
Manage and report financial performance
17

Human Resources
Over the last few years, Human Resources
(HR) outsourcing has struggled to find the
right balance between comprehensive
solutions and targeted competencies
that address specific business issues.
The transformation continues to seek
equilibrium, shifting to a center that
includes value-added and judgment-based
services (e.g., workforce analytics, global
mobility, and employee relations).
Call Center Management is a commonly
outsourced service in Human Resources
and is usually aligned with administration
for specific services such as benefits
administration. Other services commonly
outsourced include Expat Administration
and HRIS Maintenance and Support.
In the last few years the industry has seen
an increased use of offshore services.
Integration services such as reporting
are becoming more prevalent and are
expected to undergo high growth. Among
respondents who plan to outsource HR,
38% plan to outsource HR Administration,
as compared to only 13% who currently
outsource. Some of this trend can be
attributed to growing service offerings
for leave administration, recruitment
process outsourcing, and learning
process outsourcing.

43%
35%
34%
30%
21%
16%
13%
13%
7%
Call center management
Expat administration
HRIS maintenance and support
Payroll time administration
Recruiting and staffing administration
Total rewards administration
Workforce analytics
HR administration

HR reporting
23%
21%
29%
36%
21%
33%
29%
38%
32%
Call center management
Expat administration
HRIS maintenance and support
Payroll time administration
Recruiting and staffing administration
Total rewards administration
Workforce analytics

HR administration
HR reporting
18
Customer service
Contact centers expect to grow to support
organizational needs to improve customer
service, to support business growth, and
to support contact volume growth across
all channels, email and social media in
particular. Results of the 2013 Global
Contact Center survey showed 85% of
organizations currently support multi-
channel customer service capabilities
and over 90% of organizations that view
customer experience as a competitive
differentiator provide multi-channel
customer access.5
With one of the highest expected growth
rates in Customer Service, Simple “Tier
1” Customer Service Inquiries is the most
commonly outsourced service.
Due to the importance of the customer
experience, Complex “Tier 2” Customer
Service Inquiries are less commonly
outsourced and are seeing some of the
lowest growth rates among customer
service outsourcing.

Loyalty programs are relatively
uncommonly outsourced services but
are expected to break their way into
mainstream customer service outsourcing.
5 2013 Global Contact Center Survey Results,
Deloitte, 2013
54%
29%
46%
13%
43%
21%
41%
28%
39%
21%
37%
15%
36%
20%

32%
32%
32%
18%
30%
22%
27%
19%
6%
22%
Simple ‘Tier 1’ customer service inquiries
Order fulfillment
Initial complaint handling
Technical support
Outbound sales
Complex ‘Tier 2’ customer service inquiries

Inbound sales
Back office — Non-customer facing
administration processes
Social media responses
Billing and collections
Account inquiries
Loyalty programs
Simple ‘Tier 1’ customer service inquiries
Order fulfillment
Initial complaint handling
Technical support
Outbound sales
Complex ‘Tier 2’ customer service inquiries
Inbound sales
Back office — Non-customer facing
administration processes
Social media responses
Billing and collections
Account inquiries

Loyalty programs
19
Procurement
The adoption of procurement
outsourcing has been very slow. The
main barriers to adoption being the
need for deep understanding and
control of spend categories, gaining
trust of the stakeholders, shortage of
procurement and sourcing skills, and
lack of broad knowledge of the suppliers
across geographies. In many cases,
procurement outsourcing is restricted
to the transactional procure to pay
processes as an extension of the F&A BPO
deals. Consequently, the procurement
outsourcing marketplace is still growing
and offers an opportunity for companies
seeking additional cost reductions.6
Rewards for breaching procurement
outsourcing barriers are high; savings
for non-core commodities and services
procured though BPO services could range
between 5% to more than 20%.7 As a
result, there has been a significant uptick
in the outsourcing of indirect procurement
activities, including transactional processing
and sourcing of goods and services.

