Making Good Outsourcing Decisions

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Making Good Outsourcing Decisions
Christine Spivey Overby Analyst Forrester Research
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Theme
Companies must select eBusiness outsourcers that
deliver specialized and integrated solutions.
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Agenda

• Why outsource?
• How do firms fill in the gaps with outsourcers?
• How do firms make a good apps outsourcing
  decision?

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High profile providers are imploding

• marchFIRST Extensive layoffs, assets sold to
  Divine
• Pandesic Summer 2000 - closed shop, citing no
  clear path to profitability

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Three possible infrastructure approaches
Approach 1 Build it all
Your responsibility
Approach 3 Buy off the shelf
Approach 2 Build none
Someone elses job
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Approach 1 Build it all
Assets controlled by In-house technologists
Responsibility Code/build Operate
Examples Amazon.com W.W. Grainger
Disadvantages Skills Complexity Corporate
focus
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Approach 2 Build none
Assets controlled by Outsourcer
Responsibility Contract Oversee
Examples BP Amoco Excite
Disadvantages Lack of flexibility Loss of
control Bland solutions
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Approach 3 Buy off the shelf
Assets controlled by In-house technologists
Responsibility Operate
Examples Most firms
Disadvantages Everyone does it Few
differences Similar processes
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The new division of labor
Digital difference
Your responsibility
Services in the network
Someone elses job
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Examples of digital difference
One source for mutual funds

• Schwab

Build-to-order manufacturing
Dell
MRO purchasing engine
W.W. Grainger
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Four categories of infrastructure specialists
Digital difference
Your responsibility
Internet business services
Someone elses job
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• OK. Youve convinced me that I need to
  outsource. Now, how do I make sure that I select
  the right provider?

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Agenda

• Why outsource?
• How do firms fill in the gaps with the right
  service providers?
• How do firms make a good apps outsourcing
  decision?

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End-to-end offers no differentiation

• Razorfish The company delivers a complete set
  of end-to-end solutions
• Rare Medium Rare Medium provides end-to-end
  Internet services
• Breakaway Solutions Integrated strategy,
  branding and user experience, e-business
  implementation...a complete end-to-end solution.

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Services were about riding the next big wave
2001
1988
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Providers organized for end-to-end delivery
Traditional engagements
Company
End-to-end provider
Pre-2000
2000 - 2002
Beyond 2002
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. . . But companies arent buying it

• End to end means nothing to me. Misrepresenting
  services is the fundamental flaw of providers. We
  select providers who talk straight.
  (Telecommunications company)
• I have not seen companies offering end-to-end
  solutions. If I did see it, then I wouldnt buy
  it.(Manufacturing company)

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Firms increase the number of providers . . .
How many of each eBusiness provider type does
your operating unit use?
Average of 55 companies using a single
or multiple providers
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. . . For greater specialization
What are the benefits of engaging multiple
service providers?
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But specialization is not enough
Pre-2000
2000 - 2002
Beyond 2002
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Partnered delivery is required
Integrated eBusiness engagements
Multiple companies in a
trading network
Partnered Providers
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Best practices for selecting the right provider

• Seek specialized providers that focus on what
  they do well
• Seek alliance-friendly organizations that partner
  for the rest

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Agenda

• Why outsource?
• How do firms fill in the gaps with the right
  service providers?
• How do firms make a good apps outsourcing
  decision?

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Find specialists to fill in the gaps
Operations
Innovation
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Find specialists to manage the gap

• Content management
• eBusiness application management
• Infrastructure management

Apps operations
Database operations/
apps platform
Utility apps
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Benefits of applications outsourcing
Why did you decide to have a third party manage
your applications?
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Companies outsource a variety of apps
What type of application is being managed by a
third party?
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Critical selection factors for apps outsourcers
Rate the importance of the following . . .
Percent of 35 companies outsourcing application
management
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How other selection factors rate
Rate the importance of the following . . .
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Summary

• eBusiness outsourcing allows companies to focus
  on their digital difference
• Successful eBusiness outsourcers focus on what
  they do well and partner for the rest
• Companies should choose specialized providers to
  fill the customer gap

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Thank you
Christine Spivey Overby 617-613-5838 coverby_at_forre
ster.com www.forrester.com