This webinar from Everest Group discusses outsourcing portfolio rationalization and how to get the most value from outsourcing arrangements. It explains how unwieldy outsourcing portfolios can result in losing up to 20% of sourcing spend, even in competitively benchmarked deals. The webinar will cover the complexities that may be impacting outsourcing gains and how to realize incremental savings by addressing these issues using Everest Group's proprietary portfolio rationalization methodology. Everest Group is an advisor that helps organizations optimize their use of global business services through practical consulting and research.

1. Today’s Webinar is brought to you by Everest Group
Today’s Webinar
Outsourcing Portfolio Rationalization: Getting the Most out of Outsourcing
Synopsis:
The complexities associated with large outsourcing portfolios can take a toll on outsourcing gains. Analysis has revealed that
even in competitively benchmarked outsourcing arrangements, buyers with unwieldy portfolios may lose up to 20 percent on the
sourcing spend. This webinar will explain:
 The complexities that might be impacting your outsourcing gains
 How to realize incremental sourcing gains by addressing these complexities at the grassroot level, using Everest Group’s
proprietary Outsourcing Portfolio Rationalization
About Everest Group
Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for
helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services.
With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the
use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical
consulting, original research and industry resource services, Everest Group helps clients maximize value from delivery
strategies, talent and sourcing models, technologies and management approaches. Established in 1991, Everest Group serves
users of global services, providers of services, country organizations and private equity firms, in six continents across all
industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com.
For more information, contact Mark Williamson at mark.williamson@everestgrp.com
Proprietary & Confidential. © 2011, Everest Global, Inc. 1

2. Outsourcing Portfolio Rationalization:
Getting the Most out of Outsourcing
September 22, 2011

3. Introductions
Sarthak Brahma
Practice Director
Everest Group
sarthak.brahma@everestgrp.com
Rahul Gehani
Research Director
Everest Group
rahul.gehani@everestgrp.com
Proprietary & Confidential. © 2011, Everest Global, Inc. 3

4. Agenda
 Portfolio misalignment in large outsourcing contracts
 Methodology for resolving portfolio misalignment
 Case Study
Proprietary & Confidential. © 2011, Everest Global, Inc. 4

5. Buyers focus on aligning their contracted pricing but tend to
ignore portfolio misalignment issues that bleed away precious
dollars
Issue Potential impact
1
 4-5% increase in spend due to high governance cost for buyers
Fragmented service
provider portfolio
2
 8-11% increase in spend on account of procurement of resources at higher rates
Multiple rates for
similar resources
3
 5-10% increase in spend on account of premium pricing for specialized resources
Excessive use of
specialized resources
4
 Excessive usage of senior resources leading to 5-10% increase in spend
Inverted pyramids
5
 Increased exposure to location-specific disruptions
Redundancies in
location mix
Misaligned portfolios, which do not have a MECE set of resources, service providers, and locations aligned with
business imperatives, can inflate outsourced spend by upto 20%
Proprietary & Confidential. © 2011, Everest Global, Inc. 5

6. Fragmented service provider portfolio
1
Large buyers frequently have fragmented portfolios with more than 15
service providers
Advantages of a wide portfolio of providers Hidden costs
 Access to complementary service providers capabilities  Excessive vendor management expenses for buyer
 Introducing competitive dynamics within service providers  Reduced economies of scale and scope for service provider
By limiting the portfolio to 3-5 key service providers, buyers can enjoy the benefits of a multi-vendor sourcing arrangement while
reducing the ‘hidden’ costs
Savings from service provider consolidation
Buyer’s costs
Percentage
Service provider’s costs
4-5% Buyer’s and service provider’s costs
22-28%
4-5% savings driven by
reduced internal buyer costs in
18-23% savings from reduced service
setting up and managing
provider fees
relationships
 Driven by increased offshore
leverage and synergies in onsite TCO savings of
relationships
 Ability to realize benefit depends on
up to 28%
the extent of current leverage
TCO of a One-time2 Ongoing TCO of One-time2 Ongoing TCO of a consolidated
fragmented consolidated portfolio3 after service
service provider portfolio (buyer’s provider’s savings
portfolio1 Buyer savings savings only) service provider savings
1 Characterized by multiple service providers (20-30) in the ADM portfolio; 2-3 key service providers and the rest being small scale
2 Annualized one-time costs considering average term of a deal as 4 years
3 Characterized by fewer service providers (3-5) in the ADM portfolio, with each having significant scale
Note: Scenario assumed is an organization with large outsourced ADM spend (>US$300 million ACV)
Proprietary & Confidential. © 2011, Everest Global, Inc. 6

