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OUTSOURCING STRATEGY SURVEY 2009-2010 Capgemini - Outsourcing... · Outsourcing Strategy Survey...
Transcript of OUTSOURCING STRATEGY SURVEY 2009-2010 Capgemini - Outsourcing... · Outsourcing Strategy Survey...
OUTSOURCING STRATEGY SURVEY 2009-2010
A Capgemini Consulting survey on Shared Services and Outsourcing
October, 2009
Sourcing Transformation
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Introduction ........................................................................................... 3
Executive summary .............................................................................. 4
Background ........................................................................................... 6
Processes currently outsourced and future plans .......................... 10
Why organisations outsource and which risks they see ................ 16
Business Case ..................................................................................... 21
Select and prepare for the partnership ............................................. 24
Change management .......................................................................... 30
Demand organisation ......................................................................... 35
List of participants .............................................................................. 38
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Introduction
As a consequence of the
changing business
environment, including the key
impact of the credit crunch, we
are seeing organisations re-
evaluate their sourcing
strategies. In some cases, this
is because of a short term need
to save additional costs, in
others, because a more
favourable deal structure can
now be negotiated.
We are also seeing
organisations postponing the
sourcing strategy decision and
execution. Sourcing of a
business or IT process can help
operations run more efficiently
and can result in cost savings.
Despite these benefits, many
initiatives have been put on
hold because of economic
uncertainty.
We know that a changing
environment delivers complex
challenges in defining the right
sourcing approach. That is the
main reason why we
investigated the incentives for
sourcing, with a specific focus
on the sourcing strategy
process.
In writing this report, we
combined the outcome of
interviews with our latest
insights in trends and issues in
different industries. As this
survey was executed during the
credit crunch, we found some
specific effects on sourcing
strategies. We did not,
however, directly investigate
these effects.
As a full-service consulting
organisation, Capgemini
Consulting wants to understand
what is happening in the market
to be able to provide the best
possible advice and support to
our clients. Many surveys cover
the specifics of the outsourcing
or shared service operation, not
many describe how the
sourcing strategy was
developed and what made it
successful.
That is why we are pleased to
share with you the results of our
survey on sourcing strategy in
different industries. This report
covers a wide spectrum of
perspectives related to the
sourcing strategy approach and
we believe it benefits anyone
and every organisation, from
sourcing pioneer to sourcing
expert.
We would like to thank all the
executives who contributed to
our survey and provided their
valuable insights and time. We
trust that you will find this report
interesting and useful as you
continue on your journey,
defining the right sourcing
strategy for your organisation.
Also I would like to thank
Marjorie Powner and Satish
Paul from our BPO practice and
Professor Dr. Ir. Andrzej
Hajdasinski from Nyenrode
Business University for their
valuable contributions.
Stefan Westdijk
Sourcing Strategy Leader
Netherlands
Authors:
Joost Aarts
Robin Adriaans
Fleur Baarspul
Erik van Daalen
Marjolein Dijkshoorn
Oedger Meijborg
Stefan Westdijk
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Executive summaryThis report highlights the
importance of sourcing strategy
in the evolution of an
organisation‟s development.
Capgemini Consulting captured
the views and experiences of
almost 40 executives from a
number of large national and
multi-national companies, with a
view on future decision making
and successful development
and implementation of sourcing
strategies for our clients.
Our findings below explore the
whole cycle of the sourcing
strategy and show that success
is particularly dependent on
choosing the right sourcing
mode. Capgemini‟s Global
Sourcing of Services (GSS)
cube© has been used to
distinguish the different
sourcing modes, using three
dimensions (location, ownership
and management style).
More information about the
GSS cube© can be found in our
Point of View on Sourcing
Strategy document.
The outcome of our survey
suggests the following
recommendations, which
particularly apply to
organisations within our target
industries (Financial Services,
Energy & Utilities, and
Manufacturing):
o Organisations will benefit
from considering a
combination of sourcing
modes to realise their
sourcing strategy. This can
give insight to the benefits
and concerns of each
sourcing mode and may
result in ideas to support risk
mitigation.
o 54% of the participants will renew the contract with the existing supplier. The main reasons for organisations to retain their current supplier are that the costs related to changing supplier could be prohibitive and the loss of knowledge or experience could increase risk or impact quality.
Outline on the Global Sourcing of Services (GSS) cube©
OutsourcedIn-house
Offshore
Onshore Light
Tight
Ownership
Location
Management
Style
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o Organisations should update their business case regularly, this will ensure decision-making in future phases is based on sound information and also that the benefits of the original decision are realised.
o Organisations will benefit from working in real partnerships with their suppliers, introducing, for example, bonuses for high performance, rather than penalties for low performance, in their contractual terms. Working in partnership also ensures alignment, coordination and control of both supplier and business needs.
o Organisations should use benchmarking tools to assess the performance of their suppliers and use the outcome of that analysis to decide, for example, whether to renew their existing contracts or find a new supplier.
o Change management and implementation are the most critical elements of the programme during transition or migration. The involvement of senior management and stakeholders of the business should be high, especially in the early phases. Delaying employee involvement can cause problems later in the process.
o Due to pressure to differentiate from competitors, organisations are entering into more strategic partnerships, for which knowledge transfer
and innovation are important drivers. The full added value of innovation by outsourcing is not yet discovered, but this is just a matter of time.
o Organisations experience
difficulties in defining the
relationship with the internal
or external supplier. This is
explained by the fact that
sourcing is all about the
involvement of people,
entering a partnership and
the transformation of
processes. In our opinion, it
requires specific skills to
formalise these aspects in a
contract.
o Organisations should also
involve vendors from the
early phases to provide
support with defining
requirements, delivering
accurate market information
and managing expectations.
o Organisations should focus
frequently (at least once
every quarter) on the
evaluation of service quality.
o Organisations should align
demand and supply within
one function to ensure
control of both aspects of the
service.
There was no significant
relationship between specific
industries and sourcing
strategies. Our analysis of the
results does not show a notable
preference of any of the
industries for IT sourcing or
business process sourcing. The
sourcing maturity level depends
on the organisation itself and is
not primarily related to an
industry.
