Vendor Management in today´s Telecommunication Market – Selective Sourcing and agile Setup at Telefónica Germany Presentation by Dr. Eckart Pech, CIO

1. CAST CIO Conference 2013 - Telefónica Germany
Vendor Management in today´s
Telecommunication Market –
Selective Sourcing and
agile Setup at Telefónica Germany
Public – Nicht vertraulich

2.  Telefónica Deutschland Holding AG listed at the Frankfurt stock exchange and
quoted on the TecDAX index
 Third biggest integrated telecommunication provider in Germany (by revenue)
 Over 10 Mio. contract customers
 25.3 Mio. customer accesses, including 19.4 Mio. mobile customers
 Revenue of more than 5.2 billion € in 2012
 5,000 employees nationwide
 One of only three holders of a 800 MHz LTE-licence
Telefónica Deutschland is one of the top-players in
the German market
As of July 2013
CAST CIO Conference 2013 - Telefónica Germany

3. Telefónica IT Strategy
Cost DigitalSimplicity
Future
proof IT
CAST CIO Conference 2013 - Telefónica Germany 3 Public – Nicht vertraulich

4. Influencing factors of the IT Sourcing Strategy
Sourcing
Strategy
Global
Initiatives
RFPs
(WP, DC)
Group
contracts
Local
contracts
Budget
Outsourcing
& licence
IT
Strategy
Competencies
Delivery
Quality
Internal
Stake-
holder
M&A
e.g. sourcing
portfolio
hansenet
CAST CIO Conference 2013 - Telefónica Germany 4 Public – Nicht vertraulich

5. To make the difference we are now focusing on
simple subtle sourcing activities
Challenges for Sourcing Proof Points of VM
Efficient Supplier
Management
 Focus on
Core Competencies
 Sourcing Flexibility
Agile working mode
 Global Scale
• Consolidation to a small number of
best possible suppliers
• Strategic Partnering
• Code of Conduct
• Outsourcing of non core competencies
• Flexible contract conditions, e.g.
duration, location, scope, m&a
capability, framework for agile
Development
• Aligned technical & commercial
governance
CAST CIO Conference 2013 - Telefónica Germany 5 Public – Nicht vertraulich

6. To make the difference we are now focusing on
simple subtle sourcing activities
Challenges for Sourcing Proof Points of VM
Efficient Supplier
Management
 Focus on
Core Competencies
 Sourcing Flexibility
Agile working mode
 Global Scale
• Consolidation to a small number of
best possible suppliers
• Strategic Partnering
• Code of Conduct
• Outsourcing of non core competencies
• Flexible contract conditions, e.g.
duration, location, scope, m&a
capability, framework for agile
Development
• Aligned technical & commercial
governance
CAST CIO Conference 2013 - Telefónica Germany 6 Public – Nicht vertraulich

7. Vision of sourcing strategy – decision drivers
Selective Sourcing Vision
Global Consolidation
Quality
Local costs
for OB/IT
Synergies
in Service
e.g. Managed
Service
e.g. Global
Project
Dimensions which drive
selective sourcing decisions
CAST CIO Conference 2013 - Telefónica Germany 7
 Separated consideration along the supply
chain
 Plan & Build
 Run (Workplace & datacenters)
 Strategic applications stay inhouse or are
covered by dedicated supplier
 Define your sourcing object and decide
how you want to weight its dimension
 Global consolidation must be synchronized
with local demand
Public – Nicht vertraulich

8.  Define common contract
model based on all global
learnings and align best
practices on corporate level
 Analysis of right sourcing mix
for all applications
 Settled quality standards +
measures with one Expert
Team
 Lessons learned considered
on european / global level
 Different contract models
 New agile Annex to be
incorporated to all contracts
 Actual requirements not
sufficiently reflected
Optimizedcontract,synchronizationof
globalandlocalcontractsandvendors
CAST CIO Conference 2013 - Telefónica Germany 8
 Local contracts in different
operating models
 Migration to global DC
 Mismatch between local and
global workplace initiative
Plan&BuildRun
 Identify and adress gaps
between ‘as is’ and new
operating model
 Active involvement in global
tenders and local exit
management
 Successful DC transition of
all assets & locations in
scope of global migration
 Matching of global and local
operating model and its
related contracts
Current Situation Strategy 2013-15 Vision 2016
Sourcing Improvements till 2016 in several steps
to achieve the best – Globally and Locally
Public – Nicht vertraulich

9. DataCenter&
Enterprise
Systems
Workplace&
Customer
touchpoints
Applications/
Development
Organization Working method
Agile Methodology
Breakdown in three Clusters
e.g. Task Priorization
Sprints
Daily Standups
Backlog
…
New
Vendor
Management
VM setup regarding organization and working
mode proofed to be critical success factor
CAST CIO Conference 2013 - Telefónica Germany 9
IT
Priorities Market
Trends
Budget
Challenges
Limited
Resources
Global Vendor
Management
Public – Nicht vertraulich

10. Code of Conduct – „One voice to supplier“
a cultural change in the supplier relation
CAST CIO Conference 2013 - Telefónica Germany 10
 Stringent communication aligned between
all hierarchical levels
 Similar Governance Setup for all strategic
suppliers
 Contract trainings for all involved parties
 Quality measurements
 Claim Management integrated in project setup
 Aligned VM and Line Management tandems
Code of Conduct principles
Mana-
gement
Technical Vendor
Management
Strategic
commercial
Vendor
Management
Monitoring, Reporting
Escalations
Strategic Guidance
Public – Nicht vertraulich

11. KPIs as governing factor for our Sourcing Activities
For Example: Development
11CAST CIO Conference 2013 - Telefónica Germany
Quality in Production
Examples:
 Number of Defects in
Production and
reopen rate
 Number of severity 1
and 2 defects
Development
 Fulfilment of
deadlines in
development
 Code Cleansing and
Transferability
Quality in Test Phases
 Number of open
defects at delivery
 Number of defects
not found in
Component Test
Additional KPIs for
Agile Development
 Alignment to Scrum
methodology –
Meetings and
Artefacts
 Team Stability /
Fluctuation
 Refunding System based on a yearly evaluation
 Measure plans for improving performance if necessary
 Supplier of the Year
SUMA – Global Supplier Management Evaluation
Public – Nicht vertraulich

12. Critical Success Factors for effective sourcing
12CAST CIO Conference 2013 - Telefónica Germany
Selective sourcing
Global and corporate alignment
Agile team setup with excellence
cluster
Established governance and
escalation model with aligned
‘Code of Conduct’
Proof points
2010 2013
98.00
98.35
98.70
99.05
99.40
99.75
Number of Suppliers
Operational expenses
%
SLA Compliance in RUN%
Public – Nicht vertraulich