IT Outsourcing: Devising a Fast and Sustainable Diet · IT Outsourcing: Devising a Fast and...
Transcript of IT Outsourcing: Devising a Fast and Sustainable Diet · IT Outsourcing: Devising a Fast and...
Pillsbury Winthrop Shaw Pittman LLP
IT Outsourcing: Devising a Fast and Sustainable Diet
No Better Time for the Right Outsourcing Series
May19, 2009
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About the Presenters About Pillsbury Global SourcingThe most experienced firm in the business – architecting the largest service delivery projects and strategic alliances
Over 500 transactions across a premier customer base
Over 20 years’ experience in structuring and implementing complex delivery arrangements
More than US$450 billion in completed transactions
No Better Time
The only sourcing advisory firm offering integrated professional services (legal, sourcing, domain, financial & change management)
Guiding clients through the full sourcing lifecycle
Using straight-through processing for speed-to-value
Deploying a unique visual sourcing technique using ourpatented ValueChain method
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Why outsourcing makes sense Now
Reduced execution risk
Favorable market engagement dynamics
Compelling business cases
“Better resource management, more products at the same cost, efficient customer service at minimum dollar all continue to make outsourcing a viable and profitable option." New Trends to Watch in 2009: Raising Efficiency with Near-shoring, HRO Today February 2009
“In an effort to make its outsourcing and IT services more affordable in a down economy, Hewlett-Packard Co. is changing its services pricing to a model that's akin to ordering a customized laptop. ” - As Recession Hits IT, HP Tries Variable Pricing on Services, CIO, March 10, 2009.
“It is a good time to look at outsourcing as a means to cut costs, launch new business ventures, and improve efficiencies.” - Top Three Outsourcing Initiatives for 2009, CIO, January 27, 2009.
“The prospect of quick cost savings and improved results lead companies to take a closer look at external solutions.” - Savings Spur Interest in Learning Outsourcing, HRO Today, February 2009.
“Top Indian tech firms such as TCS, Infosys, Wipro, and HCL are signing new outsourcing contracts at 15-20% lower billing rates than last year, as customers including BT, Bank of America and Citibank renegotiate existing contracts and award new projects at much lower rates.” - IT majors sign new deals at a discount, The Economic Times (India), March 6, 2009.
The secret is out . . . . . . No Better Time
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Information Technology – Opportunities
Data Center & GreenRelieve data center capacity constraints
Leverage providers’ large-scale data center investments
OpEx in lieu of CapEx
Energize ITSM best practice deployments
Reduce real estate and energy costs
Embrace advanced automation to reduce incidents and costs
Enable achievement of enterprise green goals
(I,P,S)aaSCreate value from from emerging Infrastructure, Platform & Application “as a service” offerings
Low barriers to entry and exit
Fulfill the promise of “on demand”
Emerging enterprise-class service levels
Highly resilient
Transfer large swaths of operational effort and risk
ProductivityBenefits from labor arbitrage have been largely exploited
Productivity increases create lasting value
ITO - processes, tooling, virtualization and automation
AD/M - measurement, metrics, virtualization exploitation, Agile vs. CMM
Leverage OPM
IntegrationMulti-sourcing causes disintegration and friction loses
Operational and financial benefits are available through improved process linkages
Opportunity to leverage supplier best practice and OPM to minimize CapEx and build-run risks
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Information Technology – Commercial Approaches
Given various technology advances, there are now multiple approaches available to reduce expenses and create value over the short, middle and long terms
Cheaper, Now! Disruptive Services Improved StructuresResponds to demands for cheaper ITservices. Begins to deliver improved financial results within 90 – 180 days
Incorporates, low cost low barrier to entry and exit solutions into the IT delivery fabric
Uses a horizontal delivery architecture to improve long-term leverage, reduce barriers to exit and minimize the friction from tower-based multi-sourcing strategies
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Topics
1 Cheaper, Now! Creating Value – ASAP
2 Disruptive Services Creating Value – Differently
3 Improved Structures Sustaining Value
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Information Technology – Cheaper, Now!Creating Value – ASAP
Responding to demands to lower expenses immediatelyMost seasoned outsourcing relationships have had some amount of margin expansion
Learning curve, lower cost of underlying technology, improved processes and tools, labor arbitrage
The marketplace is being responsive to customer requests to share some of the margin expansion with tradeoffs against length of commitment or performance metrics
There are several approaches① Sole source discussions between the incumbent supplier and their customer② Sole source discussions between the incumbent supplier and their customer/customer’s advisor③ Competitive go-to-market initiative with an advisor
00
Key:
Gross
Net
TimeB
enef
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3
2
1
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Information Technology – Cheaper, Now!Creating Value – ASAP
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Time and Savings Model – Savings estimates based on TCV ranging from $50M to $250M using observed transaction margin ranges
Customer’s current price
Unadvised customer-revised net price
Market competition best net price
Advised customer-revised net price
Generally, a go to market strategy is only appropriate to overcome service delivery problems, delivery model issues or a supplier that is unwilling to negotiate price
Pric
e
1 Quarter
2 Quarters
3 –4 Q
uarters
~ 4.5%
~3.5 – 6.25% 1,2