Results of the survey reflect a higher
adoption for transactional services. First
on the list of commonly outsourced
processes in Procurement is Create and
Issue Purchase Orders, followed by Spend
Analysis and External Benchmarking, then
Creating Requisitions, and Assessing
Supply Markets.
Traditionally the least commonly
outsourced Procurement processes and
services are Supplier Negotiation and
Contracting as well as the Management
and Assessment of Suppliers;
however, despite the current
limited outsourcing activity in
Procurement space, 30% of
respondents have indicated that
then plan to outsource Supplier
Performance Management
and Assessment and 23% of
respondents plan to outsource
Supplier Negotiation and
Contracting.
6 The untapped potential of procurement
outsourcing, Deloitte 2013
7 The untapped potential of procurement
outsourcing, Deloitte 2013
27% 30%
26% 38%

26%
24%
21%
17%
16%
15%
13%
23%
28%
17%
10%
25%
23%
30%
Current outsourcing (% of respondents) Plan to outsource (% of
respondents)
Create and issue purchase orders
Conduct spend analysis and
external benchmarking

Create requisitions
Assess supply markets
Create commodity strategies
Manage prices
Manage RFIs and RFPs
Manage and assess supplier performance
Negotiate and contract with suppliers
Create and issue purchase orders
Conduct spend analysis and
external benchmarking
Create requisitions
Assess supply markets
Create commodity strategies
Manage prices
Manage RFIs and RFPs
Manage and assess supplier performance
Negotiate and contract with suppliers
20

Information technology
IT is typically the single largest
administrative cost for companies.
Over the years, IT Outsourcing (ITO)
has matured into a well understood
construct which drives over 60% of
the total sourcing market.8
Though the demand for ITO continues to
grow, there are significant shifts within
the IT services delivery model driven by
recent advances in technology (e.g. cloud
computing, social computing, and green
IT) which offer companies and providers
new and creative solution options.
Companies demand more value than
can be derived from economies of scale
and labor arbitrage alone. Sophisticated
consumers of outsourced IT services are
seeking service partners and arrangements
that will position them to take advantage
of future changes in the IT landscape.
Over the past few years, leading
companies have moved away from
“mega deals”; instances where large
organizations sole-sourced significant
chunks of their IT service delivery
environment to a single provider
through long term deals.9 Instead,
companies have begun to segment
their environments and pursue a

“portfolio approach”, by engaging
multiple providers and benefiting
from the capabilities of smaller,
specialized vendors.
8 ITO Market Trends, Deloitte, 2014
9 From strategy to execution An Outsourcing
Advisory Services compendium, Deloitte, 2013
61%
60%
58%
58%
57%
51%
51%
46%
19%
14%
20%
17%
20%

22%
23%
26%
23%
16%
Network (voice)
Application maintenance and support
Network (data)
Application hosting and support
Application development/enhancements
IT service desk
Data center
End user device provisioning and support
IT architecture design
Network (voice)
Application maintenance and support

Network (data)
Application hosting and support
Application development/enhancements
IT service desk
Data center
End user device provisioning and support
IT architecture design
21
Conclusion
The outsourcing landscape is constantly
changing to better serve customers and
Deloitte continues to assess the market
dynamics to provide valuable and detailed
insights to Deloitte customers. While today
we are seeing continued growth in the
consumption of outsourced services; there
are no assurances of how long this trend
will continue to last. It is nearly impossible
to predict with any level of certainty when
a macro-economic or disruptive business
event will happen and how that will affect
the interaction between companies and
service providers. Despite the uncertainty,
there are a few things that we do know.

1. Vendors’ service offerings are
continuously evolving to fulfill
customer needs
2. Customers will likely continue to
demand more from their vendors
expecting them to go above and
beyond the terms of the agreement
to deliver value on both qualitative
and quantitative terms
3. The bar for vendor management
capabilities will likely keep rising as
companies seek to leverage multi-
vendor or multi-functional strategies
requiring transition and service
integration capabilities
4. The regulatory and legislative landscape
will likely continue to influence
outsourcing decisions and retaining the
flexibility to change direction rapidly,
even for complex services, is key
5. Beyond 2014, as vendors become
adept at delivering innovative solutions,
analytics and cloud offerings, customers
will continue to benefit from the
resulting increased flexibility.
6. Despite a political environment that can
dampen the appeal of outsourcing, for
the foreseeable future, we expect to see
a continued growth of the industry.
22

Appendix
Demographics
Deloitte Consulting undertook a broad
research effort to analyze the outsourcing
landscape, trends, and approaches that
companies are currently taking. The
Deloitte Consulting Global Outsourcing
Survey 2014 had 157 unique respondents
representing 140 public and private
sector entities. Respondent organizations
represent major industries and include
both single-country companies and
multinational corporations.
Industry
The participants represented are in 22
industry sectors across Technology,
Media, Telecommunications, Healthcare
and Life Sciences, Energy and Resources,
Government, Consumer Products,
Industrial Products, Financial Services
and Professional Services.
The 10 sectors with the greatest
representation were Banking, Professional
Services (including Legal), Consumer
Products, Technology, Process and
Industrial Products, Telecommunications,
Life Sciences, Transportation, Power
& Utilities (including renewable),
and Insurance.

