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January 2011 volume 2, issue 2

featUreS

UTILITy COMPUTING: THE REALITy CHECkby Ed NairVirtualization and cloud computing has brought utility back into the discussion though neither of them are a precondition for a utility-based model of IT delivery

10

FiNaNcE aNd accouNtiNG SolutioNS 23client: coca-cola Enterprises Provider: capgemini

‘liFt & ShiFt’ MiGratioN 24client: owens & Minor Provider: dell Services

MESSaGE MiGratioN aNd MaNaGEMENt 25client: a Fortune 100 company Provider: Microland limited

StrEaMliNiNG oPEratioNal WorkFloW 26 client: Metlife Provider: ci&t

22

ENGINEERING SERVICES - AN OUTSOURCING EVOLUTIONby runa Mookerjee, analyst, ValueNotes Sourcing Practice An increasingly competitive market for engineering services has made outsourcing indispensable to the industry, more so follow-ing the downturn

18

20a NEW rolE For BENchMarkS by Max Staines, President of North america, compass Management consultingnTraditionally a bargaining tool for clients to set pricing targets for service providers, outsourcing benchmarks are increasingly being used to collaboratively drive transformational initiatives.

16THE NExT STAGE IN MANAGED PRINT SERVICES IS HEREby Sruthi ramakrishnanManaged print services and IT- BPO proc-esses traditionally stood at different ends of the services spectrum. Not anymore.

8EMERGING FROM THE EyE OF THE STORM, WAkING UP TO CHANGED RULES by Sruthi ramakrishnanThe main challenge the MPO (mortgage process outsourcing) industry faces today is the changed environment it finds itself in

xperts

GloBAl SERVICES lIVE!

Global Services LIVE!Q1, 2011 EDITION

Releasing March 2011Case studies are invited from service providers.

For more details click here or contact Satish Gupta at [email protected]

LIVE


Editor’S NotE

Ed NairEditor

[email protected]

As we look back to the decade

that went by, the outsourcing industry or the global services

industry had many momentous shifts

First things first, let me point towards two articles in this issue that deal with significant shifts in IT and BPO.

Utility computing used to be one of those buzzwords thrown around in the IT circles a few years ago. It was supposed to be a game changer on the IT infrastructure delivery side (which it is), but the IT world got swayed by other developments like service-oriented architecture, virtuali-zation, and business process management. years later we are once again at a point where virtualization, SaaS, IT standards, managed services model, and cloud have come together to change the way IT infrastructure serv-ices are delivered. This has renewed the interest in standards-based utility model where the pricing is based on consumption of services.

In this issue, we take a reality check on where utility computing stands today. One key message is that it is not about technology or the sourcing model; rather it is about the behavioral changes needed (on the client side) and the realization that revenue per client would decrease but mar-gins would increase (on the provider side).

Another exciting trend we examine in this issue is about the evolution and convergence of MPS (managed print services) into broader IT serv-ices and BPO markets. This has implications for many document-driven industries like mortgage, insurance, healthcare, and others. The article traces the antecedents of this trend, explains the realignment of service providers, and presents the possible dynamics of this convergence and its impact on the industry.

As we look back to the decade that went by, the outsourcing industry or the global services industry had many momentous shifts. The transi-tion from the previous decade was marked by the culmination of a fren-zied programming effort called y2k, the shift into developing e-business applications, and the boom in call centers in India and the Philippines.

We are once again at the start of a new decade.

The transition this time is marked by mature global delivery, the promise of the cloud, the convergence of IT and BPO, the quest for transformation, and the clear recognition of global sourcing as a strategic lever.

Wish everyone a great and rocking year 2011! GS

Dawn of a New Decade


industry- specific Processes

The main challenge the MPO (mortgage process outsourcing) industry faces today is the changed environment it finds itself in

Emerging from the Eye of the Storm, Waking Up

to Changed Rules

by Sruthi ramakrishnan

Mortgage processing was one of the verticals directly affected by the economic collapse in the US. Now that the economy seems to be on the path of recovery, this industry too

is attempting to find its feet. But the main challenge faced by the industry is the

changed environment it finds itself in -- one of increased regulation and caution, not to mention the general para-noia that the economy might slip into recession again. As Taylor Woods, president and CEO, Genpact Mortgage Services, puts it, “ The post- recession period saw a bit of overreaction to the type of lending that was seen, and that created a very difficult environment for people to borrow, versus what we’d seen in the run-up where everybody could get loans. As a result of the fewer eligible people in that space, it resulted in lower (origination) volume.”

Changes Wrought by the Crisiskeshav R. Murugesh, Group CEO, WNS Global Services, sees two major changes in mortgage processing since reces-sion began. One, changes in the appraisal process that was much abused in the pre- recession time, and second, the rigor around verifying earnings, debt ratio calculations and sub-prime mortgages. “Historically household income reported on mortgage applications were checked with a reasonable amount of rigor. But in the early 2000s, with the value of real estate climbing steadily, the rigor was loosened in favor of faster processing. This lack of rigor led to many families taking on too much debt backed by hous-ing that dropped in value once the bubble burst. With a number of families overextended, a small drop in housing

value caused significant pricing stress that quickly began to affect the entire market,” he says.

“Much stricter rules have been brought into play to prevent a reoccurrence. To correct the inflationary apprais-al scam, strict regulations have now been enforced on how often a house can be appraised and also many strict guide-lines and review processes have been put in place. The increase in processing rigor has had an effect on the MPO market, requiring better training of processors, significant increase in quality reviews, and financial penalties if proper controls and reviews are ignored.”

Taylor WoodsPresident and CEO, Genpact

Mortgage Services


Back in BusinessA MarketsandMarkets report ‘Post Crisis Changes in Mortgage Lending in U.S. - Forecast & Analysis 2010-2015 ‘ says that currently, conventional fixed rates are at their lowest in decades, with pricing of 30-year and 15-year fixed-rate mortgage at its lowest. Such low rates are generating significant refinance activity in the housing sec-tor. Refinance in 2009 increased by approximately 78% to $1,364 B, indicating that borrowers have been responding to low mortgage rates.

