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Globalization of IT-Services opportunity or threat?

Stavanger 14. September 2006,

Vice President, Tore Hegna, Capgemini

14. September 2006

Capgemini Norge – Business Development

Globalization of IT services, opportunity or threat?

Globalization and production of BPO and IT-services is the change,

production of IT-products has been there for a long time

Topics to be addressed!

�What does the market tell us?

� Is it possible to reduce cost and improve quality at the same time?

� Culture aspect, do we have to take this into account?

� Offshoring - opportunity or threat!

14. September 2006


Summary European CIO survey 2006

� The trend towards globalisation is leaving its mark on information technology (IT) and the IT function, where outsourcing and offshoring are becoming common issues and considerations in company boardrooms

� The more positive business climate of the last few years is reflected in slightly increased IT budgets for many companies. However, the object of IT in most companies remains focused on exploring cost-efficiencies within the IT function

� The cost cut is not over and CIO’s remain under heavy pressure facing challenges from common low cost delivery options such as offshoringand distributed delivery

� IT functions with “partnership” roles are accelerating their adoption of offshore delivery of IT.

� Financial services has the least externalised model with 75 % kept internally, while Telco are choosing to keep only 35 %

� Global companies are using more offshore and distributed delivery than regional companies

Source: Capgemini, European CIO Survey 2006

14. September 2006


Key drivers for change in IT delivery model

10 %

32 %

36 %

42 %

43 %

46 %

82 %

0 % 20 % 40 % 60 % 80 % 100 %

Generate more revenue

Decrease risk and/or increase internal control

Decrease response times

Focus more on core business

Increase quality

Increase flexibility

Lower cost

Share of companies (%)

Despite the fact a more positive business

climate, the cost cut is not over

Companies focus on growth are allowing

their IT budget to increase Source: Capgemini, European CIO Survey 2006

14. September 2006


There are a strong momentum to change IT delivery models, 65% of the companies interview are planning to do so

Fig 4: The role of the internal IT function

Single partner for business

improvement

Preferred partner for business

improvement

Preferred supplierSingle supplier

Exposure to external

competition

Level of business

integration

High

Low

Low High

16%40%

17%27%

•Most IT functions do not act as

business partner

•The supplier role describes an internal

IT function with low level of interaction

with the business

•A partner for business improvement is an

Internal IT-function that works closely with

the business

Increased competition are working

as a driver for change


14. September 2006


The coming changes will shift the value change focus

4. Test & roll-out

• Acceptance testing

• Migration

• Installation

• System integration

Current average IT

budget allocation

Planned changes (% of IT budget)

1.Strategy & planning

• IT strategy

• IT budgeting

• IT governance

• IT organisation

2. Conceptual-isation & design

• IT architecture

• Data models

• Business process alignment

3. Realisation

• System development

• Programming and system selection

5. Applications management

• Applications maintenance

6. Infrastructure management

• Applications operations

• Infrastructure development

• Infrastructure maintenance

• Infrastructure operations

7. Support

• Applicationssupport

• Infrastructure support

+1.2% +1.3%

8% 17% 9% 19% 27% 15%5%

+0.8%

Fig. 7: IT budget allocation along the IT value chain and planned changes

-1.4%-2.4%

-0.3%+0.8%

Biggest change

Only 13 % used to

strategy and planning

61 %


14. September 2006


‘Build’ and ‘run’ phases offer the best opportunities to move part of the work offshore

� SAP offshoring / onsite model

� Highest share of offshore delivery can be realized during ‘build’ and ‘run’phase

Project prepara-tion

Business blueprint

Realisa-tionFinal pre-paration

Go live Support

3% 20% 40% 15% 10% 12%

0% 0% 70% 50% 50% 70%

100% 100% 30% 50% 50% 30%

Percentof project

Offshore

Onsite

Source: Forrester (2004b).

14. September 2006


Distributed Delivery Framework: A standard tool set and methods used by FO & BO. It is an overlay on our Deliver™, QMS & CMMi systems and has been built

on years of experience.