70% of respondents were from three
industries: Consumer and Industrial
Products (C&IP), Financial Services (FSI),
and Technology Media and
Telecommunication (TMT) industries
Size
The typical respondent representing
40% of the organizations surveyed
generated between $1 billion and
$15 billion in revenue and 61% of
respondent organizations had
revenues greater than $1B.
The typical respondent representing
49% of the organizations surveyed had
between 1,000 and 25,000 employees
and 74% of respondent organizations
had greater than 1000 employees.
Geography
Survey participants represent 30 countries
located across North America, Central
America, Asia, Africa, Eastern Europe,
Western Europe, and Australia.
10 countries with the greatest
representation were the US, Korea, India,
Canada, UK, the Netherlands, Denmark,
Finland, Colombia and Australia. 69% of
survey participants are headquartered in
North America or Europe.
Of the survey participants headquartered
in North America, 40% had more than
$1 billion in annual revenue and 45%

had more than 10,000 employees.
A note on location terms
The survey instrument defined the terms “within country,”
“nearshore,” and “offshore” as follows:
• Within country: Service is generally performed in the same
country as the service is received or in a country where
labor rates are generally consistent with those where the
service is received (e.g. US-to-US, US-to-UK, Sweden-
to-UK, etc.).
• Nearshore: Service is generally performed in another
country near where the service is received (usually within
or close to the same time zone) and where labor rates are
generally lower than those where the service is received
(e.g. Mexico-to-US, Eastern Europe-to-UK, etc.)
• Offshore: Service is generally performed in another
country where labor rates are typically significantly lower
than those where the service is received and there may
be a significant difference in time zone (e.g. India-to-US,
Philippines-to-UK, etc.)
What is your organizations primary industry sector?
What is the revenues of your organization?
What are your total employees?
Respondents by region
Consumer and Industrial Products
Financial Services

Technology, Media, and Telecom
Professional Services
Health Care and Life Sciences
Energy and Resources
Public Sector
Less than $1 billion
$1 billion to $5 billion
$5 billion to $15 billion
Greater than $15 billion
Fewer than 1,000
1,000 to 10,000
10,001 to 25,000
25,001+
Asia/Australia/Africa
Europe
Americas
6%
7%
8%

10%
16%
23%
31%
39%
23%
17%
21%
25% 26%
31%
27%
30%
43%
18%
23
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and trends, contact:

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Deloitte shall not be responsible for any loss sustained by any
person who relies on this publication.
Copyright © 2014 Deloitte Development LLC. All rights
reserved.
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Deloitte Consulting LLP
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24
http://www.deloitte.com/2014GOISCoverContentsExecutive
summaryThe sourcing landscapeStructural changeDrivers for
changeLocation strategyoffshoringdata privacyManaging
changeVendor managementIssue and dispute 1Issue and dispute
2Functions and servicesFinanceLegalReal estateHRCustomer
serviceProcurementITConclusionAppendixContact us
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Annual Editions Journal Summary
Instructions:
1. Summarize each of the readings in the tables below.
2. You may expand the table to accommodate your information.
3. Write in complete sentences using proper grammar and
mechanics.
Readings:
· Unit 1 in the textbook: Introduction and Social Media and
Participation
· As Data Overflows Online, Researchers Grapple with Ethics
· Wireless Charging at a distance, Moves forward for uBeam
· The Secret Life of Data in the Year 2020

· Unit 2 in the textbook: Social Media
· What Will Social Media Look Like in the Future?
· Licence to Text
· The Truth about Video Games and Gun Violence
Main idea of the article:
Information presented: List at least five points made by the
author
1.
2.
3.
4.
5.
Response to the article:

Reading #1 – As Data Overflows Online, Researchers Grapple
with Ethics
Reading #2 – Wireless Charging at a distance, Moves forward
for uBeam
author
1.
2.
3.
4.
5.