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BackgroundAbout Sourcing
There are many definitions of
sourcing. For the purpose of
this survey, sourcing can be
defined as delegating business
functions to a separate
business unit or third party. A
sourcing strategy is the
definition of what an
organisation wants to do with
the tasks, functions or
processes that are not
differentiating that organisation
from its competitors.
Selecting the right sourcing
mode means finding the right
combination of ownership
(owned or not owned), location
(onshore or offshore) and
management style / governance
model (tight touch or light
touch). These three elements
have been captured in a cube
of sourcing options or modes.
This cube is called the Global
Sourcing of Services (GSS)
cube©.
Outline on the Global Sourcing of Services (GSS) cube©
OutsourcedIn-house
Offshore
Onshore Light
Tight
Ownership
Location
Management
Style
The GSS cube© distinguishes eight different sourcing modes divided
over three dimensions: location, ownership and management style.
Location describes where the function is executed (onshore or
offshore)
Ownership demonstrates who executes the function (in-house, e.g.
shared service centre, or outsourced)
Management style depicts the level of management attention that is
required for the process (light or tight management)
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Manufacturing55%Financial
Services24%
Energy & Utilities
21%
Figure 1 : Participating industries
Based on the GSS cube‟s three
dimensions, sourcing can take
different forms. The sourcing
strategy with the least impact
from the perspective of
ownership, location change and
intensity of management is a
Shared Service Centre (SSC).
Today companies either choose
to optimise existing SSC or set
up new SSCs in competitive
markets. Evaluating the
geographical scope and
location strategy can be
lucrative, whether this is
outsourcing or cross-border
shared services, as potential
sourcing strategies. This could
take the organisation in the
direction of the highest impact
sourcing strategy from an
ownership, location and
management perspective:
outsourcing to an offshored
third party where management
attention is not critical. More
information about the GSS
cube© can be found in our Point
of View on Sourcing Strategy
document.
Why this survey
Most of the surveys conducted
by firms like Gartner, Forrester
and others focus on IT sourcing
and in general do not describe
the differences between
industries. In addition to IT, this
survey deals with business
processes, such as Finance &
Administration (F&A), Logistics
and Procurement. We were
also very interested in the
differences between industries.
Whilst we focussed on all
dimensions of the GSS cube in
the survey, the dimension
management style was not
explicitly questioned. Aspects
of management style are,
however, covered in the
chapters about partnerships,
risk and change management
below.
We interviewed chief
information officers, chief
operation officers, chief
financial officers, SSC
managers, sourcing strategy
managers and divisional
managers of 38 large national
entities or multinationals, mainly
with a head office located in the
Netherlands. The interviews
were held in Q4 of 2008 and Q1
of 2009.
As mentioned above, we were
very interested in the
differences in approach,
sourced processes and
selected sourcing modes
between industries. Figure 1
shows the distribution of the
industries participating in the
survey. Three organisations
participated who could not be
classified as Energy & Utilities,
Financial Services or
Manufacturing.
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We used the sourcing strategy
approach of Capgemini as a
guide to structure our
questionnaire and our survey.
In this five-phase closed loop
process, organisations should
continuously go through the
cycle in order to define and
execute the right sourcing
strategy.
Outline on the Sourcing Strategy Approach
Capgemini‟s Sourcing Strategy Approach focuses on the process from
defining potential sourcing strategies to implementing the selected
strategy and managing the delivery. It comprises 5 phases, in a closed
loop, because efficiency and business dynamics may require a change
of sourcing mode.
1. Analysis and Definition -
scoping and evaluating all
sourcing modes
2. Scenario Planning and
Business Case - analysing
the most beneficial sourcing
modes in more detail
3. Selection and Preparation
- preparing the organisation
for change to the preferred
sourcing mode
4. Transition or Migration -
full implementation of the
right sourcing strategy
5. Delivery or Operations -
monitor, control and manage
the sourced process
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Figure 2 : Relation between chapters and approach
We have clustered our results
according to the different
phases of the sourcing strategy
process. The first chapter will
provide an overview of selected
sourcing modes and strategies
in general, which processes
were outsourced, moved into a
SSC and what are the sourcing
strategy plans.
The other chapters each link to
a different phase of the
sourcing strategy:
1. Processes currently
outsourced and future
plans
2. Why organisations
outsource and which
risks they see
3. Business case
4. Select and prepare for
the partnership
5. Change management
6. Demand organisation
In this survey we sometimes
use the terminology insourcer
and outsourcer. The outsourcer
delegates processes and/or
tasks to the insourcer. The
insourcer is also referred to as
supplier or vendor. With
insourcer we do not mean
insourcing which refers to
companies assigning processes
within the company that were
outsource d before.
1. Functions currently outsourced and future plans
2. Why do organisations
outsource and what risks do
they see
3. Business case
4. Select and prepare for the
partnership
5. Change management
6. Demand organisation
1. Processes currently outsourced and future plans
2. Why organisations outsource
and which risks they see
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Processes currently outsourced and future plans
In this chapter we provide an
overview of the currently
outsourced processes and
selected sourcing modes which
were revealed by the survey.
We provide these results per
industry: Energy & Utilities,
Financial Services and
Manufacturing. We also asked
our participants for their future
plans. All the results are shown
with a distinction between
business processes and IT
processes.
Furthermore, we measured
whether and how the activities
of Capgemini‟s sourcing
strategy approach were
executed by our participants.
The approach contains generic
activities which many of the
organisations do carry out.
Our results show a difference in
time spent between outsourcing
and SSC initiatives and the time
industries spend on average on
a sourcing strategy approach.
IT processes more sourced
than business processes
IT process outsourcing is more
mature than business process
outsourcing. IT is perceived as
a „commodity‟ which is highly
available in the market. The
maturity of the supplier market
is considered high and because
of competition organisations are
convinced pricing is accurate.
IT is also linked to innovation
and different IT domains require
specific knowledge.
Figure 3 : Overview of outsourced processes
and selected sourcing mode
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Design
Marketing
Procurement
Production
Logistics
Finance & accounting
HR
Facilities
business processes
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Testing
Desktop management
Infrastructure management
Application development
Infrastructure
IT processes
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Testing
Desktop management
Infrastructure management
Application development
Inf rastructureIT processes
Outsourced onshore
Outsourced of fshore
SSC onshore
SSC of fshore
Not sourced
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Innovation is defined as
invention plus cooperation plus
coordination plus collaborationi.
