IT Outsourcing

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IT Outsourcing

• Chad Doiron / Michael SaundersApril, 2007

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(No Transcript)
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Todays Presentation

• Why are companies outsourcing?
• What is being outsourced?
• How are companies outsourcing?
• Challenges
• Benefits

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Why are companies outsourcing?
Percent of companies indicating key drivers of
IT Outsourcing
Source Aberdeen Group The Business Value of IT
Outsourcing Benchmark Report, 2006
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Why are we outsourcing?
AAFA Members
Expertise Domain Knowledge 44 (4 out of 9)
Industry Best Practices
Offshore Opportunities 33 (3 out of 9)
Easily Augment Staff 67 (6 out of 9)
Drive Down Costs 78 (7 out of 9)
Leverage Buying Power 11 (1 out of 9)
Rapid Growth Through Acquisitions 44 (4 out of 9)
Build Competencies Quickly 67 (6 out of 9)
Other Company Growth Process Transformation Near to Customers Data Security Other Company Growth Process Transformation Near to Customers Data Security
Most AAFA members who are outsourcing are
motivated by the goal of cost reductions.
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The future
Why will companies outsource

• Focus On Internal Core Competencies
• Labor Arbitrage
• Improve (Predict) Service Levels
• Enterprise Transformation

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What is being Outsourced?
Percent of companies indicating some degree of
IT Outsourcing
Only 30 of AAFA members indicated that they are
doing any kind of outsourcing.
Source Aberdeen Group Outsourcing Application
Development and Maintenance, 2006
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What is being Outsourced?
203 Billion Dollars in 2005 (7.4 Growth Rate)
Data Center Outsourcing
Network Outsourcing
Enterprise Application Outsourcing
Desktop Outsourcing
Source Gartner 2007 Key Issues for Outsourcing,
Infrastructure and Applications
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What do we Outsource?
AAFA Members
Application Development Maintenance 100 (9 out of 9)
End User Computing(Pcs And Helpdesk) 22 (2 out of 9)
Data Center 44 (4 out of 9)
Data Network Management 22 (2 out of 9)
Disaster Recovery 22 (2 out of 9)
IT Security 11 (1 out of 9)
Business Continuity 11 (1 out of 9)
Voice Network Management 11 (1 out of 9)
All AAFA members who are outsourcing are doing so
in the area of application development and
maintenance.
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The future
What will be outsourced

• Increased mix of off-shore/on-shore resources
• Additional business processes(A/P, customer
  service, human resources, etc.)
• Enterprise Architecture
• Research Development

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How are companies outsourcing?
First Generation SecondGeneration ThirdGeneration Generation X
ScopeOf Role
PrimaryObjectives Resource Expertise Competency Innovation
View OfRelationship Vendor 3rd Party ExtendedEmployees Partner
Organizational Implications
Projects
Categories
Functions
Limited Organizational Impact Senior Involvement Integrated Organizational Roles
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Example of Third Generation Organization
Company retain ownership of applications,
finance, security, infrastructure, technology,
etc. by maintaining key management resources in
place.
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Additional Contract Considerations
Outsource Services Contract

• Base services include service level agreements,
  scope and support requirements
• Metrics used to establish minimum requirements
• Monetary penalties if metrics not achieved
• Costs tied to benchmarks
• New projects structured under change controls
  that describe the scope, cost, and deliverables
• All projects managed according to single overall
  governance model

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The future
How will companies outsource

• Greater Focus on Partnership(Less Focus On The
  Company / Vendor Relationship)
• Greater Focus On Innovation
• Use multiple vendors
• Shift in Budget Spend(From Operational Keeping
  The Lights On To Strategic)
• Shorter Contracts With More Flexibility

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Challenges
Satisfaction Levels with Outsourcing Activities
Source Aberdeen Group The Business Value of IT
Outsourcing Benchmark Report, 2006
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Challenges
Top Challenges with Current Outsourcing
Source Aberdeen Group The Business Value of IT
Outsourcing Benchmark Report, 2006
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Challenges
The Outsourcing Paradox

• A successful outsourcing requires trust,
  understanding and alignment, yet, the interests
  of the customer and the service provider are not
  naturally aligned
• A successful outsourcing must strive to be a
  partnership, yet the nature of the transaction
  can produce complex agreements, lengthy deal
  cycles and adversarial negotiations.

Source Edward J. Hansen Morgan Lewis Bockius,
LLP
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Benefits
Transformation
Reduced Operating Cost Improved Version Control and Lifecycle Management Improved Documentation of Procedures and Best Practices Improved Development Quality Broad-base Expertise Internal Staff Focus on Strategic Issues Faster Turn-around for Greater Solution Access to Superior Expertise
Innovation
Quality
Administration
Cost
Value
Drivers
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The Future
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Questions