Reading #3 – The Secret Life of Data in the Year 2020
author
1.
2.
3.
4.
5.

Unit 2 Social Media
Reading #4 – What Will Social Media Look Like in the Future?
author
1.
2.
3.
4.
5.

Reading #5 – Licence to Text
author
1.
2.
3.
4.
5.

Reading #6 – The Truth about Video Games and Gun Violence
author
1.
2.
3.
4.
5.

Adapted from Dushkin Online Annual Editions Test Your
Knowledge Form http://www.dushkin.com/online/
Chapter 12
IT Strategy and Balanced Scorecard
Prepared by Dr. Derek Sedlack, South University
Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.
Learning Objectives
Aligning IT with Business Strategy
Balanced Scorecard
IT Sourcing and Cloud Strategy

IT Strategy and Strategic Planning Process
Value Drivers
Enhance the value of a product or service to consumers,
creating value for the company (such as advanced IT,
reliability, and brand reputation).
Three general types of Business Value Drivers:
Operational Shorter-term factors
Financial Medium-term factors
Sustainability Long-term factors
Chapter 12
IT Strategic Planning
A systematic process for determining what a business should
become and how it can best achieve that goal.
Reactive Approaches Fail
Fail to align IT to real business needs.

and, as a result
Fail to deliver value to the business.
Chapter 12
IT Strategies Support the Business Strategy
Four IT Strategic Plan Objectives:
Improve management’s understanding of IT opportunities and
limitations
Assess current performance
Identify capacity and human resource requirements
Clarify the level of investment required
Chapter 12
IT Deployment Strategies
In-house development
Systems are developed or other IT work is done in-house,
possibly with the help of consulting companies or vendors.
Sourcing
Onshore: sourced to consulting companies or vendors that are
within the same country.
Offshoring: work sourced to other countries.
Chapter 12

Chapter 12
Figure 12.2 IT strategic planning process.
IT Steering Committee
Set the direction
Links corporate strategy with the IT strategy,
Allocate scarce resources
Approves the allocation of resources for and within the
information systems organization including outsourcing policy.
Make staffing decisions
Key IT personnel decisions involve a consultation and approval
process made by the committee, including outsourcing
decisions.
Communicate and provide feedback
Information regarding IT activities should flow freely.
Set and evaluate performance metrics
Establish performance measures for the IT department and see
they are met.
Chapter 12
Governance
Formally established statements that direct the policies
regarding IT alignment with organizational goals and allocation
of resources.
Long-range IT plan (Strategic IT plan)
What IT should do to achieve the goals, objectives, and
strategic position of the firm and how this will be achieved.

The overall direction, requirements, and sourcing of resources.
Time frames are set for three to five years into the future.
Chapter 12
Medium-range IT plan
Identifies general project plans in terms of the specific
requirements and sourcing of resources as well as the project
portfolio.
Tactical Plan (Short-range)
Details budgets and schedules for current-year projects and
activities.
Chapter 12
Project Portfolio
Lists major resource projects that are consistent with the long-
range plan.
Applications Portfolio
A list of major, approved information system projects that are
also consistent with the long-range plan.
Chapter 12
What are value drivers?

What are the three categories of value drivers?
Why do reactive approaches to IT investments fail?
What is onshore sourcing?
What is the goal of IT–business alignment?
Why is IT strategic planning revisited on a regular basis?
What are the functions of a steering committee?
Describe the IT strategic planning process.
Chapter 12
Suggested Answers:
1. Value drivers enhance the value of a product or service to
consumers, creating value for the company. Advanced IT,
reliability, and brand reputation are examples.
2. Operational (shorter-term factors that impact cash flow and
the cash generation ability through increased efficiency or
growth),
Financial (medium-term factors that minimize the cost of
capital incurred by the company to finance operations), and
Sustainability (long-term survival factors; factors that enable a
business to continue functioning consistently and optimally for
a long time.)
3. Two of the biggest risks and concerns of top management are
(1) failing to align IT to real business needs and, as a result, (2)
failing to deliver value to the business. Reactive IT investments
tend to be patches that rarely align with the business strategy.
4. Work or development outsourced to consulting companies or
vendors that are within the same country is referred to as
onshore sourcing.