All variables are predominantly
present in successful IT
sourcing projects.
Offshore sourcing modes
were less selected than
onshore modes
Many organisations select a
combination of sourcing modes
for one or more of their IT
processes. Most common was
outsourced onshore in
combination with offshore. Over
25% of the organisations
selected this combination of
sourcing modes for application
development and testing.
Onshore sourcing is preferred
to offshore sourcing. Apparently
organisations prefer the ability
to control above low labour
costs. In addition, one
participant mentioned that
offshore sourcing modes also
brought political issues: “setting
up an SSC offshore is a touchy
subject which we want to
avoid”. Although costs are the
main reason for sourcing,
organisations do not strive for
the lowest possible costs.
Organisations are aiming for an
optimum of lowest costs,
political stability and control.
Facilities, HR and F&A are the
most mature sourced
business processes
Facilities, HR and F&A are non-
differentiating processes. In
general the long term
sustainable competitive
advantage of these processes
is limited. Given the maturity of
the supplier market these
processes tend to be
outsourced more than other
business processes.
Logistics is also a business
process which is outsourced in
a high number of cases. The
ability of suppliers to offer
economies of scale plays an
important role in these
decisions. The least sourced
business processes are design
and marketing activities. The
low result can be explained by
the perceived strategic nature
of these processes.
Maturity determines the
number of sourcing
strategies in place
The maturity of the supplier
market, and of the organisation
itself, both impact the number of
processes sourced. The more
mature the supplier market the
higher the chance a sourcing
strategy is already in place for
this process within the
organisation. The more mature
the organisation, the more
sourcing strategies it is likely to
have in place or already
replaced with a new strategy.
Adoption of sourcing
strategies per industry
There is no relationship
between specific industries and
sourcing strategies for certain
processes. Our analysis of the
results does not show a notable
preference of any one of the
industries for IT sourcing or
business process sourcing. All
industries source all type of
“Setting up a shared
service centre offshore
is a touchy subject
which we want to
avoid”
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processes. We expected
differences between industries
to be able to distinguish an
early adopter. Since no industry
shows an evidently higher
average of sourced processes,
we have to conclude that
sourcing maturity level primarily
depends on the organisation
itself, and is not related to an
industry.
However, if we break down
industries, we can see
differences. In addition, if there
are a number of organisations
in an industry which outsource,
the number of suppliers
increases and further cost to
serve decreases, hereby
influencing sourcing maturity.
Preferences of the industry
for a certain sourcing mode
Financial Services
organisations did not select
SSC as sourcing mode either
for IT nor for business
processes. This can be
explained by our belief that
Financial Services
organisations are more mature
and have redefined sourcing
strategies, resulting in a shift
from SSC to outsourcing.
Figure 4 : Selected sourcing mode per industry
0% 20% 40% 60% 80% 100%
Manufacturing
Finance
Energy & Utilities
business process sourcing
Outsourced
SSC
Not sourced
0% 20% 40% 60% 80% 100%
Manufacturing
Financial Services
Energy & Utilities
IT sourcing
0% 20% 40% 60% 80% 100%
Manufacturing
Financial Services
Energy & Utilities
business process sourcing
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0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
70,0%
Current situation
Future situation
SSC
Outsourced
Figure 5 : Future situation
Forecast of the processes to
be sourced within the next
five years
Future sourcing plans indicate
that, whilst the number of
outsourced processes are likely
to increase, the number of SSC
processes will remain
unchanged. This is not because
no new SSCs will be
established. Our results show
that there will be an increase of
new SSC initiatives and
simultaneously a decrease of
SSCs, due to the shift from
SSC to outsource for those
more mature organisations.
With regard to the selection of
the sourcing location, the
percentage of plans for moving
offshore is less than 10%. Two
important remarks should be
made about this. Especially for
IT, the location might appear
onshore to the outsourcer, but
the insourcer might balance
onshore, nearshore and
offshore locations and work with
the client as a unified team.
Those participants, who
mentioned offshore as potential
future sourcing mode, were
referring mainly to HR and F&A,
as IT is already moved to
offshore locations in most
cases. Some other processes
(e.g. Cleaning Services) can
only be executed onshore due
to the nature of the process.
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Sourcing strategy approach
All organisations perform
activities to define, select,
prepare, implement and
execute their sourcing strategy.
Participants were asked which
activities were executed and
how much time and attention
was spent. Attention was
measured by time spent for
monitoring and supervising
activities.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% a
cti
vit
ies o
f S
ou
rcin
g
Str
ate
gy a
pp
roach
execu
tred
Figure 6 : Executed activities per phase
Time spent on defining a
sourcing strategy
When we look at the time which
is spent to create a sourcing
strategy, there is a difference
between outsourcing and SSC.
The average time spent on
outsourcing initiatives (20+
months) is almost twice as
much as the time spent on SSC
initiatives (11+ months ). This
seems to be influenced by the
involvement of Procurement
leading to long contract
negotiations. Especially during
the selection and preparation
phase, fewer activities are
performed as supplier selection
and contract negotiation are not
necessary for an SSC.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Analysis and definitionScenario Planning and Business CasePreparation and SelectionTransition or MigrationDelivery or Operations
% a
cti
vit
ies o
f S
ou
rcin
g S
trate
gy
ap
pro
ach
execu
tred
Energy & Utilities
Financial Services
Manufacturing
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Conclusion and our
perspective
IT outsourcing is still more
mature than business process
outsourcing. Also onshore is
more preferred in comparison to
offshore. Organisations are
aiming for an optimum of lowest
costs, political stability and
control.
The sourcing maturity links to
the individual organisation and
does not seem to depend on
the industry. Facilities, HR and
F&A are the most mature
sourced business processes.
Future sourcing plans indicate
the number of outsourced
processes to increase. The
number of SSC processes will
remain unchanged. The
average time spent on
outsourcing initiatives is almost
twice as much as the time spent
on establishing an SSC.