Genpact saw its business pick up the same year. “In 2009, the market sort of stabilized in volume and activity started increasing,” says Woods. “Those outsourcing part-ners who were able to survive during the downturn for the last couple of years were able to pick up business”.

The various mortgage modification programmes (Countrywide, Making Home Affordable Program con-sisting of HAMP and HARP) — started to help borrowers pay back their mortgages through loan modification, provided they met certain criteria— have also, to some extent, helped third party providers garner business. “The government is running its programmes pri-marily through Fanny Mae and Freddie Mac. Through these two entities there’s tremendous work that is being outsourced primarily through components serving individual companies to provide very specific services, much of which have been along loan modification and mortgage origination,” says Woods.

Not a CakewalkBut such programmes have also run into rough weather, with allegations, among others, of mistakes in the review process of foreclosures. This had led some accusing fingers to point at third party servicers, but the latter are unper-turbed. “Those who are negative on outsourcing may attempt to blame an MPO for the issues that have been encountered in the processing of mortgage origination documents. In reality MPOs like ours carefully follow regulatory and client policies and procedures. It is always possible for a human error to occur, but that is true of any process, business or industry,” says Murugesh.

The US government’s anti-outsourcing stance, which could potentially affect offshore servicers, is also something they are not choosing to worry too much

about for now. “Due to the recession and the number of mortgage companies that closed down entirely, I think the amount of work being offshored went down dramatically,” says Woods. “But the pressure around costs is very critical. More work is starting to be offshored and we are seeing a recovery now.”

Strong Opportunities, New InvestmentsCompanies are looking at the new opportunities presented by the changed industry scenario. “Firstly, there continues to be strong opportunity for mortgage origination and within that, the strongest components seem to be areas like underwriting, processing and even sales. The loan officer or origination activity- these are the highly skilled elements of the origination process that are in really high demand,” says Woods. “Number two, there is very significant pres-sure on existing portfolio, existing investments in real

estate. The demand comes from the number of people strug-gling to make their mortgage payments.”

Genpact expects its invest-ments in technology over the past couple of years to pay off now. “We invested in two major ways. First, we have a propri-etary platform within our origi-nation offering. In our platform we have tremendous amount of pipeline management, work-flow management and automat-ed communication. Secondly, we made an investment early in 2010 for automation of proc-

esses that takes the processing time down. Our investment allowed us to gain a very strong additional market activity and also loan origination that we are taking into the next decade,” says Woods.

WNS looks to grow by utilizing its “collective knowl-edge that is transferrable across WNS clients” and “pro-viding cost margins that can only be realized by using an experienced and trusted MPO provider” which would help offset the pricing and margin pressures that occur in a down market.

So while the third- party MP servicers are hoping for some sunshine after the recession storm, how they will fare in the coming year is linked to the fate of the mortgage industry. GS

Emerging from the Eye of the Storm, Waking Up

to Changed Rules

There have been two major changes in mortgage process-ing since recession began- one, in the appraisal process which was much abused in the pre-

recession time, and second, in the rigor around verifying earn-

ings, debt ratio calculations and sub-prime mortgages.

industry- specific Processes

utility computing: the reality check

Special report Utility computing: the reality check

utility computing: the reality check

Max Staines, in a chat with Ed Nair makes the case for utility computing



GS: What’s the case now for utility comput-ing?MS: Traditional improvement initiatives drive incremental efficiency gains within the exist-

ing operational environment, typically resulting in savings of between 10 percent and 20 percent. A transformational approach to improvement establishes a new, optimized IT delivery model that fully leverages the benefits of stand-ardization and utility computing, often yielding overall cost savings of up to 40 percent.

Regardless of your business, 90 percent of your IT is standard and common. Once an organization recognizes that most of its IT requirements can be addressed through standard services, it can develop and implement appropri-ately tensioned pricing mechanisms that create incentives to drive standardization and increased efficiency.

For the rest of 10 percent, by identifying the cost of specialization, the business can make value-based decisions and support comprehensive demand management.

The important point here is the recognition by business that defining IT requirements in consump-tion-based, utilitarian terms yields a critical competitive advantage.

For example, rather than managing the TCO of 10,000 desktops, a client organization can now define

its requirements as follows: access to desktop resources for 10,000 users, from between 9:00 a.m. and 5:00 p.m. Eastern. Under this approach, importantly, the client pays only for those resources that are actually used. Managing the infrastructure to deliver those resources is left to the internal or external IT service provider.

GS: What’s your best argument about utility computing? MS: It is my opinion that the largest component of a prop-erly structured utility-based compute model of standard service offerings is that technology capabilities are not the only drivers in making the dreams of utility consumption based computing services come true. Rather it is the abil-ity for IT provisioner (in-house or outsourced does not matter) to have a very pragmatic conversation with their customers about behavior, about proper demand manage-ment, about educated demand management. These discus-sions are based on clear and well- articulated understand-ing of what is cost and what value is derived from various kinds of service delivery.

As such, utility computing is less a technical innova-tion than it is a reflection of a maturing marketplace that produces more effective commercial agreements for the delivery of services.

Utility Computing: The Reality Check

The concept of utility computing is not new. In the first phase, it failed to become mainstream. Virtualization and cloud computing has brought utility back into the discussion though neither of them are a precondition for a utility-based model of IT delivery. On the other side, from the sourcing world, managed services of various types rose to maturity and popularity and it contained some flavors of utility computing. But we learn here that utility computing is sourcing agnostic. Regardless, by whatever name you call it, IT delivery is increasingly moving towards a multi-tenant, consumption-based, standardized services model. Like a utility. So let’s once again call it utility computing. Max Staines, President-North America, Compass Management Consulting (recently acquired by ISG which also owns sourcing advisory company, TPI) advises leading organizations on performance management and benchmarking of service providers and brings in unique insights into the value creation process in service delivery. Here, in a chat with Ed Nair, Max Staines makes the case for utility computing and reveals the nature of its evolving dynamics.



