Grappling with IT Outsourcing

1
Grappling with IT Outsourcing

• Peter Notaro
• IBM Global Services

2
Todays Topics

• Outsourcing Overview
• Value Proposition
• Evaluating Outsourcing
• Keys to Success

3
Strategic Outsourcing Defined
4
Portfolio of Outsourcing Services
Business Transformational Outsourcing
Customer Service
Human Resources
Finance Accounting
Procurement
Application Management Outsourcing
Packaged Applications
Application Effectiveness Rapid Development
e-Continuous Innovation
Custom/ Legacy Applications
Learning Services
Help Desk
Managed Infrastructure Outsourcing

• Server Management
• Help Desk
• Desktop Support

• Network
• Web Hosting
• Storage

• Groupware
• Disaster Recovery
• Security

5
Strategic Outsourcing addresses challenges faced
by IT leadership

• Infrastructure is over populated with servers
  the needs to consolidate cannot be met
• Scalability comes with too large an upfront cost
• Hardware is not a valued asset, refresh is too
  expense, time-consuming and risky
• Seasonal peaks adversely affect IT plans and
  directions
• Risk protection against changing business
  conditions, merger or divestiture
• Resources are disproportionately allocated to
  technical components of the operation
• Overall, infrastructure support costs are too
  high
• Technology costs are fixed and need to be tied to
  the business, transactional and volume-based are
  potential directions

6
As a result, a greater number of companies now
have an outsourcing strategy
7
Why Outsource?
Transition to an e-business strategy
Achieve speed and agility in a networked economy
"IT outsourcing and business transformation
outsourcing dominate business strategies of
market leaders as a legitimate means to gain
efficiencies, control costs and drive business
value."
Acquire Expert IT Skills
Enhance IT Effectiveness
8
What Does Outsourcing Impact?
IT Expense? IT/Operations Effectiveness, Revenue
Increase?
9
Value from Outsourcing
Financial/Business value
Expense
Transformation
Service Quality
Business Focus
10
Outsourcing Evaluation and Decision Process
11
Developing an Outsourcing Approach
Objectives
Enterprise Climate
Approach

• Why do you want to Outsource?
• What are the expected benefits?
• What is your enterprise organizational climate?
• Why is understanding your enterprise climate
  essential to
• establishing an evaluation approach?
• How do your objectives and climate relate to an
  approach
• for an Outsourcing evaluation?
• 6. Who are the sponsors, recommenders and
  approvers.
• 7. Where are the speed bumps?

12
Managing Outcomes Rather than Processes

• Focus on managing outcomes and ensuring a proper
  transfer of risk and accountability to the
  external provider.

Service Delivery Management
Relationship Management
Source Gartner
13
Factors that help Providers reduce your IT and
LOB costs...

• Enhanced IT LOB Processes and Procedures
• Proven methodology used across multiple customers

• Extensive Use of Automation / Infrastructure
  Tools
• Use tools instead of people for monitoring
  systems

• Decentralized to Centralized Operations Support
• Data center consolidations, help desk centers,
  e-mail

• Product Standardization
• Consolidation of server hardware, software,
  e-mail, application and database environments

• Global Access to IT Skills / Expertise
• Off-shore application development and maintenance

• Financing
• Spreading transition costs, acquisition of
  hardware and software assets and lease buyback
  options, conversion from capital to operating
  expenses

14
Identifying the Scope which meets your Tactical
Strategic Objectives
15
Outsourcing Evaluation and Decision Process
16
Develop a Base Case and Target
Scope
Business Transformation
Terms

• Service levels
• Length of agreement
• Financial

• Functional
• Volumes
• Growth expectations

• Tactical plan
• Schedule
• Benefits

Base Financial Case
Business Value
17
Understand Your Resource Model
What resource model fits your Enterprises
Objectives, Culture and Scope of Services
18
Providers Perspective
Enterprise Perspective
Provider Perspective
19
Approaches for effective Provider selection
Complexity of Solution, Business Focus and
Schedule Needs impact provider Selection Approach
Solution Complexity
Expense
Transformation
Business Focus
20
Evaluating Proposals

• Match proposed scope and responsibilities with
  enterprise intent
• Re-state Financial Base Case based upon
  proposals scope, cost and terms
• References and facilities visits
• Quality of proposals, transitions plan, provider
  resources and financial stability
• Value of provider relationshipaccess to skills,
  long term viability, business value

21
Solution compared to Financial Value
Provider building an Outsourcing Solution
Financial Base Case

• Retained vs. Eliminated Positions
• Retained vs. Eliminated Expenses

• Legacy systems
• Transformation
• Service levels

• Direct
• Indirect
• Soft Reductions

• Revenue opportunities

• Provider and enterprise
• responsibilities

• Transition expenses
• Long term forecast

• Asset transfers
• Human resources

• Asset transfers
• Contractual commitments
• Financial engineering opportunities
• Future needed investments

22
Outsourcing Evaluation and Decision Process
23
Contract Development and Execution

• Agreement Structure

• Sequence of Activities

Due Diligence
Contract Development
Transition
Steady State

• Validate Assumptions
• Technical Solution
• Financial Solution
• HR/Personnel Solution
• Solution Assurance

• Service Levels
• Continuous Feedback

• Contract Terms
• Scope of Services
• Financial Terms

• Transition Plan
• Baselines and Measures
• Processes and Procedures
• Physical Transition

24
Value of Consultants
Value consultants can bring Assessment vs.
Evaluation

• Assessment
• IT assessment-Assessing current strengths and
  weakness
• Architecture
• Processes
• Transformation
• Clarifying scope, volumes etc.
• RFI/RFP development
• Evaluation
• Add third party perspective and experience
• Practical market experience in judging prices,
  service levels and terms
• Agreement negotiation

25
Potential Detractors To a successful
agreement/contract to Outsource

• Inappropriate delegation of decisions
• Unrealistic financial goals
• Lengthened decision/negotiation process
• Failure to communicate with affected employees
• Failure to share technical, service level and
  financial data
• Failure to establish and communicate
  evaluation/decision

26
Enhancers To a successful agreement/contract to
Outsource

• Gain senior management sponsorship
• Clearly state objectives, financial base case
  and value of outsourcing
• Jointly developed outsourcing solution
• Assure cultural match of companies
• Develop a sound HR plan
• Understand the financial import
• Strive for a Win/ Win business alliance

27
Peter J. Notaro Eastern Region Executive IBM
Global Services [phone] pnotaro_at_us.ibm.com