We expect organisations to use
a combination of sourcing
modes to realise their sourcing
strategy. In a multi-mode
sourcing solution, global
resources, cost-efficient
processes and extensive
experience in diverse
geographies, disciplines and
industries, are bundled to
achieve cost reductions,
streamlined processes,
innovation, competitive
advantage and growth. In such
a solution most of the
operational processes are
brought to an offshore location
and the more tactical and
strategic processes are
delivered onshore or nearshore.
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Why organisations outsource and which risks they see
The long-term impact of the
credit crunch is uncertain for
many organisations, but is the
sudden economic downturn a
good reason to re-evaluate your
sourcing strategy? Have the
reasons and risks for sourcing
changed due to current events?
Why do organisations choose
outsourcing/SSC? And are
there differences between
industries?
This chapter provides an
overview of the reasons and
risks. It also gives insight into
the differences and similarities
between industries.
Reasons for sourcing
Reasons for outsourcing are
similar to those for setting up an
SSC. The differences we found
are related to the readiness to
outsource.
Outsourcing and transforming
the processes at the same time
is perceived as high risk. One
interviewed manufacturer
mentioned “We only outsource
a process if stability of the
process is ensured; don‟t
outsource your mess for less”.
Cost reduction remains the
most important reason for
sourcing. In line with other
surveys this shows that
organisations still associate
sourcing with cost effectiveness
As a result of the current
economic downturn,
organisations feel the pressure
to reduce costs and reduce
working capital. Many
organisations are turning to
sourcing for achieving short
term cost savings or other
financial benefits.
Figure 7 : Reason (above 5%) for outsourcing and SSC
“Don’t outsource your
mess for less”
0% 5% 10% 15% 20% 25% 30% 35%
Increase flexibility
Headcount reduction
Improve business focus
Improve quality
Cost reduction
0% 5% 10% 15% 20% 25% 30% 35%
Increase flexibility
Headcount reduction
Improve business focus
Improve quality
Cost reduction
Outsourcing Shared service centre Reasons
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Figure 8 : Reasons (above 5%) by industry
Reasons - industries
compared
Manufacturers indicate that they
use both sourcing strategies to
focus more on their core
business, which results in cost
reduction and improved
business focus. Products are
tangible and the pressure to set
new product standards is high.
Some of the Manufacturing
organisations even mentioned
they are driven by customer
pressure to improve standards
and, therefore, source
processes.
Financial Services
organisations indicate that cost
reduction and headcount
reduction are important reasons
for sourcing. Headcount
reduction was mentioned as a
reason for an SSC more often
in comparison to other
industries.
Energy & Utilities organisations
indicated that the most
important reason for
establishing an SSC is to
improve quality. They find this
more important than cost
reduction and improved
business focus. The Energy &
Utilities industry also see
outsourcing as a gateway to
knowledge and competence.
0% 10% 20% 30% 40% 50%
Increase efficiency
Obtain knowledge
Increase flexibility
Headcount reduction
Improve business focus
Improve quality
Cost reduction
0% 10% 20% 30% 40% 50%
Because others outsource / have a SSC
Increase efficiency
Obtain knowledge
Increase flexibility
Headcount reduction
Improve business focus
Improve quality
Cost reduction
Manufacturing
Finance
Energy & Utilities
Outsourcing Shared service centre Reasons
0% 5% 10% 15% 20% 25% 30%
Degree of support needed
Clear definition of what is …
Continuity
Loss of control
Industrial unrest
Loss of confidentiality
Impact on organisation
Loss of knowledge
Loss of quality
Dependency on external …
Manufacturing
Financial Services
E&U
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Figure 9 : Risks (above 5%) for outsourcing and SSC
Risks of sourcing
Overall, the perceived risks of
outsourcing correspond to
those of an SSC. We did,
however, find four key
differences.
o Organisations choose their
sourcing strategy based on
risk mitigation. The
perceived risks of
outsourcing are related to
the commercial relationship
between the insourcer and
the outsourcer.
Organisations anticipate on
a possible lock-in with the
supplier. The tangible
benefits of the outsourcing
deal may be outweighed by
the costs and perceived
risks associated with
outsourcing.
o By selecting an SSC,
organisations want to ensure
proximity to the business,
avoiding dependency on
external suppliers and loss
of knowledge. As a participant mentioned, “Speed and flexibility is crucial to us. In this case,
the cost reduction created by
outsourcing was insignificant
compared to the impact of
not delivering to our
customer on time”.
o Organisations have a strong
focus on quality when setting
up an SSC. As mentioned
before, organisations see an
SSC as a vehicle to improve
quality. At the same time,
they perceive loss of quality
as the highest risk. In the
preparation of an SSC the
key question is - how do
organisations ensure the
desired quality level?
o Loss of business alignment
is only perceived as a risk
when establishing an SSC.
We did expect to find that
loss of business alignment
was also perceived as a risk
of outsourcing. This was not
the case. Whilst, by
outsourcing a process, the
distance between service
provider and customer
increases. It seems that
organisations do not
perceive this distance to be
a major issue.
“Cost reduction was
insignificant compared
to not delivering to our
customer on time”
0% 5% 10% 15% 20% 25%
Loss of business alignment
Impact on organisation
Loss of knowledge
Loss of quality
Dependency on supplier / SSC
0% 5% 10% 15% 20% 25%
Loss of business alignment
Impact on organisation
Loss of knowledge
Loss of quality
Dependency on supplier / SSC
Outsourcing Shared service centre Risks
Outsourcing Strategy Survey 2009-2010 19
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Figure 10 : Risks (above 5%) by industry
Risks - industries compared
Manufacturing organisations
perceive dependency on the
supplier and loss of knowledge
as high risks of outsourcing. As
mentioned before,
manufacturers have a strong
drive to reduce costs and
improve business focus. Loss of
knowledge and dependency on
the supplier are perceived as
road blocks to achieving these
goals.
Financial Services
organisations perceive the loss
of business alignment as a high
risk of establishing an SSC, far
higher in comparison to the
other industries surveyed.
Financial Services
organisations are service
providers and see information
and employees as valuable
assets. Processes within
Financial Services
organisations are also highly
interwoven, in particular HR and
IT processes. These processes
have to be disentangled which
could cause loss of business
alignment between the
organisation and the SSC.