5. Answers may vary. IT–business alignment means how closely
an organization’s IT strategy is interwoven with and driving its
overall business strategy. The goal of IT strategic alignment is
to ensure that IS priorities, decisions, and projects are
consistent with the needs of the entire business. Failure to
properly align IT with the organizational strategy can result in
large investments in systems that have a low payoff, or not
investing in systems that potentially have a high payoff.
6. The business and IT strategic plans are evaluated and
adjusted annually to keep pace with rapid changes in the
industry. Because organizational goals change over time, it is
not sufficient to develop a long-term IT strategy and not re-
examine the strategy on a regular basis. For this reason, IT
planning is an ongoing process. The IT planning process results
in a formal IT strategy or a reassessment each year or each
quarter of the existing portfolio of IT resources.
7. The steering committee is a team of managers and staff
representing various business units that establish IT priorities
and ensure the IT department is meeting the needs of the
enterprise. The steering committee’s major tasks are:
Set the direction. In linking the corporate strategy with the IT
strategy, planning is the key activity.
Allocate scarce resources. The committee approves the
allocation of resources for and within the information systems
organization. This includes outsourcing policy.
Make staffing decisions. Key IT personnel decisions involve a
consultation-and-approval process made by the committee,
including outsourcing decisions.
Communicate and provide feedback. Information regarding IT
activities should flow freely.
Set and evaluate performance metrics. The committee should
establish performance measures for the IT department and see
that they are met. This includes the initiation of SLAs.

The success of steering committees largely depends on the
establishment of IT governance, formally established statements
that direct the policies regarding IT alignment with
organizational goals and allocation of resources.
8. Figure 12.2 shows the IT strategic planning process. The
entire planning process begins with the creation of a strategic
business plan. The long-range IT plan, sometimes referred to as
the strategic IT plan, is then based on the strategic business
plan. The IT strategic plan starts with the IT vision and
strategy, which defines the future concept of what IT should do
to achieve the goals, objectives, and strategic position of the
firm and how this will be achieved. The overall direction,
requirements, and sourcing—either outsourcing or insourcing—
of resources, such as infrastructure, application services, data
services, security services, IT governance, and management
architecture; budget; activities; and timeframes are set for three
to five years into the future. The planning process continues by
addressing lower-level activities with a shorter time frame.
The next level down is a medium-term IT plan, which identifies
general project plans in terms of the specific requirements and
sourcing of resources as well as the project portfolio. The
project portfolio lists major resource projects, including
infrastructure, application services, data services, and security
services that are consistent with the long-range plan. Some
companies may define their portfolio in terms of applications.
The applications portfolio is a list of major, approved
information system projects that are also consistent with the
long-range plan. Expectations for sourcing of resources in the
project or applications portfolio should be driven by the
business strategy. Since some of these projects will take more
than a year to complete, and others will not start in the current
year, this plan extends over several years.
The third level is a tactical plan, which details budgets and

schedules for current-year projects and activities. In reality,
because of the rapid pace of change in technology and the
environment, short-term plans may include major items not
anticipated in the other plans.
The planning process just described is currently practiced by
many organizations. Specifics of the IT planning process, of
course, vary among organizations. For example, not all
organizations have a high-level IT steering committee. Project
priorities may be determined by the IT director, by his or her
superior, by company politics, or even on a first-come, first-
served basis.
The deliverables from the IT planning process should include
the following: an evaluation of the strategic goals and
directions of the organization and how IT is aligned; a new or
revised IT vision and assessment of the state of the IT division;
a statement of the strategies, objectives, and policies for the IT
division; and the overall direction, requirements, and sourcing
of resources.
12
Learning Objectives
Balanced Scorecard

IT Business Alignment Improvement Activities
Commitment to IT planning by senior management.
CIO is a member of senior management.
Understanding IT and corporate planning.
Shared culture and good communication.
Multilevel links.
Chapter 12
Strength of CIO & C-Suite Relationship Influences Performance
Achieve better results.
Adapt quickly.
Think together.
Act together.
More aligned on strategy.
Chapter 12

CIO Skillset
Political savvy
Influence, leadership, and power
Relationship management
Resourcefulness
Strategic planning
Doing what it takes
Leading employees
Chapter 12
IT/Business Alignment
CIO drives business change through the use of digital
technology, not just supporting business, but introducing
profitable new lines of business.
Even older organizations, considered traditional and slow-
moving, can become agile, even innovative through technology.
Chapter 12
How can IT–business alignment be improved?
How does strong collaboration among the CIO and other chief-
level officers influence performance?
What skills are important to a CIO’s success?
How did the CIO of CBA contribute to the bank’s
competitiveness?
Chapter 12

