11-CRC #11 Outsourcing · Customer Call Centres Procurement Innovation, R & D Sales & Marketing HR...

TITLE• Presentation Points

– Additional Points

– Additional Points

Brian WilkinsonVice PresidentBusiness Process OutsourcingLOGiQ3 Corp.

Jennifer ToalExecutive Vice President, General Manager - Canada DRIAS International Ltd.

John Y. ChangNational LeaderGlobal Sourcing AdvisoryPricewaterhouse Coopers

Outsourcing Industry Trends• Supply side consolidation:

– HP/EDS, Tech Mahindra/Satyam, iGate/Patni

– Indian vendors cannot meet growth projections organically

– Excess capacity

• Reality of globalization: Multinationals and global delivery model.

• Off shoring will continue to grow, with many new locations operating as an alternative to India

• The range of business functions and services under consideration for sourcing will expand…beyond ITO, BPO, FAO and HRO, to engineering & design, legal & tax services, R&D, product development, and research

• Commoditization of services continues as more and more services mature: ITO, BPO, KPO

– Standardization: CMMI, ITIL, IFRS

Outsourcing Industry Trends• Outsourcing is here to stay… and will expand in various forms across all

industries worldwide. Global sourcing business case is well established, focus will be on execution, managing risk, and speed of benefits realization

• Deals will get smaller, with more options available to buyers and more service demanded of providers

• Engagement cycles (‘doing the deal’) will shorten as buyers become increasingly savvy and more sophisticated in their understanding of capability within the provider community

• Multiple sourcing arrangements and increased complexity will increase business risk and drive the need for sound performance management and benefits tracking. COE for Sourcing management will be created internally.

• Organizations will be saddled with second-wave outsourcing requirements as $250billion in expiring contracts come up for renegotiation or termination over the next two years.

Direct Insurance Market• Successful companies are aligning with partners

to provide a broader range services beyond traditional TPA services:– Product development

– Specialized Training

– Add-ons for revenue enhancement

– Retention

– Marketing

• Central admin model relies on maximizing customer opportunity

Direct Insurance Market• Speed to market and ability to scale

• Nimbleness in adjusting to market and client needs

• Continuously strive for operational efficiencies

• Increasing focus on brand value and desired customer experience

• More domestic outsourcing with strict attention to security and less off-shoring

Reinsurance Market• Ceding Companies and Reinsurers are

considering outsourced solutions beyond just Administration– IT (Application Development)

– Underwriting

– Claims

– Data Mapping

Reinsurance Market• Maturing market

• Companies are looking beyond simple expense drivers to outsource– Access to expertise and capabilities

– Achieve economies of scale

– Leveraging trusted strategic partnerships

PWC Global Sourcing Survey

PricewaterhouseCoopers LLP

Q2a Which products or services does your company currently source from external suppliers?

IT services, core products/services and logistics and distribution are the top three outsourced services

10

24

25

30

32

33

35

51

53

57

0 20 40 60 80 100

Other

Finance & Accounting

Customer Call Centres

Procurement

Innovation, R & D

Sales & Marketing

HR Services

Logistics & Distribution

Production/Delivery of Core Products/Services

IT Services

Base: All respondents (226)

Back office services (86%)Front office services (70%)

Facilities, Maintenance & Cleaning (4.0%)Project Management (1.3%)Security (0.9%)Insurance (0.4%)Legal (0.4%)Recruitment (0.4%)Operations Processing (0.4%)

Client


Q5(a) Which of these issues do you consider to be the biggest barrier to outsourcing?)

Vendors cited these, along with employee opposition

6

6

4

3

4

3

18

20

11

17

8

3

6

3

4

8

9

9

11

12

16

19

0 10 20 30 40 50

Don't know/Refused/Missing

None

Ethics of moving jobs offshore

Concerns about public reaction

Other priorities seen as more important

Need to clean up operations before outsourcing

Employee opposition

Lack of skills to manage outsourcing

Company values favour using in-house staff

Lack of experience

Poor cost-benefit

%

Client

Vendor

Clients cited poor cost-benefit and lack of experience are the two biggest barriers overall

Base: All respondents –Client (226) Vendor (66)


Q7 Would you outsource any activity again?

The majority of users are prepared to outsource again, based on their previous experience

91

5 4

Yes No Don't know/Refused/Missing


Client

* No vendor equivalent


Q8 What are the main reasons why outsourcing projects have been less than satisfactory?

4

8

23

24

30

30

31

38

48

14

29

14

42

58

32

33

21

0 20 40 60 80 100

Don't know/Refused

None

Cultural differences or issues

Wrong choices about what tooutsource

Your ability to manage theproject

Poor collaboration

Expected benefits were notachievable

Poorly defined contracts

Vendor skills and capabilities

%

Client Vendor

Base: All respondents - Client (226) Vendor (66)

Clients believe vendor skills are the main reason why projects fail, followed by contract definition

Vendors believe that poor collaboration is the main reason why outsourcing has been unsatisfactory


Q9a Which one of the following pairs worked best in real life outsourcing?