Energy & Utilities organisations
mainly bring in external
suppliers to obtain knowledge,
not to improve quality. In
comparing the reasons and
risks of sourcing in both the
SSC and the outsourcing
modes, we found a correlation
between the reasons for one
sourcing mode and risks of the
other. Improving quality, for
example, is the most important
reason for establishing an SSC
but the potential for reduced
quality is perceived as the
highest risk of outsourcing.
Gaining knowledge, for
example, is an important reason
for agreeing to outsource
services but losing knowledge
is seen to be a high risk when
establishing an SSC.
0% 5% 10% 15% 20% 25% 30%
Degree of support needed
Clear definition of what is …
Continuity
Loss of control
Industrial unrest
Loss of confidentiality
Impact on organisation
Loss of knowledge
Loss of quality
Dependency on external …
Manufacturing
Financial Services
E&U
0% 5% 10% 15% 20% 25% 30%
Increase of support needed
Loss of control
Loss of confidentiality
Loss of business alignment
Impact on organisation
Loss of knowledge
Loss of quality
Dependency on external supplier
0% 5% 10% 15% 20% 25% 30%
Increase of support needed
Loss of control
Loss of confidentiality
Loss of business alignment
Impact on organisation
Loss of knowledge
Loss of quality
Dependency on supplier / SSC
Outsourcing Shared service centre Risks
Outsourcing Strategy Survey 2009-2010 20
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Conclusion and our
perspective
The reasons and risks
associated with each sourcing
mode have not been changed
by current events. Cost
reduction remains the most
important reason for
organisations to (out)source.
The survey results show
expected quality from
outsourcing is lower than
moving to an SSC. This might
be perception as outsourcing is
often managed through
performance contracts unlike
SSCs.
Many differences between
organisations are caused by
their business strategy. Do they
have a „customer intimacy‟,
„product leadership‟ or
„operational excellence‟
strategy? In our opinion, the
right reasons for choosing
whether to use the outsourcing
or SSC mode are those which
best align with your business
strategy. It helps to consider
several sourcing modes, in the
analysis and definition phase,
when identifying the right
sourcing strategy. Some
organisations take multi-
sourcing to the extreme leading
to complex onshore and
offshore multivendor relations.
Although only a small number
of participants mentioned
innovation as a reason for
outsourcing, we expect this
number to increase in the
coming years. Due to pressure
to differentiate from
competitors, organisations are
entering into more strategic
partnerships, for which
knowledge transfer and
innovation are important
drivers. In our opinion, the full
added value of innovation by
outsourcing is not yet
discovered, but this is just a
matter of time.
Outsourcing Strategy Survey 2009-2010 21
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Business Case The business case is a crucial
deliverable and a milestone
document in the scenario
planning and business case
phase, when the sourcing
strategy is translated to a
tactical level. The most
beneficial sourcing modes are
analysed in more detail both
qualitatively and quantitatively.
We asked our participants
about their business case and
the required return on
investment. We also questioned
the components within their
business case.
Pay-back period
Overall we see that more than
80% of the organisations
surveyed aim for a pay-back
period of less than 4 years. The
majority of the participants are
aiming for a pay-back period of
between 2 and 4 years. In the
Financial Services industry, we
see organisations aiming for
longer term pay-back period.
Figure 11 : Pay-back period
Components of the business
case
90% of the participants
mentioned cost reduction as the
major driver within their
business case, followed by
headcount reduction (58%) and
cultural impact (42%).
Other components mentioned
include:
o strategic objective
o added value of the sourcing
party
o customer satisfaction
o organisational impact
o synergy advantages
o quality
0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,8
0,9
1
0<->2 2<->4 4<->6
Perc
en
tag
e
ROI in years
Manufacturing
Financial Services
Energy & Utilities
Overall
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0<->2 2<->4 4<->6
Perc
en
tag
e
Pay-back period in years
Outsourcing Strategy Survey 2009-2010 22
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In the organisations surveyed,
manufacturers included cultural
impact in the business case
more often than organisations
in other industries. This is in line
with our finding that
Manufacturing organisations
are more concerned about the
risks associated with the impact
on the organisation.
0% 20% 40% 60% 80% 100%
Overall
Manufacturing
Financial Services
Energy & Utilities
Yes
No
Figure 12 : Business case update
Updating the Business Case
We asked the participants if
they update their business case
after the decision to source has
been taken. On average less
than 45% of the organisations
surveyed updated their
business case regularly.
It seems that business cases
are mainly used in the decision-
making process. Few
organisations track the results
to ensure the right decision has
been made and that the
estimated benefits are realised.
Given the fact that cost
reduction is the main driver
Outsourcing Strategy Survey 2009-2010 23
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behind sourcing this seems
inconsistent.
Conclusion and our perspective
More than 80% of participants
expressed their aim for an pay-
back period of less than 4
years. Cost reduction is the
main driver in the business
case, followed by headcount
reduction and cultural impact.
Few organisations update the
business case regularly. In our
opinion, maintaining and
updating the business case is
important, firstly as a guideline
for making decisions in later
phases (additional requirements
during execution, for example),
secondly because it is important
to measure and compare the
benefits after the decision has
been made. As a consequence
few organisations can tell if they
have achieved their pay-back
period.
We see organisations aiming
for faster pay-back period. The
economic downturn seems to
be contributing to this trend.
Outsourcing Strategy Survey 2009-2010 24
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Select and prepare for the partnership
This chapter covers our findings
on the selection and
preparation phase of the
sourcing strategy approach.
Selection and preparation is
essentially the execution of the
„make‟ or „buy‟ decision.
In the case of outsourcing, the
selection and negotiation with
one or multiple service
providers needs to be carried
out. In general, this selection
process takes a lot of time and
effort. This is because the
outsourcer needs to make sure
that the insourcer is capable of
fulfilling the outsourced process
or function with at least the
same (but preferably even
higher) quality.
When an in-house sourcing
mode is chosen, the
organisation needs to be
prepared for the movement of
workload. This might involve the
transfer of duties from one
department to another, or
building a new SSC to take over
the workload in scope.
Selection process
While selecting a supplier,
different criteria need to be
taken into consideration. The
six most mentioned criteria are
outlined in the figure below.