1 A go to market strategy at less than ~$75M TCV is unappealing under most circumstances2 Projected net savings and assumes no costs to exit, but does include the cost of entry
~ 8.0 – 8.5%
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Information Technology – Cheaper, Now!Creating Value – ASAP
Approach SpeedBenefit Advisory
FeesSwitching
CostsRight for the
Times?Potential Determination
Sole Sourced
(unadvised)Fastest
Middle to worst, but get
it fastestNone None None
Yes, but may not get
everything
Sole Source(advised)
MediumBest, but slightly delayed
Early and inexpensive
Modest: Fixed price, plus share
of incremental
savings
None Generally, yes
Competitive SlowestWorst to
middle and get it much later
After RFP and relatively expensive
Material: generally
T&MHigh Generally, no
These alternatives apply to traditional service delivery commercialization options, but there are new alternatives emerging …
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Topics
1 Cheaper, Now! Creating Value – ASAP
2 Disruptive Services Creating Value – Differently
3 Improved Structures Sustaining Value
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Information Technology – Disruptive ServicesCreating Value – Differently
Everything-as-a-service (XaaS) driven byLarge scale, low cost compute and storage equipment
Virtualization technologyAutomation and management tools
World-class facilities
Results in a dematerialization of the customer’s infrastructure needs, creating the potential for
Reduced cost of delivering existing applicationsOpportunity for IT-driven innovation
Directly targets reductions in the quantity (not the cost) of labor required to deliver IT services
Ultimately, will require new IT operating and sourcing models to fully exploit
Can yield dramatic near- to mid- term expense reductions
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Information Technology – Disruptive ServicesCreating Value – Differently
The Seemingly GoodOperational improvements
Better service performanceSame or more for lessFulfillment speed increasesCapacity limitations removedOn-demand potentialTrue scalability
Lightweight commercial transactionsEasy entryEasy exit
Financial upsidePay for what you use… when you use itOpEx instead of CapExCosts less than older models
The Potentially BadSuppliers you never thought about as being “industrial strength”
Service level and security concerns
Commercial, operational and integration issues
Requires a shift in buyer behavior away from one-off configurations
Supplier-centric, “point” contracts
The tactical will need to be re-factored into the strategic
Don’t let the drive for perfection get in the way of the valuable. Seize the opportunity to create value now and fix the “ugly” later. We have seen clients reduce their service-centric expense
forecast by over 50% (and $50M) when compared to traditional sourcing
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Topics
1 Cheaper, Now! Creating Value – ASAP
2 Disruptive Services Creating Value – Differently
3 Improved Structures Sustaining Value
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Information Technology – Improved StructuresSustaining Value
ObjectivesReduce the power and stickiness of suppliersCreate competitionLower barriers to exitReduce cross-subsidizationIncrease transparencyUtilize best-of-breed delivery actorsAsset optimization
Horizontal multi-sourcing implementations have largely been Pyrrhic victories. Right objectives, but the wrong delivery architecture, plus the technology eco structure is rapidly moving on. New operating
models and commercial structures are needed…
OutcomesBroken processes, finger pointing and turf warsMore transactions, more managementService management and integration complexitiesMismatches in the lifecycles of equipment, software and servicesIncreased barriers to entryBarriers to exit – status quo at bestDefensive asset lifecycle managementHard, lengthy, high risk, deals
The historical state-of-the-art has been vertical (Towers) multi-sourcing
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Information Technology – Improved StructuresSustaining Value
Facilities(Carrier and Service Provider Neutral)
Facilities(Carrier and Service Provider Neutral)
Hardware(Life Cycle Management)
Hardware(Life Cycle Management)
Software(Life Cycle Management)
Software(Life Cycle Management)
CommunicationsCommunications
Managed LaborManaged Labor
Everything-as-a-Service
Everything-as-a-Service
Service Management and IntegrationService Management and Integration
Services Definition and ConstructionServices Definition and Construction
Portfolio Management
The new state-of-the-art is horizontal (Layers) multi-sourcing
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Information Technology – Improved StructuresSustaining Value
The outcomes of layered multi-sourcingReduces supplier stickiness by
Lowering the barriers to entry and exitDecouples the facilities from the managed labor provider’s services
Uses compute-based facilities that are neutral to managed labor providers and carriersDecouples assets from the managed labor provider’s services
Creates the opportunity to shift to potentially game-changing asset managementRemoves lifecycle mismatch impediments
Simpler, faster, lower risk, dealsSingle service manager and integratorSupports hybrid sourcing models: DIY, Outsourcing, Everything-as-a-Service
Improves alignment of commercial management levers with the needs of the customerEnables non-facilities-based service suppliers to compete (sweetening the options)Increases asset and services liquidity
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Information Technology
Wrap up
Cheaper, Now! – Various options, each producing different outcomes
Disruptive Solutions – Leveraging technology advances to produce value
Layered Multi-Sourcing – Solving some of sourcing’s thorniest, longstanding issues
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Upcoming Sessions
June 9 Renegotiations: Positioning for the Fast Path to Savings
June 30 Procurement & Real Estate Outsourcing: Short Term
Strategy with Long Term Results
July 14 M&A – Business Continuity and Cost Effective Operations through Outsourcing