Suggested Answers:
1. Alignment is a complex management activity, and its
complexity increases as the pace of global competition and
technological change increases. IT–business alignment can be
improved by focusing on the following activities:
Commitment to IT planning by senior management. Senior
management commitment to IT planning is essential to success.
CIO is a member of senior management. The key to achieving
IT-business alignment is for the CIO to attain strategic
influence. Rather than being narrow technologists, CIOs must
be both business and technology savvy.
Understanding IT and corporate planning. A prerequisite for
effective IT–business alignment for the CIO is to understand
business planning and for the CEO and business planners to
understand their company's IT planning.
Shared culture and good communication. The CIO must
understand and buy into the corporate culture so that IS
planning does not occur in isolation. Frequent, open, and
effective communication is essential to ensure a shared culture
and keep everyone aware of planning activities and business
dynamics.
Multi-level links. Links between business and IT plans should
be made at the strategic, tactical, and operational levels.
2. According to PwC’s 5th annual Digital IQ global survey,
compared to less collaborative companies, strong collaborators:
Achieve better results. They are four times more likely to be top
performers than those with less collaborative teams. IT
initiatives are more likely to be on time, on budget, and within
project scope.
Adapt quickly. They adapt quickly to market changes to
maintain an advantage over competitors.

Think together. IT and business leaders share the same
understanding of the corporate strategy and the costs needed to
implement the strategic road map. They view their CEO as a
champion of IT and understand IT risks that may impact the
business.
Act together. They have explicit processes in place to link the
IT road map to the corporate strategy. They invest more
aggressively in social, mobile, cloud, and analytics and map IT
to strategic initiatives like new product and service
development and market share growth.
More aligned on strategy. In a majority of strong collaborators
(82 percent), the CEO is a champion of IT and actively involves
IT in the strategic and operational plans, compared with 54
percent for less collaborative companies.
In addition, strong relationships support more frequent and
frank conversations about problems and collaborative problem
solving. Too many IT projects fail because foundational issues
are not dealt with candidly and fast enough. The Digital IQ
study clearly shows that strong executive leadership and
collaboration are crucial to building lasting value from IT.
3. Skills of CIOs needed to improve IT–business alignment and
governance include:
Political savvy. Effectively understand managers, workers, and
their priorities and use that knowledge to influence others to
support organizational objectives.
Influence, leadership, and power. Inspire a shared vision and
influence subordinates and superiors.
Relationship management. Build and maintain working
relationships with co-workers and those external to the
organization. Negotiate problem solutions without alienating
those impacted. Understand others and get their cooperation in
non-authority relationships.
Resourcefulness. Think strategically and make good decisions
under pressure. Can set up complex work systems and engage in
flexible problem resolution.

Strategic planning. Capable of developing long-term objectives
and strategies and translating vision into realistic business
strategies.
Doing what it takes. Persevering in the face of obstacles.
Leading employees. Delegating work to employees effectively;
broadening employee opportunities; and interacting fairly with
employees.
4. Kaching is the mobile, social, and NFC payments apps from
CBA. With the success of Kaching, CBA’s CIO Michael Harte
had not just supported business activities, he had introduced a
profitable new line of business (LeMay, 2013). By leading with
mobile, social, NFC technology, CBA has become an innovative
financial institution.
18
Learning Objectives
Balanced Scorecard

Balanced Scorecard
Old Approach to Business
Lagging Indicators
P&L, Cash Flow, Balance Sheets
Confirm what has happened.
Evaluate outcomes and achievements.
Represent history, not ideal for managing day-to-day operations
and planning.
Multidimensional Approach to Business
Leading indicators
Predict future events to identify opportunities.
Chapter 12
Balanced Scorecard
Chapter 12
Figure 12.3 Balanced Scorecard (BSC) uses four metrics to
measure performance.
Balanced Scorecard
Balanced Approach Metrics
Financial

Revenue, earnings, asset utilization
Customer
Market share, Brand image, price-value relationship
Business processes
Cycle times, cost per process/transaction
Innovation, learning and growth
Employee skills, IT capabilities, R&D
Chapter 12
Balanced Scorecard
IT & Business Strategy Alignment through BSC
Clarify and update strategy
Align IT strategy with business strategy
Link strategic objective to long-term goals and annual budgets
Chapter 12
Balanced Scorecard
Chapter 12
The BSC methodology process.
Identify performance metrics
Select meaningful objectives
Select effective measures and targets

Revise actions
Collect, analyze, and data with targets
Implement necessary data collection tools
Alignment
Balanced Scorecard
How did the BSC approach differ from previous measurement
approaches?
How does the BSC approach “balance” performance
measurements?
What are the four BSC metrics?
Give an example of each BSC metric.

