Seeing Through The Fog:

April, 2012 Phil Hassey: - Founder capioIT

Outsourcing is changing in a

changing world

What I would like you to remember

• Dynamic models of outsourcing will change your

delivery and management of IT capability

significantly.

• Your organisation will be in ongoing state of flux

in terms of new delivery models.

• Core requirements remain non negotiable

Governance

Change Management

Sustainability

• Pricing and vendor management will require

change to your organisation 2 Prepared by capioIT 24/04/2012

Fundamental drivers of outsourcing

remain the same

• Ability to derive economies of scale and service

delivery automation

• Labour and skill based benefits, both with global

and local delivery

• Flexibility to meet variable, subsidiary and

distributed work environment requirements

• Cross organisational processes integration

• Optimise communication and collaboration

capability

• (and) Cost

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Drivers Disconnect to Outcomes – Wither

Innovation?

Source: HfS Research and the London School of Economics Outsourcing Unit, 2011

Sample: 347 Buyers of Outsourcing Services

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Who is Buying

How it is managed

What is being bought

Seeing Through The Fog

What is happening in your organisation?

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IT Budgets Shrink

IT investment growth

Changing organisational procurement

Technology Change is enabling real

change to Technology Procurement

• SaaS

– HR

– Sales and Marketing

– Senior Management

• Analytics

– Supply Chain

– Business Development

– Finance

• Collaboration tools

• IaaS

Remember the impact is across all business

processes, not just IT 7 Prepared by capioIT 24/04/2012

Fundamental Technology needs of

changing procurement still exist

Don’t believe everything you hear

Integration

Governance

Change Management

In the Cloud world, they matter more than ever

• IT needs to own, educate and enable

• Understand requirements will be different to

traditional vendor management

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What are some of your Outsourcing

delivery choices?

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Platform Services

Best of Breed

Tie and Run

Technology Augmentation

Wash your

Hands

What are some of your Outsourcing

delivery choices?

No one approach can work for an organisation. Will need to

develop a flexible approach to delivery.

Wash your hands

• Allow a outsourcer/provider to come in and run all your

IT process functions.

Tie and Run

• Simple model as the outsourcer simply takes control of

hardware, networking and software to deliver services

Platform services

• Customer procures existing pre-integrated applications

and pre-built processes ―owned‖ by the

outsourcer/provider. Clearly SaaS/Cloud core examples.

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What are some of your Outsourcing

delivery choices?

Best-of-breed solutions

• Full capability across key business issues and

requirements. Multiple solutions and integration needed

to solve core business issues.

Technology augmentation

• Outsourcers/providers look to deliver capability to the

service provider implements tools that serve as ‗add-ons‘

to fulfil identified service delivery holes. When well

executed can provide rapid benefits to organisational IT

service delivery.

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What are some of your Outsourcing

delivery choices?

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Approach Ideal

Contract

Length

Transforma

tion

Governance Change

Managem’t

Custom-

isation

Industry

Focus

Shared

Outcome

Opps

Wash Your

Hands

5 years Limited Moderate Limited Limited Limited Moderate

Tie and Run 1-3 years Limited Moderate Moderate Limited Limited Limited

Platform

Services

> 1

month

Limited Limited Significant Limited Moderate Moderate

Technology

Augmentation

3-5 years Moderate Moderate Significant Moderate Limited Limited

Best of Breed 5-years Significant Significant Significant Moderate Significant Moderate

Is this your Vendor Management Future?

Next Generation Vendor Management:

A new profession rather than a part time job

Str

ate

gic

Alig

nm

ent Regulatory changes

Mergers/acquisitions

Changes in corporate strategy

Policy, process and system changes

Culture change management

Day t

o D

ay G

overn

ance

Stakeholder management

Contract changes

Performance management

Invoice review and approval

Staff development

Business continuity planning

Day t

o D

ay V

endor

Managem

ent Volume changes

Workforce management

Transaction management and reconciliation

Quality reviews

Issue resolution and root cause analysis

Key Trends in Pricing

• Cost of sales remains high for providers

• Providers take on more risk to ―buy‖ the business

• Especially impacting ―premium-priced‖ providers

Extreme Rate Pressure in New Deals

• Providers exercising leverage of switching costs

• Smart clients exchanging higher rates for lower risk

• Especially impacting relationships >3 years old

Rate Creep in Renegotiations

• Win-win: providers get non-linear revenue and buyers get lower risk, more flexibility

• Easier said than done: either party likely to back off at the last minute

Outcomes-Based Pricing

• Tier 1 Indian cities and Shanghai/Beijing

• Increased opportunity for regional centres in Australia

Clear Premium for Certain Locations

• Early trend: sophisticated buyers cutting out line items in favor of simplicity

• Units becoming more inclusive, especially in mature relationships

Simplification of Pricing

• Providers increasingly willing to expose their cost drivers

• Buyers increasingly unwilling to expose their budgets and history

Transparency Conflict

Key Trends in Pricing

New Models of Outsourcing

impact pricing

FTE

Transaction

Gainshare

» Rare for a relationship to be purely transaction or gain-share-based

» Majority of all relationships will start with FTE until transactions/outcomes can be measured to the satisfaction of supplier and buyer

» Not a step process FTE => Transaction => Gain-share

» FTE is being augmented with transaction and gain-share

» Certain processes lend themselves to transaction, some to gain-share and some to FTE

» Pricing change from model change

Custom Blend

Transaction

Gainshare FTE

Large enterprises can learn outsourcing

best practice from the mid-market

• Research shows mid-market orgs can achieve benefits

of outsourcing more quickly than large enterprises.

• More aggressive when it comes to scope—more likely to

outsource ―end-to-end‖

• More willing to switch to provider platforms and

solutions—lest ―lift and shift‖

• Greater need/leverage for provider‘s global scale

• Faster transitions—choose acute, temporary pain over

dull, long-term pain

• Smaller executive teams mean less powerful

stakeholders at the table, simpler governance

Final Points

• If an Analyst/Advisor tells

you that the market is easily

defined and put in boxes,

ignore them.

• Regardless of model choice

you need execution to

outsourcing fundamentals

• Poor execution and

strategy will lead to

significant challenges

– Pricing/Value generation

– Vendor management

Phil Hassey: - Founder capioIT

phil@capioIT.com

Blog – http://capioit.wordpress.com

Twitter - phassey

www.capioIT.com

Ph - +61 422 231 793

Questions?