GS: How far does the buyer community or the provider community understand this? How much of the former’s understanding is colored by the latter’s tall promises?MS: It is like once bitten twice shy. Service vendors need to know and accept that rev-enue per client is likely to go down. But, what they get in return is margin control and they are willing to take less revenue if it means they can control margin. They’re will-ing to do so for a number of reasons. One of which is that they believe that if they can start to get people to standardize, and yes, charge less for it, then they can attract more clients on to that virtualized state of IT infrastructure. That’s a key point in the outsourcing view of this.

When it comes to the internal view, the most progressive IT operations - the ones who already have a better than average relationship with their business customers - are the ones who are going to have an easier time taking it further.

Clients who have implemented a well defined catalog of services are going to be able to take the next step of removing the constraints. There needs to be a discus-sion about demarcating who does what or who is responsible for what (between the vendor and the client). It is going to be a tough decision in some cases, because some business units through the hard knocks that they have gone through with their IT provisioners (even internal), are used to having a quite a bit of say.

Now, if you can have a discussion that says are you sure you need that or are you sure you can’t let us do that for you or make those decisions for you, so that we can standardize across the much broader set of IT assets – application infrastruc-ture so on- to get the cost of producing it down. If you can make that business case, that’s the decision those CIOs and CFOs want to happen, that’s for sure.

GS: What are some of those sub-trends that are making utility computing a real possibility?MS: Governance tools are making it possible, as well ana-lytical agents are making it possible to properly understand consumption in a meaningful way. There is a new mindset that 90% of what is accomplished in the IT shop, you

could easily consider it to be ‘commodity’. The rest need special attention.

This generic, one-size-fits-all approach to service delivery is becoming increas-ingly viable, thanks to growing business acceptance of the proposition that up to 90 percent of the IT requirements of most organizations can be addressed through standardized services. In other words, while a bank’s activities are obviously very different from the activities of a retail manufacturer, the basic IT functional-ity that each business requires to support critical processes and systems is largely

identical.There is bound to be a real paradigm

shift; you will have historic premiums. There will be initially a barrier to get to a truly standard utility based model. As time goes, those historic hurdles will be out. The mind set shift will start to take hold. At a conference in October , a group of vendors were talking about their ability to deliver their services on a consumption model and they were even willing, in right commercial circum-stances, to have virtually no contract— which means pay-as-you-play and opt-in and opt-out as you wish. If they are going to do that kind of a model, then they are going to have to have an eco-nomic base of a very large estate where they can leverage enough. So, invest-ments are being made in setting up that kind of estate to let people come in, plug in, plug out. That’s another shift happening, another enabler.

GS: When you approach an organiza-tion with this idea of utility-based computing services, how do they gen-erally respond? How does one prepare to start with utility computing?MS: The very first thing you need to do is to understand how ready you are. That gives you an indication how far you need to travel. Also, that gives

you an indication of what kind of investment it’s going to take and if you can also model what the future could look like, then you can start to lay out proper business case for change. So, you need to take a very well structured look at how you deliver currently. Ask questions such as what’s in

“As standardized service deliv-

ery continues to grow, key sourc-ing decisions will

be around how best to drive

standardization and utility-based consumption of IT as extensively as

possible.”

Max Staines President-North

America, Compass Management Consulting


the IT group, what are the activities and what are the costs, what’s the value contribution to the business, and such.

The other thing you need to do is to take a model of standard IT services, take a well functioning model of IT services and you start to lay the groundwork of what the future could look like so, you actually lay out a sce-nario or two of what if we did the following standardiza-tion or utility type activities to get us to a future state. What could that future state look like? Interrogate that model, analyze the assumptions and you make a very well thought through future state assessment. Now, you have a current and future and you make a roadmap to getting there. you do all that in paper before you unplug a server.

GS: How dependent is all this on your sourcing model- in-house, offshore, outsourced…..?MS: you need to look at not where it comes from, but what’s delivered. As long as the organization can provide as efficiently as a professional sourcing arm would. Then, that’s no reason to look elsewhere. What matters is how its delivered, where it comes from is secondary.

As standardized service delivery continues to grow, key sourcing decisions will no longer be around outsourcing, offshoring, or repatriation, but rather, around how best

to drive standardization and utility-based consumption of IT as extensively as possible. In some cases, outsourcing will be preferable. In others, where, for example, in-house incident management capabilities are more mature than the service provider’s, or if assets are already owned by the client organization, a retained approach will prevail.

GS: normally, in any kind of standardization you lose some flexibility. What do you have to say in this case? What would the organization end up losing? flexibility also has a bearing on agility. MS: Agility is one thing, standardization is another. you do not have to be bespoke in everything you do in order to be agile. Look at any standardized service for example- dial tone, I can make a call any time I want, I can disconnect any time, I can do call forwarding and it is standard. I have the same dial tone as you have. you may not need any of those fancy services. That is the difference. But how you deliver has to be standard. you will lose some control as the client, but that is part of the bargain. you have to be par-ticipatory with IT provider. This is not a one way stream. That’s where, I go back to the point about modeling out what the future would like and knowing what is going to change not only on cost side but also on the behavioral side. GS



The Next Stage in Managed Print Services is Here

by Sruthi Ramakrishnan

Managed print services and it- BPo processes traditionally stood at different ends of the services spectrum. Not anymore.

“The (Xerox- ACS) deal gives Xerox the scale to attack the $150B BPO market through a

combination of services, tech-nology and innovation,”

Russ Buchanan VP of Worldwide Alliances (a division

of Xerox’s Global Services unit)

emerging trends

Managed print services (MPS) have tradition-ally been associated with document print-ing, faxing, scanning— basically managing the document- related functions and infra-

structure of an organization. Handled mostly by imaging firms, these services were not something that could be, or were outsourced to traditional IT/ BPO service providers.