How does BSC align IT strategy with business strategy?
Chapter 12
Suggested Answers:
1. Prior to the BSC concept, the typical business objective could
be summed up simply as to make a profit. Performance metrics
were based on:
P&L (profit and loss) reports: revenue, expenses, net profit
Cash flow statements: enough cash to pay its current liabilities
Balance sheets that reflected the overall status of finances at a
certain date
These financial metrics are lagging indicators because they
quantify past performance. As such, they represent historical
information and are not ideal tools for managing day-to-day
operations and planning.
What was novel about BSC in the 1990s was that it measured a
company’s performance using a multidimensional approach of
leading indicators as well as lagging indicators.
2. The BSC method is “balanced” because it does not rely solely
on traditional financial measures. Instead, it balances financial
measures with three forward-looking nonfinancial measures.
3. Financial. To succeed financially, how should we appear to
our investors and shareholders?
Customer. To achieve our vision, how should we provide value
to our customers?
Business processes. To satisfy our shareholders and customers,
what business processes must we focus on and excel at?
Innovation, learning, and growth. To achieve our vision, how

will we sustain our ability to innovate, learn, change, and
improve?
4. Answers may vary.
Metric or
Indicator Examples of Measurement Criteria
Financial • Revenue and revenue growth rates
• Earnings and cash flow
• Asset utilization
Customer • Market share
• Customer acquisition, retention, loyalty
• Customer relationships, satisfaction, likes,
recommendations, loyalty
• Brand image, reputation
• Price–value relationship
Business • Cycle times, defect rate
processes • Production throughput, productivity rates
• Cost per process
• Cost per transaction
Innovation, • Employee skills, morale, turnover, capacity for
change
learning and • IT capabilities
growth • Employee motivation
• R&D
• Percentage of revenue from new products/services
5. BSC can be used to translate strategic plans and mission
statements into a set of objectives and performance metrics that
can be quantified and measured.
BSC is used to clarify and update the strategy, align the IT
strategy with the business strategy, and link strategic objectives
to long-term goals and annual budgets.
The astute student may realize that the balanced scorecard can

be applied to link KPIs of IT to business goals to determine the
impact on the business. The focus for the assessment could be,
for example, the project portfolio or the applications portfolio.
The balanced scorecard can be used to assess the IT project
portfolio by listing projects along the vertical dimension, and
specific measures, critical to what the organization needs to
track, horizontally.
25
Learning Objectives
Balanced Scorecard

Cloud Strategy and Services
Cloud Strategy
Short for cloud computing IT strategy.
Edge Service
Term that refers to a cloud service.
Tactical Adoption Approach
Incremental deployment resulting in apps and services, patched
to create end-to-end business processes.
Chapter 12
Cloud Complexity
Extensibility
The ability to get data into and out of the cloud service.
Migration Issues
Cybersecurity, privacy, data availability, and service
accessibility.
Newer Challenges
Cloud integration with on-premises resources, extensibility, and
reliability.
Chapter 12
Sourcing Driving Factors
Generate revenue
Increase efficiency
Agile enough to respond to market changes
Focus on core competency

Cut operational costs
More accepted IT strategy
Cloud and SaaS have been proven
Move IT from capital to recurring operating expenditure
Chapter 12
Outsourcing Risks
Shirking
The vendor deliberately underperforms while claiming full
payment.
Poaching
The vendor develops a strategic application for a client and then
uses it for other clients.
Opportunistic repricing
Client enters into a long-term contract with a vendor, the vendor
changes financial terms at some point or overcharges for
unanticipated enhancements and contract extensions.
Chapter 12
Work Not Readily Offshored
Work that has not been routinized.
Work that if offshored would result in the client company losing
too much control over critical operations.
Situations in which offshoring would place the client company
at too great a risk to its data security, data privacy, or
intellectual property and proprietary information.
Business activities that rely on an uncommon combination of

specific application domain knowledge and IT knowledge in
order to do the work properly.
Chapter 12
Outsourcing Lifecycle
Chapter 12
Strategy
Reassessment
Selection
Negotiation
Implementation
Oversight Management
Build Completion
Change

