NASSCOM Engineering Summit 2014: Session IV: New Models of Engineering Outsourcing: Steven Hall
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Transcript of NASSCOM Engineering Summit 2014: Session IV: New Models of Engineering Outsourcing: Steven Hall
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New Models of Engineering Outsourcing
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Global ER&D Growth & Projections
2005 2009 20200
200400600800
10001200140016001800
2014 NASSCOM
Years
Global ER&D Spend
(in Billions $USD)
Can the market’s current service
delivery, contracting and relationship
models sustain this growth?
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Top Service Providers ESO Growth
2011 2012 2013 20141000
2000
3000
4000
5000
Growth of Enginnerineerign Service (Revenue by Top 4 Indian Service Providers
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The Key ER&D Industry Verticals
ER&D Services % Spend Share
ER&D Primary Verticals
MedicalConsumer
EnergyAeroAuto
OtherSemi
Telecom
0 5 10 15 20 25 30 35
2014 % Share
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Cost Reduction
1
Shorter & Faster
Product Lifecycles
2
Access to Global
Talent Pool
3
Product Localization
4
Shrinking R&D
Budgets
5
Higher Usage of
Embedded Systems
6ESO Growth Drivers
Technology Convergence
7
The ESO Driving Trends
Transition to Connected
Technologies
8
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Captives Remain the Dominant Delivery Model
400 Captives
85 Service Providers
Captives remain inefficient, costly, and too basic in their value delivery -- Captives must become more operationally efficient and evolve their value delivery.
The market is turning towards service providers for longer term deal flexibility and services up the value chain
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ESO Captives & Optimization
Expand Skills & Capabilities Increase Value Delivery
ESO CaptiveDrivers
43 5
1 2Total Cost Reduction Improve Productivity
Improve Quality
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.
... with the aim to ...
.
... with the aim to ...
• Improve efficiency and effectiveness • Increase the Value of Engineering Services• Transform the Engineering Services
• Ensure lasting performance improvement
• Improve efficiency and effectiveness • Increase the Value of Engineering Services• Transform the Engineering Services
• Ensure lasting performance improvement
Services & New Product Development Costs
Business Processes and Engineering Application
PortfolioProcess
Maturity
Scope: Engineering Services and/or New Product Development
Service Capabilities
Product Life Cycles & Speed to Market
Analysis Aspects
Drivers for effectiveness
Drivers for efficiency
Captives Approach to Optimization
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Mutual Value of Captive Monetization
Increase Skills & Capabilities
Clients
Access to More Resources, Skills & Capabilities Expand Resources
Consolidation into Service Delivery Centers
ESO Service Providers
Long Term ClientRevenue Commitment
Reduce Balance Sheet & Improve Financial Health
Improve Productivity and Value Delivery of Operations
Receive Monetary Value for Assets
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Captives Approach to Monetization
► ISG Research Data► ISG SME inputs
► Assess Current State by benchmarking vs peer group
► Due Diligence of select Suppliers
► Detailed Report of the Current State of the Shortlisted Service Providers
► Output of Assess stage
► Undertake Financial Modeling
► Create Negotiation Strategy
► Detailed Report on Financial Health
► Negotiation Strategy with clear positions
Dat
a So
urce
Key
Activ
ities
Out
put
Assess Design
M&A Transaction Support post Target identification
► Output of Assess and Design stage
► Contract Execution► Closure on all required
paperwork
► Signed Contract
Execute
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The ESO Deal Allocation Shift Right!
Staff Augmentation
35% to 10%
T&M Projects
20% to 25% 2% to 30%
Fixed Price
Projects
5% to 15%
Co-Risk / Reward
Managed Services
38% to 20%
Traditional Engineering Services Pricing Models The Future of ESO Partnerships
The ESO Deal Allocation Must Shift Right to Sustain the ESO Growth
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► Defined Services (SOWs) and SLAs – Statements of Work specify the “What” not the “How”. Defined Service Levels with measured performance goals aligned to the ESO Services
► Defined Pricing - Fixed Price models w/variable components for services that allows ramp-up and ramp-down of costs based on volume and need
► Defined Risk Model - Manage overall sourcing risks via Contract terms, Skill mix, Onsite/onshore/offshore ratios, geographical locations, etc.
ESO ManagedService
Service andServiceLevels
Defined RiskModel
DefinedPricing
ESO Managed Services – for the Larger / Multi-Year Relationships
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Engineering Services Outsourcing is
Growing and Evolving to More Mature Sourcing Models
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