But the past 2-3 years have seen developments which promise to change this. HP’s acquisition of EDS (Electronic Data Systems) in May 2008, xerox’s strategic alliance with HCL and its more recent acquisition of ACS, Canon’s 2010 collaboration with Accenture- all these clearly mark the growing convergence of the hitherto completely distinct MPS and IT/ BPO markets. “There is a huge opportunity at the intersection of document management and business process outsourcing, much of which centers around paper intensive tasks. This creates a real demand from enterprises and governments for the services we can deliver, including MPS, on a global scale,” says Russ Buchanan, vice president of Worldwide Alliances (a divi-sion of xerox’s Global Services unit).

Not UnexpectedThis convergence was not entirely unanticipated. Print/document output has come to be viewed, as James Joyce, senior vice president, xerox Enterprise Print Services’ put it, “the last unmanaged frontier when it comes to opti-mizing IT infrastructure” (‘Managed Print Services Drive Value for Businesses’, Global Services Media, July 02, 2010). But the maturing of managed services as a whole has been greatly responsible for this. “As we start getting into Stage 3 and 4 (of the evolution of managed print serv-ices), there is an awful lot of IT integration potential with document management systems,” says Edward Crowley, CEO, Photizo Group. “So it’s clearly becoming a focus area for the IT organizations. And in fact we see that in


nearly 70 percent of MPS engagements, it is driven by IT organizations, they are the ones actually managing that”.

How has this integration come about? “Customers are looking for companies that can help them do two things: one,solve the big, complex problems they face in today’s fast moving and highly competitive marketplace and two, focus on core business areas where they can create differentiation for their products and services. An outsourcing partner that can help them do both is very attractive,” says Buchanan.

“Imaging or document technology and document man-agement companies have great expertise in a particular area, but the scope of their expertise isn’t always sufficient to solve the customer’s real business problems.” This is where IT/ BPO companies come in. “By acquiring or partnering with ITO/BPO companies, these companies can address a much bigger set of customer problems in a more comprehensive way, significantly expanding their addressable market oppor-tunity.” The results are there to see from xerox’s acquisition of ACS. “The deal tripled xerox’s services business to more than $10B. And, it gives xerox the scale to attack the $150B BPO market through a combination of services, technology and innovation,” he says.

The Next Big OpportunityRobert T Sethre, senior consultant, Photizo Group sees this growing integration as the next profit opportunity for both groups. “Imaging OEMs (Original Equipment Manufacturers) and vendors recognize the need to develop and support services, at first “close to home” with a strong document management component, then later promoting IT services independent of the document space. IT serv-ices and BPO consultants may have been disinterested in document management, or possibly simply overlooked the potential, as it has been traditionally “messy” both from the technical support as well as from the financing and admin-istration standpoint. But they will address the topic as well. MPS provides a framework where both groups, emerging from their core business base, will discover the profit oppor-tunities— MPS is in this sense a true facilitator,” he says.

HP was the first to recognize this opportunity. The EDS acquisition was done keeping in mind the company’s Phase 2 goal- ‘to develop a layer of leading software applications, with a particular emphasis on management automation, to optimize the performance of HP’s hardware and differentiate it in the marketplace. Phase Three has addressed the services side with a goal of bringing the business into the forefront of global providers’. xerox and Canon followed suit, each collaborating with or acquiring IT and BPO heavyweights to provide more fully integrated end-to-end services, thus creating “a new class of solution provider,” according to Ursula M. Burns, xerox chief executive officer.

Geographical expansion has also motivated some of these partnerships, like in Canon’s case. Growth in Europe was one of the key reasons for its collaboration with Accenture last year, besides that of expanding its services line. As Gary Horsfall, Head of Consultancy Services, Canon Europe had commented at the time, “One of the biggest challenges faced by European organisations today is the management of their information, imaging and media assets. Through our collaboration with Accenture, we will create a series of propositions delivering custom-ised solutions for large European organisations to manage this challenge. The launch of Consultancy Services is fur-ther evidence of Canon’s transition towards a service-led organisation, which is a key strategy in supporting our continued growth in Europe.”

The More,The MerrierThe prospects are not lost on smaller players. With MPS burgeoning with opportunities ranging from software, IT services and hardware manufacturing and management, this space is set to be crowded by many more providers than could be imagined less than a decade ago. “While the traditional OEMs have recognized the opportunity and necessity for developing services, this is not their strength. New market entrants who excel in the software, IT and process management and consulting space will discover and start to leverage these opportunities. Interestingly, these non-traditional players can also add hardware prod-ucts and service offerings through partnerships without being forced to develop a complete hardware portfolio on their own,” says Sethre.

The USP factor here would be the range of services a provider offers. This is what the big players are trying to build on, in a bid to grab the biggest slice of the MPS mar-ket pie. “One of the core premises of MPS is that nobody has a lock on all of the necessary skills or product offerings. As a result, we see new players entering the market as they start to address that new opportunity. The usual group of players may be surprized and even threatened by new ven-dors. Some respond through partnerships and acquisitions (xerox/ACS, HP/EDS, Canon/Accenture). The newcom-ers will bring a unique set of skills that the established players cannot offer,” he says.

The net result will be a great benefit for the market and respective users, but the process, he predicts, will be messy as different vendors jostle for attention and position. The winners, as Buchanan puts it, will be “the ones that go beyond traditional MPS to address production print and virtual/mobile print needs, and offer complementary capa-bilities in BPO and ITO to deliver innovative solutions for a broader range of client business needs.” GS

emerging trends


xperts

Engineering services outsourc-ing is likely to skyrocket from $15B in 2010 to around $200b by 2020. In a recent

ValueNotes survey1 we found that traditional design and manufacturing services make up the largest portion of outsourced engineering services. An increasingly competitive market for engineering services has made out-sourcing indispensable to the industry, more so following the recent global economic downturn.

An increase demand for engineer-ing services is leading to a correspond-ing increase for outsourced services. Current spending on engineering serv-ices of $750B is expected to increase to $1.1T by 2020. Industry sources expect India to play a large part in the outsourced engineering services sector.