Price is the most important
selection criteria for choosing
the outsourcing supplier. This is
an expected outcome because
the major reason for sourcing is
cost reduction. Price was
followed by quality (15%) and
cultural fit (15%). In addition to
being one of the key selection
criteria, improving quality is also
one of the most important
reasons for sourcing
Organisations have, on
average, five potential
outsourcing suppliers. Many
organisations stated that they
quickly reduce the long list to a
short list or only use a short list.
This reduction is mainly done
based on market knowledge
and experience.
8%
8%
9%
15%
15%
22%
0% 5% 10% 15% 20% 25%
Reputation
Proof of concept
Process Experience
Quality
Cultural f it
Price
Figure 13 : Selection criteria (above 5%)
“Price was one of our
least important
selection criteria. We
were more focussed
on the added value of
the supplier to bring
our organisation to the
next level.”
Outsourcing Strategy Survey 2009-2010 25
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Overall, the organisations
surveyed agreed a contract for
four years. Based on earlier
surveys we expected the
contract time period to be
longer. Avoiding lock-in and
increasing flexibility are reasons
for this relatively low average of
four years.
7%
21%
31%
34%
0% 10% 20% 30% 40%
Gain share
Fixed price
Transaction based fee
Combination f ixed & variable
Figure 14 : Deal construction (above 5%)
Financial arrangement
Variable financial arrangements
are more often used than fixed
price arrangements. Most
variable arrangements include a
fixed and variable element. 30%
of the organisations surveyed
agreed upon a fully variable
arrangement, a transaction
based fee. The high percentage
of variable arrangements can
be explained by the need for
flexibility regarding volumes or
workload. One participant
stated “We chose a variable
financial arrangement because
the financial flexibility was
important to us. When we use
less, we want to pay less”.
20% of the sourcing deals are
based on fixed price. It seems
that these organisations do not
strive for financial flexibility or
are not able to allocate costs to
cost drivers. For organisations
that already have a good
process in place and only focus
on cost reduction as their main
priority, fixed price could be an
optimal solution.
Most organisations mention that
they do not use gain share as
part of their financial
arrangements. Gain share is an
optimal approach to create „win-
win‟ situations for both
organisations, which is
expected of strategic
partnerships. Due to the need
for transparency in strategic
relationships, we expect the
number of organisations using
this approach to increase in the
coming years.
“When we use less we
want to pay less.”
“We know, based on
our experience, which
suppliers we can
remove from the short
list”
Outsourcing Strategy Survey 2009-2010 26
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Figure 15 : Sourcing deal
construction
Construction of the sourcing
deal
For the purpose of this survey,
we have identified four main
sourcing deal types:
o Lift: the process is handed
over in the current condition
to the supplier or SSC
o Shift & lift: the process is first
transformed before it is
handed over to the supplier
or SSC
o Lift & shift: the process is
first handed over to supplier
or SSC, whereupon
transformation commences
o Combination: two or three of
the above construction
methods are combined for
different part of the process
Transformation is defined as
follows: activities required for
aligning and improving the work
of the outsourced and retained
processes with the goal to
improve productivity, reduce
costs or improve speed to
market.
Transformational Outsourcing is
the way to add value to the
organisation as well as gaining
additional domain and
technology expertise. It is about
making use of skilled labour
and technology to create
corporate growth, rather than
viewing outsourcing as merely a
way to cut costs via, for
instance, taking advantages of
low wages abroadii.
More than 60% of the
processes are transformed or
reorganised, either before
sourcing the process or after
sourcing the process. The
approach taken depends on the
level of maturity of the
processes in scope. Almost
20% of processes are
transferred as-is.
When outsourcing, our
participants preferred the „lift &
shift‟ approach. Where SSCs
were established, there was a
preference for „shift & lift‟. When
outsourcing was agreed, the
organisations surveyed
preferred to outsource the
transformation to the supplier.
In some cases organisations
used an SSC to transform the
processes before outsourcing
them to an external supplier.
Lift & shift36%
Shift & lift29%
Lift19%
Combination16%
Outsourcing Strategy Survey 2009-2010 27
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Figure 16 : Top 5 challenges
Challenges in sourcing
contracts
During the contracting phase,
organisations face many
challenges, including those
identified by the participants in
our survey. The five most
significant challenges are
shown in figure 16.
During the contracting phase
the main discussion points are
about defining and agreeing the
quality and rates for in-scope
services. Several participants
mentioned that content was
missing.
One participant responded:
“there were too many sales at
the table and too little content”.
The outcome of negotiations
with the supplier, internal or
external, will be secured in a
contract. The contract will
contain different terms to be
discussed and agreed upon by
the insourcer and outsourcer. It
is interesting to see which of the
elements in the contract lead to
the most discussion after
signing the contract. The figure
below shows the four most
discussed elements according
to our participants.
Processes for dissolution and
non-performance penalties are
the subjects discussed most
often. Other topics for
discussion are rate and
compensation details, service
Figure 17 : Four most discussed topic
“There were too
many sales at the
table and too little
content”
10%
10%
12%
17%
27%
0% 5% 10% 15% 20% 25% 30%
Planning
Legal Conditions and Liability
Budget during transition
Rates for service
Quality of service
11%
13%
16%
20%
0% 5% 10% 15% 20% 25%
Key performance indicators (KPIs) to determine compensation
Service standards and performance requirements (KPIs)
Rate and compensation details
Process for dissolution and non-performance penalties
Outsourcing Strategy Survey 2009-2010 28
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levels, wage inflation, attrition
and key performance indicators.
All topics are related to the type
of relationship between the
insourcer/supplier and the
outsourcer.
Is the supplier treated as a
contractor or as a business
partner? In the latter, a bonus
for high performance would
probably be a better
mechanism, than penalties for
low performance.
Satisfaction with current
supplier
The contract will be in place for
a specific time period. At the
end of the contract period a
decision needs to be taken
whether to extend the contract
or to look for another supplier.
We asked the participants what
they normally do at the end of a
contract.
54% of the participants will
renew the contract with the
existing supplier. The main
reasons for organisations to
retain their current supplier are
that the costs related to
changing supplier could be
prohibitive and the loss of
knowledge or experience could
increase risk or impact quality.
16% of the participants have
concrete plans to end the
relationship with their current
supplier, either by selecting a
new supplier (8%) or by
insourcing (8%). For the
remaining percentage (30%)
other solutions are mentioned,
such as insourcing a part of the
process, analysing a multi
vendor construction.