5143

6

Detailed, highy specific contractsFlexible business termsDon't know/Refused/Missing

Base: All respondents – Client (226) Vendor (66)

Client

36

58

6

Detailed, highy specific contractsFlexible business termsDon't know/Refused/Missing

While half of users prefer detailed, highly specific contract terms, the other half favour flexible terms

Overall, vendors tend to favour flexible business terms over detailed, highly specific contracts, however these still have a role

Vendor


Q9d Which one of the following pairs worked best in real life outsourcing?

66

20

14

Outsourcing nearbyOffshore outsourcingDon't know/Refused/Missing


Client

There is still a preference amongst users for near-shoring versus offshoring

Vendors are also more likely than users to consider offshoring as a solution

24

52

24

Outsourcing nearbyOffshore outsourcingDon't know/Refused/Missing

Vendor


Q9e Which one of the following pairs worked best in real life outsourcing?

46

49

5

Traditional commercial termsShared risk and rewardDon't know/Refused/Missing


Client

Clients’ opinions on traditional versus shared risk/reward contract terms are divided

Vendor

Vendors also favour shared risk/reward relationships over more traditional commercial terms

33

58

9

Traditional commercial termsShared risk and rewardDon't know/Refused/Missing


Q10 What is a reasonable after-tax margin for a supplier in an outsourcing arrangement?

11

11

9

5

1

17

1

3

17

6

15

4

0 10 20 30

Refused

Don't know

More than 20%

19-20%

17-18%

15-16%

13-14%

11-12%

9-10%

7-8%

5-6%

Less than 5%

%


Client

622

48

28

223

122

32

915

0 10 20 30

Refused

50%

45%

40%

30%

27%

25%

23%

20%

15%

14%

12%

11%

10%

0%

%

Vendor

Two in five of users consider 10% or less to be an appropriate after tax margin for suppliers

Almost two thirds of vendors consider that a reasonable after tax margin is 15% and more


39

61

Yes - have provided details of margins

No - have never provided details of margins

Q11a Have you ever had sight of vendor margins when negotiating an outsourcing agreement?

46

50

4

Yes - have seen marginsNo - never seen marginsDon't know/Refused/Missing

Base: All respondents - Clients (226)

Client

Only half of users have had sight of vendor margins during contract negotiation

Have you ever provided details of your margins when negotiating an outsourcing agreement?

Two in five of vendors have provided details of their margins to clients

Vendor


Q13 How important are each of these for using outside suppliers to perform work?

Cost savings and access to talent are still the two greatest drivers for outsourcing

-18

-17

-16

-13

-4

-4

-4

-1

-20

-19

-20

-20

-8

-7

-7

-6

23

25

30

22

16

30

24

16

19

25

18

21

30

35

38

34

18

12

15

21

39

21

24

42

2

2

1

3

3

3

3

1

-40 -20 0 20 40 60 80 100

Geographical expansion

Helps us develop new productsand services

Market segment expansion

Improving customer relationships

Access to talent

Increased business modelflexibility

You can farm out activities thatothers can do better

Lower costs

%

not at all important not very important somewhat important

quite important very important don't know / refused


Client


Q14 How significant an impact will social or environmental issues have on outsourcing decisions?

2

28

38

24

8

11

38

42

9

0 20 40 60 80 100

Don'tknow/Refused/Missing

Very significant

Quite significant

Not very significant

Not at all significant

%

VendorClient

Base: All respondents – Clients (226) Vendors (66)

Two thirds of users consider that social/environmental issues will have an impact on outsourcing decisions

Vendors consider that social and environmental issues will not have a major impact on outsourcing decisions


Q15 Which of these do you expect to have greatest impact on your (client’s) future outsourcing decisions?

7

14

25

34

45

47

61

3

9

39

18

32

52

65

0 20 40 60 80 100

Don't know/Refused

None

Negative impact onoffshore localcommunities

Environmental impact ofoffshore facilities

Bribery and relatedbusiness ethics inoffshore locations

Domestic ethical issuesaround moving jobs

offshore

Labour and employmentstandards in offshore

locations

%

VendorClient


Labour and employment standards in offshore locations is believed to have the biggest impact on decisions

Like clients, vendors believe that labour and employment standards will have the greatest impact on outsourcing


Q16a In the past, how have you made location decisions for outsourcing?

19

17

14

58

9

12

13

48

20

10

26

54

0 20 40 60

You mainly relied onvendors to makethese decisions

You made themjointly with your

selected vendors

You made theminternally based onyour analysis of the

market

%Don't know/Refused Rank 3 Rank 2 Rank 1


Client

9

11

3

62

4

23

12

41

36

17

44

38

0 20 40 60 80

They mainly rely onvendors to make these

decisions

They make them jointlywith their selected

vendors

They make theminternally based on ananalysis of the market

%

Outsourcing decisions were traditionally based on user’s analysis of the market

How do you think clients make location decisions for outsourcing?

Vendors believe that clients mainly make location decisions jointly with selected vendors

Vendor


Q19 Regarding product and service innovation, to what extent is your organization expanding your use of each of these?