Growth drivers include Changing demographics among western countries - as a ‘dominant engineering service employed’ baby boomer generation reaches retirement, the availability of skilled engineering workforce is on the decline in the west.

Outsourcing helps clients concen-trate on core services – the avail-ability of specialised talent that can deliver regular processes helps the firm to focus on its core competencies or development of newer technologies.

Going beyond traditional outsourcingOur survey findings indicated that outsourced engineering services are popular in aerospace manufacturing, industrial and automotive domains. A decade ago, the nature of engineering work being outsourced involved lower end services like creating digital models and drawings and sending these back to the buyer who then incorporated these in his designs. However, engi-neering work currently undertaken involves a substantial portion of the actual design activity. This has come as a result of buyers realising that to have

During the 2008-2009 global financial recession, several engineer-ing manufacturing companies had to cut back on their costs and downsize in terms of operations, processes and employees. This benefited the out-sourcing industry as more was out-sourced, and the trend is expected to continue through 2020.

Certain regions which are also among the favoured outsourcing desti-nations are more popular for engineer-ing service buyers. Besides, led by rapid industrial growth some of these Asian countries form the client base as well as provide outsourcing services.

Engineering Services - An Outsourcing Evolution

An increasingly competitive market for engineering services has made outsourcing indispensable to the industry, more so following the downturn

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Engineering Services - An Outsourcing Evolution

An increasingly competitive market for engineering services has made outsourcing indispensable to the industry, more so following the downturn

a competitive edge, they need to realise the full value of outsourcing rather than just cost savings. Subsequently, service providers have evolved into providers of specialised services with a better understanding of their customer prod-uct lines. They have also had to build new competencies, such as knowledge based engineering, life cycle manage-ment, technical publication - to adapt to changing customer needs that allow them to support complete product development.

Some companies are successfully turning to technology to further their engineering services needs, effectively using Web 2.0 technologies to an out-sourcing advantage. These companies take the help of means such as ‘open innovation’ and crowd sourcing - i.e. outsourcing of tasks which are tradi-tionally performed by an employee or contractor to a large (undefined) group, community (a crowd), through

an ‘open and usually interactive plat-form’. The tasks outsourced could be as simple as generating competitive or cost cutting ideas or as complex as the designing of an entire product range or a completely new product. In a multi polar global space the knowl-edge process outsourcing industry has grown beyond conventional outsourc-ing. Apart from using third party serv-ices for regular engineering services, increasingly, engineering service pro-viders are turning to outsourced inno-vation to contribute to the ‘product design’ itself.

Let us take a look at some examples that showcase just this –

Toyota: Outsourced innovationThe Japanese auto maker’s ‘value inno-vation’ strategy involves its suppliers beyond cost cuts and lower prices for supplies – engaging them in the

design process for its high selling Prius model. Toyota’s is a case where open innovation and crowd sourc-ing merge- adopting a best practice method that invites all the best minds (albeit at large!) to participate in its collective effort to cut back costs and come up with a better design for its product.

Boeing: Testing the modelBoeing also made optimal use of open innovation technologies to stress test the hydraulics of the 787 Dreamliner, combining the inputs of companies in the US, Uk, Japan, China. Boeing allowed over a 1,00,000 entries in its World Design Team, an Internet based global forum encouraging participa-tion and feedback from various stake-holder groups during final states of development. Their ideas and inputs were then collected through online surveys, in turn providing updates as the design of the plane’s exterior and interior evolved. This novel innova-tion method allowed Boeing to build a prototype using inputs from several thousand engineers and run tests as

the design emerged. Though the use of open source tech-

nologies is a debatable issue, its use in generating ideas for products is more of a win-win situation for engineering firms. Even if the design comes out eventually flawed, the firm then has a prototype which is a test of ‘what can go wrong’. On broader level, it is clear that outsourcing engineering services is here to stay and go even further in the coming years. GS

(ValueNotes conducted a survey across the engineering services indus-try to gauge sentiment for outsourcing among buyers and service providers. A subsequent report gives in depth insights to these trends.)

Runa Mookerjee is Analyst, ValueNotes Sourcing Practice

aDviSory


xperts

Benchmark analyses of outsourcing contracts are a longstanding and com-monly applied manage-

ment tool to gauge the competitive-ness of service delivery in the context of competitive market standards.

Traditional benchmarks are often used to set a target price for service providers. In justifying an aggressive number, clients will argue that top performance should be the goal and standard that service providers aim for. Service providers, meanwhile, typically counter that top-performance targets defined by the benchmark are arbitrary, inaccurate, or based on cherry-picked numbers from myriad environments, not necessarily reflective of the unique, customized, and often constraining reality of the individual client.

In this context, the process often becomes contentious, and the bench-mark’s role is limited to that of a club to wield during the negotiation proc-ess. The task of finding efficiencies and savings rests, moreover, largely with the service provider. As a result, the lower the price target, the lower the vendor’s profit margin.

These traditional rules of the game are fundamentally changing. Increasingly, benchmarks are being used to define and implement broad-er transformational change programs characterized by demand manage-ment, standard service delivery, and usage-based “pay by the drink” utility

IT delivery model and utility com-puting, often produces overall cost savings of 40 percent or more.

In other words, rather than tighten-ing the screws on the way things have always been done, IT leaders are estab-lishing a new and significantly better way of doing things – a clean slate that fully leverages the benefits of stand-ardization and utility computing.

The improvement reflects both increased delivery efficiency from the supply side, as well as improved commercial management from the demand side.

Growing interest in optimized service delivery is raising the bar for the comparative benchmark standard. The question is no longer, “How does performance compare to the what is of existing performance (either aver-age or top quartile)?”, but rather, “How does performance compare to an optimal what could be state?” In

computing models. In this context, benchmarking is the first step in a mutually agreed program of client/provider transformative change.

The Optimization OpportunityWhile the utility concept of a model has been around for years, implemen-tation capabilities have been lacking. Now, thanks to a combination of better measurement tools and more mature pricing mechanisms, busi-nesses are increasingly looking to reap the benefits of usage-based standard service delivery.