Exit
Vendor Selection Criteria
Experience with very similar systems of similar size, scope, and
requirements; experience with the ITs that are needed,

integrating those ITs into the existing infrastructure and the
customer’s industry.
Financial and qualified personnel stability. A vendor’s
reputation impacts its stability.
Chapter 12
Focus On Value Not Costs
Costs undermine goals.
Close relationships are mutually beneficial.
Both sides are best served viewing relationship over simple
transaction.
Before Signing…
Do a trial run.
Create SLAs.
Chapter 12
What contributes to the complexity of a cloud strategy?
How does tactical adoption of cloud services differ from a
coordinated cloud strategy?
What are the major reasons for sourcing?
What types of work are not readily outsourced offshore?
When selecting a vendor, what two criteria need to be assessed?
What is the risk of an overemphasis on cost when selecting or
dealing with an IT vendor?
What needs to be done before signing a contract with an IT
vendor?
Chapter 12

Suggested Answers:
1. While the concept of cloud is simple, an enterprise’s cloud
strategy tends to be quite complex. Cloud is being adopted
across more of the enterprise, but mostly in addition to on-
premises systems—not as full replacements for them. Hybrid
solutions create integration challenges. Cloud services—also
referred to as edge services—have to integrate back to core
internal systems.
2. Tactical adoption is a short-sighted approach, deploying
cloud services incrementally, resulting in apps and services that
are patched together to create end-to-end business processes.
3. Enterprises choose outsourcing for several reasons:
To generate revenue
To increase efficiency
To be agile enough to respond to changes in the marketplace
To focus on core competency
To cut operational costs
Because offshoring has become a more accepted IT strategy
Because cloud computing and SaaS have proven to be effective
IT strategies
To move IT investment from a capital expenditure to a recurring
operational expenditure
To differentiate from competitors—while reducing the burden
on the IT organization
4. Based on case studies, the types of work that are not readily
offshored include the following:
Work that has not been routinized
Work that if offshored would result in the client company losing
too much control over critical operations

Situations in which offshoring would place the client company
at too great a risk to its data security, data privacy, or
intellectual property and proprietary information
Business activities that rely on an uncommon combination of
specific application-domain knowledge and IT knowledge in
order to do the work properly.
5. When selecting a vendor, two criteria to assess first are
experience and stability:
Experience with very similar systems of similar size, scope, and
requirements. Experience with the ITs that are needed,
integrating those ITs into the existing infrastructure and the
customer’s industry.
Financial and qualified personnel stability. A vendor’s
reputation impacts its stability.
6. Many corporate customers lose out on the potential benefit of
close relationships by an overemphasis on costs instead of
value. Ideally, a customer/vendor relationship is a mutually
beneficial partnership, and both sides are best served by treating
it as such.
7. Vendors often buy hardware or software from other vendors.
In order to avoid problems with the primary IT vendor, check
secondary suppliers as well. Ask the primary vendor how they
will deliver on their promises if the secondary vendors go out of
business or otherwise end their relationship.
Vendors may offer the option to test their products or services
in a pilot study or a small portion of the business to verify that
it fits the company’s needs. If the vendor relationship adds
value on a small scale, then the system can be rolled out on a
larger scale. If the vendor cannot meet the requirements, then
the company avoids a failure.
Before entering into any service contract with an IT vendor, get
a promise of service in writing. By making both parties aware

of their responsibilities and when they may be held liable for
failing to live up to those responsibilities, a strong SLA can
help prevent many of the disruptions and dangers that can come
with sourcing or migrating to the cloud. The provisions and
parameters of the contract are the only protections a company
has when terms are not met or the arrangement is terminated.
No contract should be signed without a thorough legal review.
SLAs are designed to protect the service provider, not the
customer, unless the customer takes an informed and active role
in the provisions and parameters. There is no template SLA and
each cloud solution vendor is unique. Certainly, if a vendor’s
SLA is light on details, this alone may be an indicator that the
vendor is light on accountability. Additionally, if a sourcing or
cloud vendor refuses to improve its SLAs or negotiate vital
points, then that vendor should not be considered.
35

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