0% 10% 20% 30% 40% 50% 60%
new vendor
insourcing
other....
renew the contract using existing vendor
Figure 18 : What if the contract ends
Outsourcing Strategy Survey 2009-2010 29
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Conclusion and our
perspective
Selection and Preparation is the
execution of the „make‟ or „buy‟
decision as part of the sourcing
strategy approach. Price is the
most important selection
criterion, followed by quality and
cultural fit.
Organisations identify, on
average, five potential
outsourcing suppliers.
Suppliers are eliminated from
the list on the basis of market
knowledge and experience. To
avoid lock-in and to increase
flexibility, the organisations
participating in the survey aim
for contracts with a lifespan of
four years.
It seems that organisations
experience difficulties in
defining the relationship with
the internal or external supplier.
This is explained by the fact
that sourcing is all about the
involvement of people, entering
a partnership and the
transformation of processes. In
our opinion, it requires specific
skills to formalise these aspects
in a contract.
As more than 60% of the
processes are transformed or
reorganised before outsourcing
we are not surprised that
processes for dissolution and
non-performance are the topics
discussed most often. Given the
complexity of these outsourcing
arrangements, a business
partnership is the preferred
relationship choice. One of the
indicators of such a relationship
is the bonus for high
performance, instead of the
penalty for low performance.
We still, however, see many
organisations using non-
performance penalties to
manage such a relationship.
More than half of the
participants pointed out that
they would renew the contract
with their current supplier if the
contract ended today. In our
opinion, organisations should
benchmark the performance of
the supplier and use the
outcome of that analysis to
decide whether to renew the
contract or to find a new
supplier. From the
organisations we have
interviewed, very few do use
benchmarking tools to
substantiate their decisions.
Outsourcing Strategy Survey 2009-2010 30
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Change management
Change management is a
critical part of the sourcing
strategy approach which
involves skills and knowledge
that will enable people to accept
new procedures, technologies,
systems, structures and values.
To ensure successful
organisational transformation,
establishment of new policies,
procedures, systems and
processes is not enough. When
people are not fully informed,
they deny or resist change. It is
vital to understand, plan and
implement appropriate activities
to provide assistance to people
through the transition and
transformation.
In this chapter we describe the
change management aspects
during transition and migration,
including those associated with
transformation.
Critical elements of transition
During the transition and
migration phase there are
elements which determine
success. Change management
is the most mentioned critical
element to support transition.
Effective change management
and good communication
reduces the risks and potential
costs, while increasing the
likelihood of success and
improving the connection
between outsourcer and
insourcer.
Figure 19 : Critical elements
3%
3%
7%
10%
10%
21%
45%
0% 10% 20% 30% 40% 50%
Interfaces
Cultural f it
Quality of service
Continuity of business
Planning
Project management
Change management
Outsourcing Strategy Survey 2009-2010 31
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Stakeholder management
The graph below shows which
stakeholders were involved in
the different phases of the
sourcing strategy approach.
Senior Management is highly
involved at the start of the
sourcing strategy approach.
The stakeholders of the
business (middle management)
are also involved from the start
but seem to be more involved in
the selection and preparation
phase.
The works council starts to be
involved from the scenario
planning and business case
phase up to delivery and
operations. There is low
involvement of unions across all
phases, this may be caused by
the limited role of unions in our
surveyed organisations.
Limited supplier involvement
was found in the analysis and
definition phase and in the
scenario planning and business
case phase. Participants want
to avoid early influence by, and
dependency on, suppliers.
Employees are involved from
the selection and preparation
phase onwards. Very few
organisations involve
employees during the scenario
planning and business case
phase.
Figure 20 : Degree of stakeholder involvement
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
70,00%
80,00%
90,00%
100,00%
Analysis and Def inition
Scenario Planning and
Business Case
Selection and Preparation
Transition or Migration
Delivery or Operations
Senior management
Works council
Unions
Business
Employees
Vendors
Outsourcing Strategy Survey 2009-2010 32
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.
Roadblocks
During the different phases
there will be barriers to
success. Roadblocks
encountered by the participants
are shown in the graph below.
Most of these roadblocks relate
to the way change management
was executed.
The lack of commitment and
resistance of employees is the
most common barrier to
success (18%) followed closely
by a lack of internal alignment
and diversity of interest (16%).
These roadblocks relate to
change management and
involvement of stakeholders.
A lack of capability, competency
and capacity (13%,) on the
other hand, points out that
organisations struggle with
freeing up resources with the
right competencies or that
organisations do not have the
required capabilities for
transition and migration.
Figure 21 : Roadblocks
7%
7%
9%
13%
16%
18%
0% 5% 10% 15% 20%
Lack of insight & transparancy
How to create an acceptable business case
Lack of vision and strategy
Lack of capability, competency & capactity
Lack of internal alignment & diversity of interest
Lack of commitment & resistance of employees
Outsourcing Strategy Survey 2009-2010 33
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Yes54%
No34%
Unknown12%
Figure 22 : Involvement
consultancy
Involvement consultancy
Companies can gain knowledge
and capacity by hiring external
consultants. We asked the
participants if they hired
external consultants.
Over 50% of the participants
were supported by consulting
firms during at least one of the
phases. In general our
participants require more
support during the first phases
of the sourcing strategy
approach.
The Financial Services industry
is less inclined to involve
external consulting firms in
comparison to other industries.
It seems that Financial Services
organisations have developed
the capability and compentence
inhouse to execute sourcing
strategy programmes.
Conclusion and our
perspective
The success of the
implementation of a new
sourcing strategy is highly
determined by the intensity in
which change management
was applied. Subsequently, the
success of change
management highly depends on
clear communication and
accurate information. The lack
thereof usually creates
uncertainty, confusion and
resistance within the
organisation.
Change management is indeed
mentioned as the most critical
element during transition and
migration. The involvement of
senior management and
stakeholders of the business
(middle management) is high,
especially in the early phases.
Very few organisations involve
employees during the scenario
planning and business case
phase, as early involvement
might cause unnecessary
unrest, and we can understand
this approach. From a change
management perspective,
however, delaying employee
involvement can cause
problems later on in the
process.