Compass data shows that tradi-tional improvement initiatives drive incremental efficiency gains within the existing operational environment, and typically produce annual savings of 10 percent to 20 percent. A trans-formational approach to improve-ment, characterized by an optimized

by Max Staines

A New Role for Benchmarks

Total Monthly Cost

Current Cost Optimized Cost Constrained Environment

Cost in Unconstrained Environment

Cost delta due to imposed constraints

Network

RetainedSIAM

HostingDesktopAMS

Constraints

Traditionally a bargaining tool for clients to set pricing targets for service providers, outsourcing benchmarks are increasingly being used to collaboratively drive transformational initiatives. The result: an enhanced partnership and significant performance improvement.

aDviSory


the could be state, client organizations effectively manage demand and serv-ice providers to drive efficiency and leverage economies of scale. Here, the target is no longer the best that can be achieved in the existing envi-ronment; rather, it becomes the best that can be achieved in a transformed environment.

Squeezing Out ConstraintsFollowing a benchmark analysis defin-ing the “size of the prize” of standard service delivery, usage-based pricing models can be applied to gain trans-parency into the business drivers of IT spend as well as the cost implications of business decisions regarding how IT is used.

A business can then apply this transparency to create “tensions” between the demand for and supply of IT services. Ideally, the tensions produce incentives for the business to cost-efficiently manage consumption and for the service provider to cost-efficiently manage delivery.

Pricing tensions can also be applied to assess the operational constraints identified by the benchmark analy-sis and to determine whether their cost is justified in terms of value to the business. These constraints typi-cally come in two forms, either “con-tracted” – whereby the client dictates a particular custom requirement, or “non-contracted,” whereby lack of clarity surrounding processes, roles, and responsibilities drives duplication of effort and inefficiency.

Realistically, not all of these con-straints and premiums can or should be eliminated. But a benchmark anal-ysis, coupled with tensioned pric-ing, identifies and quantifies the con-straints, allowing the business to more effectively apply value-based decisions to its IT investment.

Embracing the ConceptA focus on transformational opti-mization rather than incremental

into new initiatives, which can be new opportunities for the service provider to generate revenue and strengthen the relationship.

That said, it’s certainly true that approaches to sourcing negotiations and contracts will have to adjust, as account managers are typically com-pensated by revenue or size of the deal.

Moreover, while the concepts of utility computing and usage-based pricing mechanisms are gaining increasing credibility, much work remains to be done in terms of refin-ing these mechanisms and establish-ing effective metrics to measure and manage IT delivery and consumption in a utility-based environment. That work is underway among service pro-viders and advisors who have proac-tively recognized the opportunity, as well as by others who are being pushed by competitive pressure to meet the reality of changing business require-ments. GS

Max Staines is President of North America for Compass Management Consulting.

improvement redefines the roles and responsibilities of client and service provider. Rather than place the onus solely on the service provider, the process is becoming collaborative; spe-cifically, clients are assuming increas-ing responsibility for looking inward to identify the historical behaviors and operational constraints that lead to inefficiency and high costs. By allowing the service provider to leverage econo-mies of scale and, potentially increase profit margins, this approach makes the aggressive cost reduction target more palatable to the outsourcer.

Indeed, many vendors are embrac-ing the concept of usage-based pricing and standard service delivery, because it provides them with greater control to leverage economies of scale and their expertise at efficiently deliver-ing IT services. Coupled with the increased incentive to drive efficiency, this creates a significant opportunity to grow profit margins.

In addition, the savings generated through a utility exercise are likely to be re-invested by the client organization

aDviSory


Platinum Sponsors


Platinum Sponsors

19 GlobalServices www.globalservicesmedia.com December 2010

The Client:Coca-Cola Enterprises is the world’slargest marketer, producer and dis-tributor of Coca-Cola products.Operating in 46 U.S. states andCanada, CCE is the exclusive Coca-Cola bottler for all of Belgium, con-tinental France, Great Britain,Luxembourg, Monaco and theNetherlands. Sales represent 16% ofThe Coca-Cola Company’s world-wide volume.

Situational Analysis:In early 2007, Coca-Cola Enterprises(CCE) conducted a benchmarkingexercise to see how the organization’seffectiveness and efficiency stackedup against the competition. Withthis study they identified that tobecome more efficient, CCE wouldneed to conduct as much of its trans-action processing as possible in a lowcost country, either with a third partyoutsourcer or a captive shared ser-vices center. The economic goalswere to achieve cost savings of $20

million per annum in CCE’s transac-tion work, through a finance opti-mization project.

Solution:CCE chose Capgemini to implementcomprehensive finance and account-ing (F&A) solutions throughoutCCE’s global business to create an effi-cient process in a cost-effective envi-ronment for order-to-cash services,purchase-to-pay accounting, andrecord-to-report activities, as well as acomprehensive document manage-ment solution. The transformationproject focuses primarily on a jointCCE-Capgemini unique order-to-cashapproach, utilizing a best-of-breedcredit toolset designed to increase theeffectiveness and efficiency of creditand collection departments. In addi-tion, the automated credit moduleenables CCE to apply a single set ofapproved rules and procedures to everycredit decision, improving the efficien-cy and consistency of the decisionmak-ing process.

Finance and AccountingSolutions

At A GlanceCLIENTCoca-Cola EnterprisesSERVICE PROVIDERCapgeminiINDUSTRYConsumer Packaged GoodsSERVICE PROVIDEDFinance and accounting solutionsSOLUTIONA unique order-to-cash approachto the transformation project

SUCCESS METRICS

We are on track to achieve the targeted savings at the tail end of the transition with

Capgemini. Our internal benchmarks have gottenbetter, and through good people management,we have reduced severance costs. The concept ofCapgemini’s Rightshore® solution is a definite pluson their side of the ledger.”