Customer feedback/consultation appears to be growing

58

64

35

30

27

30

20

13

16

13

24

23

23

20

14

18

13

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26

25

24

31

24

4

4

12

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15

14

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27

1

2

4

6

7

10

12

20

3

4

2

2

13

4

3

3

0 20 40 60 80 100

Buying third party patents

Selling your patents to others

Innovating together with competitors

Open, public, collaborative innovation initiatives

Online customer communities and social networks

External sources for innovation, research anddevelopment

Global, as opposed to domestic, sources of innovation

Customer feedback/consultation for product and serviceideas

%

not at all a little more than a little quite a lot a great deal don't know/ refused


Client


Q21 How would you rate your company’s experience of dealing with outsourcing services suppliers on each of the following statements?

Users generally believe that relationships are built on trust and decisions are made jointly

-24

-21

-18

-16

-11

-8

-7

-9

-12

-5

39

36

33

35

29

27

23

24

24

28

42

41

5

8

11

12

14

20

2

2

2

4

3

2

-1

-2

-40 -20 0 20 40 60 80 100

Suppliers are proactively innovative

Risks and rewards are shared

Competing suppliers work welltogether to meet your demands

Joint governance structures workeffectively

Matters of mutual interest aredecided jointly

Business dealings are honest andtransparent

%

rarely true never true sometimes true

often true always true don't know / refused


Client


Q29 What, in your opinion, are the main reasons to use open, collaborative sourcing approaches

1

2

7

11

15

24

37

46

66

68

4

20

15

24

50

44

71

56

0 20 40 60 80 100

Don't know/Refused

None of the above

To meet employee expectations

To coordinate multiple suppliers

To find and motivate talent

Collaboration makes things easier

Better innovation

To meet customer expectations

Better quality results

To reduce costs

%

Client Vendor


Cost reduction is still a key consideration for outsourcers and could drive collaborative models

Vendors consider the main advantages of these models to be quality and innovation, coupled with cost savings


9

3

24

9

17

212

2

4

17

21

8

2

2

24

6

44

2

0 20 40 60 80 100

Don't know/Refused

Nothing

Focus on technology

Specialise/create a niche

Focus on process improvement

Don't use as it's hard to obtain info/stats

Increased innovation

Tailormade solutions

Grow geographically

Should be done in-house or via outsourced

Greater flexibility

Improve quality assurance

Broaden service offering

Improve/increase marketing

Business strategies change

Be more cost competitive

Build stronger relationships with clients

Better understanding

Stronger contractual arrangements from the start

More detailed research/better advice beforehand

Better planning/better communication

%

Q32 Is there anything that you would do differently the next time you outsource provision of any products or services?

11

820

1122224445

101214

1525

0 20 40 60 80 100

Don't know/RefusedNothing

Don't use as it's hard to obtain info/statsIncreased innovationTailormade solutionsGrow geographically

Should it be done in-house or via out-sourcedGreater flexibility

Improve quality assuranceBroaden service offering

Better communicationImprove marketing

Business strategies changeBe more cost competitive

Build stronger relationships with clientsBetter understanding

Stronger contractual arrangements from the startMore detailed research/better advice beforehand

Better planning

%Base: All respondents - Clients(226) Vendors (66)

Client

Planning is considered to be key aspect of ensuring outsourcing is a success

What does your company plan to do differently as its outsourcing services evolve in the future?

Vendors are focusing on building relationships with clients going forward, along with broadening their service

Vendor


3

4

4

4

5

5

6

7

8

10

10

24

12

3

9

8

4

15

2

9

11

6

20

0 20 40 60 80 100

It is becoming more complex to manage

Improved cooperation

More transparent

Providing technological expertise/plugging skills gaps

Innovation

Specialisation

Outsourcers becoming more competitive

Timely/quality delivery/efficiency

It is becoming better understood

It is realising significant cost benefits

New activities/functions

It is becoming more popular

%

Client Vendor

Q33 What do you think is going on at the leading edge of outsourcing?


A range of opinions were given by Clients, but overall it is believed that outsourcing will continue to gain popularity

Vendors believe outsourcing is continuing to grow and skills are expanding

PricewaterhouseCoopers LLPConfidential

Ten steps to outsourcing success

1. It is heavy lifting at best of times: manage, manage and manage

2. Be a prepared buyer- Informed decision- Confirm why are you doing it- Know what you want- Have understanding of current baseline to measure success against- Stakeholder alignment- Must have ability to execute and ability to manage- Define benefits early and constantly monitor

3. Transformational program not procurement exercise

April 7, 2011


Confidential

Ten steps to outsourcing success (cont’d)

4. Executive oversight during start up and ongoing management is critical5. Anticipate and plan for change through the life of the agreement6. Have an exit strategy in place:

• Termination for convenience• Clearly defined transition assistance

7. Life cycle view: Have stay back/governance team involved very early in the cycle

8. Do not underestimate resistance: Change management is critical9. Champions are required10. If there are doubts: Do not do it

April 7, 2011

11-CRC #11 Outsourcing · Customer Call Centres Procurement Innovation, R & D Sales & Marketing HR...

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