Limited supplier involvement
was found in the early phases.
Whilst participants wished to
avoid early influence by
suppliers, we think it can be of
added value to involve suppliers
earlier. Suppliers can provide
support with defining
requirements, delivering
accurate market information
and managing expectations.
In general we see organisations
struggle with the involvement of
different stakeholders during
the sourcing strategy approach.
This is the case, not only for
transition or migration, but also
for developing the demand
organisation as a value added
activity in support of frontline
services. This includes working
with the business to replace
specific processes (such as HR,
finance, procurement), or
making changes to the
organisation structure and skills
within the retained processes.
Outsourcing Strategy Survey 2009-2010 34
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In our opinion, three factors
play an important role in the
change management process:
1. Be clear about the
objectives of the sourcing
strategy approach; these
objectives determine, to a
large extent, the change
management activities.
2. Involve the right
stakeholders, at the right
time in line with the
objectives; given the
objectives there is more
clarity about whom to
inform when.
3. Effectively measure and
track the change
management activities; it
takes significant time and
effort to make things work,
track and measure these
efforts. Strong governance
is key.
Outsourcing Strategy Survey 2009-2010 35
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Demand organisation
The demand organisation is the
intermediary between the
internal business client and the
third party or SSC. The demand
organisation manages the
supply side (internal/external
suppliers) as well as the
demand side (business).
Presence of the demand
organisation
The vast majority of participants
(91%) have a demand
organisation in place before
starting the transition or
migration. Three out of four
organisations confirmed that
they started the preparations for
the demand organisation in an
even earlier phase. There are,
however, differences in the
design of the demand
organisation.
Figure 23 : Demand organisation
A virtual team is the most
common design. A separate
department, which is
responsible for managing the
demand and supply aspects, is
also common. Both have
alignment as their main
objective.
Most organisations have
learned that focussing only on
demand or supply results in
unnecessary escalations in the
management process.
Nevertheless, we did still find
designs focussing mainly on
one or the other aspect of the
service.
“The linking pin
between business
and supplier was
very important for the
success of this
outsourcing deal”
11%
15%
22%
22%
30%
0% 5% 10% 15% 20% 25% 30%
Service delivery manager
Business
Service level / contract manager
Seperate department
Virtual team
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Figure 24 : Responsibility
Responsibility of the demand
organisation
The outsourcer is, in three out
of four outsourcing deals,
responsible for the demand
organisation. Few participants
(6%) mentioned that this is a
shared responsibility. It seems
that organisations do not see a
demand organisation as
delivering added value to both
parties in the outsourcing
relationship.
In case of an SSC, this number
is much higher (29%). It seems
that partnerships within SSCs
are more common than within
outsourcing. An explanation can
be found in the fact that both
parties are part of the same
organisation.
Figure 25 : Quality control means
Figure 26 : Update frequency
Means to control the quality
of service
More than 60% of the
participants use an SLA to
control the quality of service
levels, 23% have multiple
mechanisms in place. The
majority of participants (over
95%) evaluate the quality on a
regular basis with the vendor. In
a changing environment it is
important to evaluate
performance on a regular basis.
This is also true for the
alignment of supply and
demand.
Although quality is an important
reason for sourcing, 12% of the
organisations evaluate service
quality only once a year.
Outsourcer57%Insourcer
14%
Shared responsibility
29%
Responsibility demand organisationSSC
Outsourcer76%
Insourcer18%
Shared responsibility
6%
Responsibility demand organisationOutsourcing
3%
3%
6%
10%
16%
23%
39%
0% 10% 20% 30% 40% 50%
People
Information
Meetings
Governance
Measurement
Multiple mechanisms
SLA
12%
12%
12%
27%
38%
0% 10% 20% 30% 40% 50%
Yearly
Weekly
Daily
Quarterly
Monthly
Outsourcing Strategy Survey 2009-2010 37
Capgemini Consulting is the strategy and
transformation consulting brand of Capgemini Group
Conclusion and our
perspective
In contrast with some other
surveys, we found that
organisations recognise the
importance of a demand
organisation and start
preparation in time.
Organisations do, however, use
different designs to align
demand and supply. In our
opinion the right demand
organisation has control of both
aspects of the service.
The responsibility of the
demand organisation lies with
the outsourcer. It seems that
organisations have a
procurement-oriented mindset
towards the demand
organisation. In our opinion, it is
essential to enter a partnership
given the size and complexity of
the sourcing deal. A demand
organisation based on
partnership ensures alignment,
coordination and control of both
supplier and business needs.
However it is important that a
demand organisation adds
value as we often find that they
become unnecessary
roadblocks between the
business and the insourcer.
Outsourcing Strategy Survey 2009-2010 38
Capgemini Consulting is the strategy and
transformation consulting brand of Capgemini Group
List of participants
o ABN AMRO
o AGIS
o Air France KLM
o Atlas Copco
o Ballast Nedam
o Blue Water
o Corus
o Enexis
o Fortis Bank Nederland
o Anheuser-Busch InBev
o Intergamma
o Mexx
o Nationale Nederlanden
o NedCar
o Nutreco
o Philips
o Rabobank Nederland
o Ricoh Nederland BV
o RWE
o Stork
o TenneT
o Van Lanschot
o Vitens
o Vodafone
o WE
Capgemini Consulting would
like to extend its thanks to the
executives who made time to
be interviewed for this survey.
Besides the organisations
listed on this page, a further 13
organisations participated in
this survey but requested that
they remain anonymous.
Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group
i “Transformational Outsourcing – The Highway to Innovation and Measured Improvements”, Nyenrode Business
University, Breukelen, Inaugural Lecture of Prof. dr. Ir. Andrzej Hajdasinski, May 2007
ii Neil Davey, www.mycustomer.com
About Capgemini
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www.capgemini.com
Capgemini Consulting is the strategy and
transformation consulting division of the
Capgemini Group, with a team of over 4,000
consultants worldwide. Leveraging its deep
sector and business expertise, Capgemini
Consulting advises and supports organisations in
transforming their business, from strategy
through to execution. Working side by side with
its clients, Capgemini Consulting crafts
innovative strategies and transformation
roadmaps to deliver sustainable performance
improvement.
For more information:
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