7. 2 Multiple rates for similar resources
Price variations for similar resources can be as high as 60%
Procurement of similar resources with widely varying prices can be attributed to:
 Lack of checks and balances to prevent procurement outside of MSA by business units
 Lack of standardized skill definition for procured roles
 Buyer-provider alliances at the line functions
Onsite rates for Project Manager for a leading communications company
Median rate, base index=100
60%
Benchmark price range
May lead to ~10%
higher outsourced
spend
Pricing
 Resource up-skilling  Resource ‘force-fit’
misalignment
 Irrelevant ‘value-add’
root causes
Proprietary & Confidential. © 2011, Everest Global, Inc. 7

8. 3 Excessive use of specialized resources
Resources are often tagged as “specialized” based on buyers’ perceptions,
not on what they cost to the service provider
Buyers frequently carry as much as 25-30% of their volumes in “specialized” skills, due to:
 Evolving IT resource requirements, as a result of which buyers end up paying “specialized “ skill premiums even for
common skills procured on an ad-hoc basis
 Service providers continue to charge past-contracted premiums for erstwhile specialized skills
Usage of specialized and standard skills for a leading healthcare provider
Specialized skill premium US$1.25 X US$1.16 X
Specialized skills
Over leverage of
Standard skills “specialized”
resources can inflate
spend by 5-10%
Excessive specialized
skill usage; high skill
premium
Proprietary & Confidential. © 2011, Everest Global, Inc. 8

9. Inverted pyramids
4
Complex outsourcing portfolios often exhibit inverted pyramids as opposed to
the typical bottom-heavy pyramids
Apparent reasons Unstated reasons
 Experience requirement on mission-critical projects  Career advancement in service providers is quicker than in
 Need for deep domain knowhow even at entry-level buyers. Providers tend charge higher billing rates for promoted
roles resources even without a change in responsibilities
 Providers up-skill their resources while staffing project teams
Assessment of staffing pyramid for a leading energy company
Managerial Managerial
Roles Roles
(3-5%) (8%)
~10% increase in
Middle level roles Middle level roles outsourced spend
(40-45%) (52%)
Junior roles Junior roles
(50-55%) (40%)
Typical staffing pyramid Inverted staffing pyramid
Proprietary & Confidential. © 2011, Everest Global, Inc. 9

10. 5 Redundancies in location mix
Buyers are extremely selective while deciding the right portfolio of providers
but tend to neglect efficiencies in location mix
Attributes of Enable buyers to:
an efficient  Leverage complementary skills in each location
location mix  Plan for risk and continuity by not having all similar resources in the same location
 Monitor cost arbitrage, risk, and skill availability periodically to shuffle the location mix as and
when needed
 Manage multiple sourcing models such as captive and third-party to serve complementary
agendas in multiple locations
 Buyers frequently source similar skills from same delivery locations without significant value-add
Issue  Increased exposure to location-specific risks e.g. environmental or geo-political disturbances in
one location can severely disrupt operations
Assessment of service provider-skill-location mix for a leading information services company
Significant exposure
to location-specific
disruptions
Proprietary & Confidential. © 2011, Everest Global, Inc. 10

11. Agenda
 Portfolio misalignment in large outsourcing mandates
 Methodology for resolving portfolio misalignment
 Case Study
Proprietary & Confidential. © 2011, Everest Global, Inc. 11