“JOE HEINRICH, VICE PRESIDENT, FINANCE GLOBAL INITIATIVES, CCE

COCA-COLA ENTERPRISES

For more information on Capgemini, write toClaude Hartridge, Vice President, Executive Sales

at [email protected]

Capgemini enabled Coca-Cola Enterprises to achievemajor cost savings through a finance optimization project

The contract with CCE will run forseven years from July 2008, and thetotal contract value amounts to approx-imately $137 million. The partnershipwill realize the following benefits fortheir business:� Accelerate the transformation and

help achieve near world-class perfor-mance through standardizing andstreamlining operations.

� Deploy a global unified solutionacross all CCE business units to sup-port the business that includes stan-dardization and process improve-ment while maintaining high stan-dards of control and compliance.

� Achieve a minimum savings targetof 25%

� Mitigate risks while transitioningthe work and implementing newtools, systems and technologies.

CONSUMER PACKAGED GOODS

24 GlobalServices www.globalservicesmedia.com January 201126 GlobalServices www.globalservicesmedia.com December 2010

The Client:Owens & Minor, Inc., a Fortune 500company, is a leading national distrib-utor of name-brand medical and surgi-cal supplies and a healthcare supply-chain management company.

Situational Analysis:The company needed to modernize itssystems to provide for future enhance-ments and growth, while improvingperformance.The decision to migrate all mainframeprocessing of its mission-critical enter-prise resource planning (ERP) systemto a framework based on Microsoft®Windows® was also governed by theneed to preserve the company’s 20years of IP-based data, systems, andunique business logic.Specific project goals included:� Achieving timely or early project

completion to allowing termina-tion of mainframe services

� Preventing disruption to ongoingbusiness operations

� Delivering defect-free software inthe Windows environment

� Implementing change controlprocesses to allow business-critical

changes to current systems duringthe migration period

� Sustaining adequate performanceof applications in the Windowsenvironment

� Ensuring that the project stayedwithin the approved budget

Solution:Dell Services used a “lift and shift”migration to Windows to modernizeOwens & Minor’s heavily customizedERP platform. The first aim of the liftand shift migration was to achieve a“like-for-like” system by runningextensive testing. The implementa-tion of a relational database manage-ment system reduced risk by introduc-ing minimal change to applications,while providing for data tier modern-ization.The key steps followed by DellServices in the migration exercise were:� “Lift and shift” Cobol from

Mainframe to Wintel� Configure Database I/O routines

in Wintel Environment� Retrofit� Test and Fix� Implementation

‘Lift & Shift’ Migration

At A GlanceCLIENTOwens & MinorSERVICE PROVIDERDell ServicesINDUSTRYHealthcareSERVICE PROVIDEDMainframe MigrationSOLUTIONUsed a “lift and shift” migration toWindows

� Cost savings. The project is expect-ed to yield substantial annual sav-ings while improving efficienciesfor supply chain management.

� Planning for the Future. Themigration ensured that the compa-ny’s core IP remained intact andachieved greater optimization.

� Higher performance. The new ITinfrastructure delivers greater per-formance capabilities.

� Enhanced customer service. Theuser interface modernization willdeliver better online tools forOwens & Minor customer servicerepresentatives.

� Increased staff productivity andefficiency. Simplified businessprocesses.

SUCCESS METRICS

HEALTHCARE

Dell Services used a “lift and shift” migration to modernizea heavily customized ERP platform

This was a complex and mission-criticalproject, and we are proud of the benefits

this successful collaboration brings to Owens &Minor. The migration establishes a powerful andflexible computing platform to drive futuregrowth and innovation.”“CHUCK LYLES, PRESIDENT OF DELL SERVICES PUBLIC SERVICESSECTOR

OWENS & MINOR

For more information on how Dell can help your organization, please contact

[email protected] [email protected]. Please also visitdell.com/services for more information on their

capabilities.


The Client:The client is a Fortune 100 diversifiedcompany with a strong set of globalbusinesses in infrastructure, financeand media. The client operates acrossmultiple segments including aircraftengines, power generation, medicalimaging, television programming andconsumer goods.The client is listed inthe NYSE and is a constituent of theDow Jones Industrial Average (DJIA).

Situational Analysis:The client houses the largest enter-prise Microsoft Exchange setup inthe world today, with over 400,000mailboxes. The messaging infrastruc-ture is spread across 19 data centerswith over 500 servers around theworld. In addition to this, the infra-structure also caters to about 50,000mobility users. The client needed apartner who could:� Manage the messaging infrastruc-

ture and the user accounts from acentralized offshore location whileensuring continuous availability tothe business

� Lower the operational costs &implement a shared services modelacross the organization

� Migrate mailboxes to newerMicrosoft Exchange platformswhen needed

Solution:Microland started this engagement in1999 and continues to manage themessaging infrastructure for the client.At that time, the infrastructure consist-ed primarily of Exchange 5.5 servers.Over the years, in addition to manag-ing the messaging ecosystem,Microland also undertook platformmigration from Exchange 5.5 toExchange 2000 and later to Exchange2003. The salient points of the Microlandsolution are� A total ecosystem based approach

for managing the messaging andthe associated infrastructure viz.instant messaging, security, mobil-ity, storage, backup etc

� Consolidation of the exchangeenvironment and a single SLAdriven ITIL based messagingmanagement model across theorganization

� Extensive leverage of Six Sigmaand FMEA (Failure Mode EffectAnalysis) methodologies to ensurecontinuous process efficiencies

� Proactive monitoring and man-agement of incidents usingautomation frameworks

� High visibility and control ofoperations to the client through acustomized CIO Dashboard

Message Migration and Management

At A GlanceCLIENTA Fortune 100 companySERVICE PROVIDERMicroland LimitedINDUSTRYDiversifiedSERVICE PROVIDEDMessaging Management &Migration SOLUTIONLeveraged Six Sigma and FMEAmethodologies

� TCO Reduction: Vendor managementcosts reduced by 30%; Data center con-solidation and virtualization reducedserver footprint by 30%; Delivered year-on-year reduction in cost per mailbox

