Critical Factors in Outsourcing IT Operations Iulian Lupu, Account Executive (Sales) Marius...

Critical Factors in Outsourcing IT Operations

Iulian Lupu, Account Executive (Sales)

Marius Zapartan, ISS Unit Manager (Delivery)

Copyright © Forte Business Services SRL, 2006. All rights reserved.

Bucharest

April 25th, 2007

Global networkof innovation

Copyright © Forte Business Services SRL. All rights reserved

Agenda

Outsourcing IT Operations – Reality and Facts

Outsourcing IT – a Forte view

Critical Factors

Study case: Siemens VDO Automotive SRL Romania



(Reality and Facts)



Outsourcing IT Operations – reality and facts

Cut costs for IT infrastructure and IT support

services

Focus on core business

Higher quality of IT services -> synergies ->

higher quality of services to customer ->

competitive advantage (long-term)

Moving Fixed to Variable Costs and

Supporting Organizational Change

Main Reason for IT Outsourcing:Reality & Facts

A Forte view

Critical Factors

Study Case



Outsourcing - part of the cost structure

Source: Strassmann, 2006

Outsourcing Ratio = Outsourcing / Direct Costs

Cost of Sales

ProfitsDepreciation

Interest, Taxes

Outsourcing

Direct

OverheadOperations

Cost of Sales

ProfitsDepreciation

Interest, Taxes

Outsourcing

Direct

OverheadOperations

Reality & Facts

A Forte view

Critical Factors

Study Case



Outsourcing not correlated with Profitability

Source: Strassmann, 2006

Reality & Facts

A Forte view

Critical Factors

Study Case



The Rationale for Outsourcing vs. Market Experience

70%

57%

35%

35%

22%

22%

5%Lack of Expertise In-House

Transfer Risk to Vendor

Access to High Caliber Labor

Focus on Core/Strategic

Flexibility/Capacity/Scalability

Best

Practices/Quality/Innovation

Cost Savings 70%

57%

35%

35%

22%

22%

5%Lack of Expertise In-House

Transfer Risk to Vendor

Access to High Caliber Labor

Focus on Core/Strategic

Flexibility/Capacity/Scalability

Best


Best


Cost Savings

Source: Deloitte, 2005

44%

20%

25%

31%

38%

Insufficient expertise/competencies

Vendors unable to fully absorb the costs of business losses

High Vendor Turnover/Decreasing Knowledge Base

Unclear Strategy of Clients

Contractual Rigidity

Complacent Vendors

Hidden/Additional Costs

44%

20%

25%

31%

38%

Insufficient expertise/competencies

Vendors unable to fully absorb the costs of business losses

High Vendor Turnover/Decreasing Knowledge Base

Unclear Strategy of Clients

Contractual Rigidity

Complacent Vendors

Hidden/Additional CostsReality & Facts

A Forte view

Critical Factors

Study Case



(Outsourcing IT - a Forte View)



Outsourcing IT Operations – a Forte view

Main Characteristics of IT-Outsourcing

Long-term contractual partnership

Transfer of people, assets, infrastructure

Ongoing cross-border and even global provision of operations for

customer

Reality & Facts

A Forte view

Critical Factors

Study Case



Outsourcing IT Operations – a Forte view (cont’d)

The complexity of Outsourcing

Engagement Management: Customer requests

EBIT

HR and people take over

Return on investment

Partner agreements

General risks: Structured risks

Costs

Transparency

Reality & Facts

A Forte view

Critical Factors

Study Case



Structured risks

30%

30%

35%

35%

26%

22%

22%

22%

22%

17%

17%Loss of Bargaining Power

Loss of Flexibility

Vendor Employee Turnover/Training

Internal Employee Issues

Governance

Hidden Costs

Intellectual Property/Confidentiality

Knowledge Loss

Cost-Related (Not Hidden Costs)

Loss of Control

Vendor Underperformance

StructuredRisk

Non-Structured Risk

*Participants were not limited to one answer

Risks Cited


Reality & Facts

A Forte view

Critical Factors

Study Case



Cost-related risks of Outsourcing

Other*24%

Vendor Management Costs17%

Vendor Selection Costs17%

Hidden Costs / Transparency

17%

*Other cost-related risks included “vendor profit margins,” “trade-off

between quality

Cost-Related Risks of Outsourcing


Reality & Facts

A Forte view

Critical Factors

Study Case



Transparency in price and cost structure

Limited48%

No33%

Yes19%

Do You Have Transparency to Your Vendors’ Pricing and CostStructure?


Reality & Facts

A Forte view

Critical Factors

Study Case



(Critical Factors)



Critical Factors

Outsourcing Strategy

A clearly defined outsourcing strategy is aligned with the business

strategy and enhances execution

Reality & Facts

A Forte view

Critical Factors

Study Case



Critical Factors

Key Performance Indicators

“What get’s measured, get’s managed”

Reality & Facts

A Forte view

Critical Factors

Study Case



Critical Factors

Building the right relationship

Identifying the customer’s strategic goals

Trust

The contract

Reality & Facts

A Forte view

Critical Factors

Study Case



( )Study Case



Siemens VDO – Full IT Outsourcing

Security

Service DeskServices

Data CenterServices

Desktop Services

Application OperationServices

NetworkServices

Reality & Facts

A Forte view

Critical Factors

Study Case



1/3 of Forte’s staff is involved

in outsourcing

activities

Service Delivery Teams

LD BUH – Local Delivery BucharestGPC TRS – Global Production Center Timisoara

LD NS TRS – Local Delivery Nearshoring Timisoara

Employees fully devoted to outsourcing activities

GPC TRS, 55LD NS TRS, 35

LD BUH, 10

Reality & Facts

A Forte view

Critical Factors

Study Case



Thank you for your attention!

( )

Any Questions …or Answers? :-)

Copyright © Forte Business Services SRL, 2006.

Forte Business Services SRL

Str. Lipscani 102, Sector 3, Bucureşti

Phone: +40 (21) 303 89 23 Phone: +40 (21) 303 89 18 Mobile: +40 (721) 22 27 66 Mobile: +40 (723) 30 32 58Fax: +40 (21) 303 89 90 Fax: +40 (21) 303 89 [email protected] [email protected]

Iulian Lupu Marius ZapartanAccount Executive ISS Unit Manager

Thank you for your attention!



Sources

Deloitte Development LLC - Member of Deloitte Touche Tohmatsu. (2005). Calling a Change in the Outsourcing Market - The Realities for the World’s Largest Organizations. Extracted June 28th, 2006 from Deloitte Consulting Luxemburg Web page:

http://www.deloitte.com/dtt/article/0,1002,sid%253D48930%2526cid%253D92427,00.html

Strassmann, P. A. (2006). Is Outsourcing Profitable? Washington D.C.: George Mason University. PDF document extracted 01.07.2006 from Prof. Strassmann’s personal website: http://www.strassmann.com/pubs/gmu/OutsourcingV6.pdf

Video with the lecture from the slides (Google Player needed): http://video.google.com/videoplay?docid=9212234366223965964

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