12. Comprehensive portfolio rationalization comprises of an
internal assessment to target sourcing design and scope
issues and an external market comparables assessment
Outsourced Portfolio Rationalization
Internal assessment External assessment
Sourcing design Portfolio optimization Benchmarking
Objective Objective Objective
 Recommend exhaustive  Create a MECE portfolio of  Optimize sourcing spend by
process and controls to help service providers and assessing resource unit pricing
sustain sourcing benefits in the resources for current and future and pricing drivers
present and future sourcing needs
Scope Scope Scope
 Service provider selection and  Service provider portfolio to  Price benchmarking
negotiation process map competency, arbitrage,  Operational metrics
 Contracts (pricing) database location, risk coverage etc. benchmarking (skill pyramids,
management  Resource/skill portfolio to map offshore leverage etc.)
 Reconciliation of actual all generic, specialized, ad-hoc  Contract benchmarking
usage/service levels, sourcing requirements and variations (service levels, T&Cs etc.)
contracts, and invoice
payments
Proprietary & Confidential. © 2011, Everest Global, Inc. 12

13. Sourcing Design
Assess client’s sourcing/procurement functions and standard operating
procedures to eliminate root causes behind unmanageable portfolios
Typical design issues Focus areas
 Irreconcilable outsourcing spend/savings across  Sourcing risk map highlighting process
user, sourcing, and finance functions redundancies, control gaps, and
recommendations
 Control lapses leading to procurement outside of
MSA (non-contracted providers or resources)  Provider and contracts (pricing) database due-
diligence
 Redundancies in procurement between core
team and business units  Impact assessment based on reconciliation of
actual usage/service levels, contracts, invoices,
 Loss of negotiating leverage due to payments
disaggregated procurement across multiple user
functions Sample risk maps
 Difficulty in assessing service provider
performance across multiple user functions
 Problem in deploying a common
consumption/pricing model due to disaggregated
demand and preferences
Proprietary & Confidential. © 2011, Everest Global, Inc. 13

14. Portfolio Optimization
Buyer demand analysis to finalize a MECE portfolio that eliminates any
redundancies in service providers, locations, price or skills being sourced
Typical portfolio issues Focus areas
 Multiple service providers for similar resources in a  Priority map to reconcile all sourcing
location stakeholder requirements (BU, Finance, HR,
Procurement)
 Multiple rates for similar resources
 Standardized resource nomenclatures
 Inadequate location mix (over leverage/under leverage)
 Redundancies and recommendations in the
 Inverted-skill pyramid (more senior to junior resources) sourcing portfolio (providers, skills, price, and
locations)
 Excessive use of “specialized” or ad-hoc resources at
high premiums
 Resource up-skilling
Sample Outputs
Standardized Resource Nomenclature Assessment of Sourcing Portfolio Redundancies
Proprietary & Confidential. © 2011, Everest Global, Inc. 14

15. Benchmarking
Conducting benchmarking of FTE rates, contractual T&Cs and operational
metrics to identify high impact levers of optimization
Benchmarking
Pricing of FTE Roles Contractual Term and Conditions Operational Metrics
 Determination of benchmark rates  Evaluation of contracted terms &  Benchmarking of supply-side
 Comparison of existing service conditions affecting pricing e.g., operational levers affecting pricing
provider rates with benchmarks payment terms, volume-based e.g., Span of Control (SPOC),
rates to assess savings potential clauses, inflation adjustment delivery-mix etc.
clauses etc.
Sample Outputs
Estimating opportunity for rate Benchmarking volume and inflation
renegotiation adjustment clauses Benchmarking Span of Control
Proprietary & Confidential. © 2011, Everest Global, Inc. 15

16. Agenda
 Portfolio misalignment in large outsourcing mandates
 Methodology for resolving portfolio misalignment
 Case Study
Proprietary & Confidential. © 2011, Everest Global, Inc. 16