� High Performance: Maintained emailservice availability at 99.9X%; Ensureddefect free-migration and deployment,and zero end user impact on migration

� IT – Business Alignment: End to endservice delivered to client’s shared ser-vices group offering them ease of man-agement and chargeback; Newsite/cluster deployment time reducedfrom 32 to 9 days, thus increasing theIT’s teams’ responsiveness to businessneeds; Enabled automatic retrievaland download of warranty and contractdetails and triggered automatic alerts30/60/90 days before warranty expira-tion, thus streamlining and internalbusiness process for the client’s IT team

SUCCESS METRICS

Microland ensures Six Sigma class emailavailability and zero error migrations forthe world’s largest Microsoft Exchangeinstallation

DIVERSIFIED A FORTUNE 100 COMPANY

For more information on Microland Limited,write to [email protected] or visit

www.microland.com


StreamliningOperational Workflow

BANKING, FINANCIAL SERVICES & INSURANCEMETLIFE

Situational Analysis:MetLife was looking for a solution tostreamline its operational flow,reducing the amount of manualprocesses and consolidating proposalinformation into a single databasewhile continuing to meet the compa-ny’s high quality standards. In orderto do this, MetLife needed a reliablepartner to provide:

� A new, automated operationalflow for life insurance issuingprocess

� High-quality IT applications,process controls and businessrules.

� Project deliverables in a timelyand well-scoped manner.

Solution:MetLife chose one of the top applica-tion development companies in theworld, Ci&T. Ci&T delivers con-

sulting, application outsourcing anddigital marketing services to its cus-tomers – with its innovation, exper-tise and skill set. Through the part-nership, MetLife was able to workwith Ci&T’s experts to streamlinelife insurance issuing process, creat-ing a state-of-the-art automated sys-tem named Morpheus. This allowedMetLife to achieve higher workforceproductivity and better databankcontrol management, vital in accom-plish its goal of increasing clients to100 million worldwide by 2010.Ci&T was able to meet every pre-established milestone and the projectwas completed within five months.� MetLife has achieved a reduction

in the time required for issuinglife insurance policies from 10days to less than 24 hours.

� MetLife’s Brazilian unit reducedthe insurance proposals approvaltime by 90 percent.

At A GlanceCLIENTMetLife SERVICE PROVIDERCi&TINDUSTRYBFSI SERVICE PROVIDEDMainframe Migration SOLUTIONCreated a New AutomatedSystem

Ci&T was able to meet every pre-estab-lished milestone and the project was com-pleted within five months.� MetLife has achieved a reduction in the

time required for issuing life insurancepolicies from 10 days to less than 24hours

� MetLife’s Brazilian unit reduced theinsurance proposals approval time by90 percent

SUCCESS METRICS

For more information on this service from Ci&T,write to [email protected] or visit their office

at Ci&T, 640 Freedom Business Center, Suite210, King of Prussia, PA 19406.

Phone: +1 610 482 4810 Fax: +1 267 775 3347

“When we invested in the implementationof a new application by Ci&T, MetLife sought

an innovative tool that would allow the issuanceof policies with significantly greater efficiency.Once successfully in use for our individual andSMB customers, we decided that our corporateclients would benefit from the tool as well. Whatbegan as an isolated support tool is now criticalto the daily operation of our business.”

“BRENO GOMES, CHIEF INFORMATION OFFICER, METLIFE BRAZIL

8 GlobalServices www.globalservicesmedia.com December 2010

StreamliningOperational Workflow

BANKING, FINANCIAL SERVICES & INSURANCEMETLIFE

Situational Analysis:MetLife was looking for a solution tostreamline its operational flow,reducing the amount of manualprocesses and consolidating proposalinformation into a single databasewhile continuing to meet the compa-ny’s high quality standards. In orderto do this, MetLife needed a reliablepartner to provide:

� A new, automated operationalflow for life insurance issuingprocess

� High-quality IT applications,process controls and businessrules.

� Project deliverables in a timelyand well-scoped manner.

Solution:MetLife chose one of the top applica-tion development companies in theworld, Ci&T. Ci&T delivers con-

sulting, application outsourcing anddigital marketing services to its cus-tomers – with its innovation, exper-tise and skill set. Through the part-nership, MetLife was able to workwith Ci&T’s experts to streamlinelife insurance issuing process, creat-ing a state-of-the-art automated sys-tem named Morpheus. This allowedMetLife to achieve higher workforceproductivity and better databankcontrol management, vital in accom-plish its goal of increasing clients to100 million worldwide by 2010.Ci&T was able to meet every pre-established milestone and the projectwas completed within five months.� MetLife has achieved a reduction

in the time required for issuinglife insurance policies from 10days to less than 24 hours.

� MetLife’s Brazilian unit reducedthe insurance proposals approvaltime by 90 percent.

At A GlanceCLIENTMetLife SERVICE PROVIDERCi&TINDUSTRYBFSI SERVICE PROVIDEDMainframe Migration SOLUTIONCreated a New AutomatedSystem

Ci&T was able to meet every pre-estab-lished milestone and the project was com-pleted within five months.� MetLife has achieved a reduction in the

time required for issuing life insurancepolicies from 10 days to less than 24hours

� MetLife’s Brazilian unit reduced theinsurance proposals approval time by90 percent

SUCCESS METRICS

For more information on this service from Ci&T,write to [email protected] or visit their office

at Ci&T, 640 Freedom Business Center, Suite210, King of Prussia, PA 19406.

Phone: +1 610 482 4810 Fax: +1 267 775 3347

“When we invested in the implementationof a new application by Ci&T, MetLife sought

an innovative tool that would allow the issuanceof policies with significantly greater efficiency.Once successfully in use for our individual andSMB customers, we decided that our corporateclients would benefit from the tool as well. Whatbegan as an isolated support tool is now criticalto the daily operation of our business.”

“BRENO GOMES, CHIEF INFORMATION OFFICER, METLIFE BRAZIL

Global Services Digital Magazine - January Issue

Education

Transcript of Global Services Digital Magazine - January Issue