Front Office & Back Office work together to meet client requirements

� Guaranteeing Local Control

Front-Office Back-Office

Capgemini

Service Manager

Front-Office Streams

� Analysis

� Configuration

� Data Integration

� Infrastructure

� Testing

� Training

� Deployment

� Configuration Mgmt

� Release planning

Capgemini

Project Manager

Steering

Committee

Client

Team Members

Client

Project/ Program

Manager

Capgemini

Engagement Manager

Web-Net Meetings

Video Conferencing

VoIP Calls

GIMS

Periodic Visits

Problem Management System

E-Mail

Weekly Status Report

Daily Review Session

Clarity, CoCo, SourceForge

Issue Tracking and Resolution

Knowledge Coordination

Change Request Management

EARSPRIMUS

Back-Office

Delivery / Project Manager

QA manager

Back-Office Executive

Back-Office Streams

� Build

� Configuration

� Data Integration

� Infrastructure

� Testing

� Configuration Mgmt

� Release planning

� Communication Tools

� Project / Service Mgmt

� Guaranteeing Offshore Control

Distributed Delivery Framework

14. September 2006


• Capgemini has a dedicated team for assessing / auditing of project risks

• Risk reviews are conducted using the ‘Risk assessment tool’ developed by the group. This primarily considers 12 basic risk factors and rates a Project after considering probability of occurrence of each risk factor and their impact

• The group thus ensures identification of various risks and also aids in formulation of risk mitigation strategies

• There is periodic follow-up reviews to ensure risks are mitigated appropriately

• Capgemini has achieved a Maturity Level 5 by satisfying all of the key process areas at level 5 in the Capability Maturity Model (CMMi) for software v1.1

• Capgemini is also ISO-9001:2000 compliant

• BS7799 Certified

• SAS 70

Quality Policy:“It is Capgemini’s policy to always meet or

exceed client expectations.”

Risk Management Quality Adherence

Robust Quality Management System and Risk Management

14. September 2006


Outsourcing to

Exploring the Cultural IssuesExploring the Cultural IssuesExploring the Cultural IssuesExploring the Cultural Issues

14. September 2006


0,34 0,791,85

3,275,13

12,2

28,24

25%

29%

13%11%

14%

27%25%

Mexico Philippines China Eastern

Europe

Others Canada India

2002

2005

2008

CAGR

Source: Merill Lynch - Winds blow offshore - Oct 2004

The % of IT services budget spent in lower cost geographies is expected to nearly double from 1.8% in 2003 to 3.3% in next 2-3 years.

� Offshore IT services market size for low-cost locations

� Both U.S. and European firms prefer India as an offshore location

• 70% of the imports for United States in offshore IT services aresourced from India

• 93% of the UK firms, already working with offshore providers, use Indian vendors

• 66% of European companies already using offshore have their offshore providers located in India

• Canada and Eastern Europe are emerging as a nearshore option and showing strong growth

• China is showing a substantial growth with the availability of large labor pool at low costs but rates poorly with respect to the quality of delivery

• Other emerging markets such as the Philippines and Mexico offer an alternate low cost offshore option and have made some headway during the past year

� However, India will face increased competition from other emerging offshore locations:

India as an offshore destination is streets ahead of China and Eastern Europe

14. September 2006


61 99 226 412

1 126

1 934

3 857

5 700

1999 2000 2001 2002 2003 2004 2005 2006

Capgemini India has the right mix of talent and is growing

• Incorporated in 1997 at Mumbai

• 6 centers in Mumbai, Bangalore and Kolkata

− 24 X 7 Basis of Operation

• Centers are ISO 9001:2000 certified and SEI-CMMi Level 5 accessed, BS-7799 certified, SAS 70 certified

• High Priority to expand through organic growth

− 10,000 FTE � Y2007

> 100 % headcount growth

2-5 yrs

30%

5-10 yrs

43%

< 2 yrs

7%>10 yrs

20%

Right experienceRight skills

SAP

17%

MS

16%

Mainframe

13%

Java

21%

CRM

8%

Oracle

10%

Others

15%

Sept,. 06

6300

14. September 2006


India Offshore Market – Some facts

� 80% of the Fortune 500 companies offshore to India

� Indian IT Services market is worth $12 billion annually

� Indian BPO & IT market is growing at 45% & 35% annually

� 60% of the business is from US

� 40% of the business is from Europe

Regional Performance - 2005 FTEs

NA

53 %UK

17 %

France &

CSE

12 %

Nordic &

Benelux

17 %

APAC

1 %

22 million graduates400,000 Engineeringand technical graduates

14. September 2006


Culture Issues in Offshoring

Stage 1: Can They?

Stage 2: Why don’t they understand?

Stage 3: Why do they do it differently

Stage 4: How can WE both adapt?

Stage 5: What can we learn from them?

14. September 2006


Bright Future

• Indian economy growing very fast

• Stock market booming

• Strong service sector

• High analyst ranking

14. September 2006


India is a land of contrasts………

14. September 2006


Globalization of IT-Services opportunity or threat?

� Opportunity

• Achieve significant cost reduction

• Improve processes and governance

• Increase flexibility

• Get accesses to competence and recourses

• Change focus, improve relationship with the business side

� Threats

• Do not understand the culture (both ways)

• Do not take into account the platform needed concerning tools and methodology

• Unclear Governance structure

• Language challenges

• Not putting enough effort into relationship management/building

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