17. Masked case study: Portfolio rationalization for a leading
information services company (page 1 of 3)
Sourcing environment
The client had a complex portfolio of IT services comprising:
 More than 1100 FTEs mapped to 91 roles across 20 ADM and Infrastructure functions
 12 service providers in 3 broad categories i.e. Tier-1 Indian (35%), Tier-2 Indian (46%) and Nearshore(19%)
 8 delivery locations across India, US, and nearshore locations
 Procurement at the centre and business unit level
Key findings from diagnostic assessment Levers for portfolio rationalization
 Cluttered skill portfolio (ambiguous role definitions,  Skill portfolio rationalization
proliferation of roles, and role redundancies)  Service provider mix optimization
 Sub-optimal service provider mix  Staffing pyramid optimization
 Irregular staffing structures  Price benchmarking
 Non-competitive service provider pricing
Everest proprietary “Resource / Job Group” methodology
Inputs into the Resource Group exercise: ILLUSTRATIVE
 Client’s existing job structure
 Current service providers’ rates
 Map of service providers’ rates into client job structure
1 2 3 4
Break down Refine resource
Rationalize
Map all existing existing rates into groups after
resource groups by
roles into Resource Groups to completion of
combining/splitting
standardized roles accommodate benchmarking
groups
whole portfolio exercise
Proprietary & Confidential. © 2011, Everest Global, Inc. 17

18. Masked case study: Portfolio rationalization for leading
information services and publishing company (page 2 of 3)
Skill portfolio rationalization Service provider consolidation
 Comprehensive analysis of the client’s IT skill demand Snapshot of skills procured from service providers
profile
 Creation of a role portfolio fitted to present requirements as
well as future demand (e.g. roles in Scrum and IT Security)
 Rationalized portfolio consisted of 62 roles across 14 IT
functions
Extract from rationalized skill portfolio
Two-pronged approach for sourcing commoditized
skills:
 Increased leverage of Tier-1 and Tier-2 Indian providers
 Consolidated set of Tier-1 and Tier-2 Indian providers
Proprietary & Confidential. © 2011, Everest Global, Inc. 18

19. Masked case study: Portfolio rationalization for leading
information services and publishing company (page 3 of 3)
Price benchmarking Staffing pyramid optimization
 Proliferation of roles and large service provider portfolio  Presence of an “inverted” pyramid with the senior and
compounded by a wide range of prices at offshore and lead levels comprising ~60% of the total headcount
onshore locations  No perceptible difference between value being delivered
 More than 20 instances of cross-subsidization by providers by junior and senior resources
 Comprehensive price benchmarking conducted to ascertain “Inverted” client pyramid Optimized pyramid
market pricing for the rationalized skill portfolio
Indexed hourly rate for offshore programmer
42% Manager Manager
(7%) (3%)
Benchmark Lead Lead
median (21%) (17%)
Senior Senior
(38%) (30%)
Junior Junior
(34%) (50%)
Impact
Stakeholder workshops revealed practical constraints limiting the Annual sourcing gains
US$ million
projected gains
 Strategic relationships with select service providers, restricting the
service provider consolidation
 Deviations from typical pyramids due to limited availability of
skilled resources for legacy technologies
Annual sustainable sourcing gains estimated to be $7.4 million
(~10.9% of annual spend)
Proprietary & Confidential. © 2011, Everest Global, Inc. 19

20. Q&A
 Attendees will receive an email to download today’s webinar presentation as well as access a recorded
version
 For scheduling a diagnostic assessment of your portfolio or consultation on pricing alignment, contact:
– Sarthak Brahma, sarthak.brahma@everestgrp.com
– Rahul Gehani, rahul.gehani@everestgrp.com
 For background information on Everest Group, please visit:
– www.everestgrp.com
– research.everestgrp.com
 Thank you for attending today
To ask a question during the Q&A session
 Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen.
This will open the Q&A Panel
 Be sure to keep the default set to “send to a Panelist”
 Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to
submit
Proprietary & Confidential. © 2011, Everest Global, Inc. 20

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