FRANK STUMPFPresident & COO

June 2, 2004

SOCIETY FOR SCHOLARY PUBLISHINGManaging Change in Publishing Environments

§ Outsourcing§ Definition§ History§ Trends§ Critical success factors§ Outsourcing in STM publishing space

§ Offshoring§ Definition & key drivers§ Benefits of offshoring§ Trends & Myths§ Processes that can be offshored§ Offshore lifecycle§ Vendor selection criteria§ Top challenges in offshoring§ Key takeaways

§ STM Publisher Comments

PRESENTATION OVERVIEW

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What is it ?Outsourcing is the delegation of one or more business processes or functions to an external provider who, in turn, owns, administers and manages the selected process(es) or functions based upon defined and measurable performance metrics.

What can be Outsourced ?Critical, Core activities

Likelihood to outsource – low today, low tomorrow

§ Core competencies

§ Managing market image/trademarks

§ Caring for patients

§ Find/sell oil and gas

§ Strategy

§ Patents and technology

Critical, Non core activities

Likelihood to outsource – moderate today, high tomorrow

§ Accounting

§ Supply Chain Mgt

§ HR/Administration

§ Claims administration, Billing

Non Critical, Non core activities

Likelihood to outsource - high today and tomorrow

§ Landscaping

§ Cafeteria

§ Laundry Source: Gartner Company estimates

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OUTSOURCING

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§ 1980s: tactical and immediate§ Outsourcing of support services (payroll, food services, etc.)§ A response to corporate restructuring, or a specific problem§ Focus on ‘doing the same for less’

§ 1990s: strategic outsourcing§ Scope of outsourcing widens to include more ‘services’§ Realization that outsourcing gives wider control over all functions§ Focus shifted from ‘supplier’ to ‘business partner’

§ 2000s: transformational outsourcing§ Now using outsourcing to redefine the business§ Emphasis on the innovation that outsiders can bring to the business§ Focus shift from ‘business partner’ to ‘agent of change’

Source: Michel F Corbett & Associates Ltd

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A SHORT HISTORY OF OUTSOURCING

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§ Increased level of outsourcing within enterprises and among enterprises in an industry vertical

§ Enterprises are being courted by more service providers that claim outsourcing qualifications, requiring a deliberate analysis of sourcing drivers and a careful evaluation of market choices

§ Risk management and contact governance increasingly important. Customers are becoming more hands-on

§ Increasing end-to-end outsourcing offerings from vendors requiring deep domain skills and the ability to integrate BPO, IT and voice based interface

§ Offshore outsourcing gaining legitimacy and becoming mainstream. Anti-offshoring wave beginning to influence decision making

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TRENDS IN OUTSOURCING

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§ Be clear about what you want to outsource, why you want to outsource and how you want to outsource - requirements/expectations/measurements

§ Service provider evaluation is more than presentations§ References, expertise, flexibility, financial stability, compatible mindset§ Ask tough questions:§ Is there strategic synergy between the organizations ? Is there good

chemistry ?§ Is there an opportunity for growth - both volume and expanded

services ?§ Is risk really reduced ?§ Is this a “win-win” ?§ Does the provider have a solid management team in place ?§ Does the provider have the technology environment needed to

support “world-class” service ?§ Can the provider leverage industry experience to devise improved

solutions ?

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OUTSOURCING –CRITICAL SUCCESS FACTORS

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§ Understand the requirements for a smooth transition§ Flexibility (both parties)§ Teamwork/collaborative environment§ Solid project management and project managers on both sides§ Stakeholder buy-in§ Outsource provider’s personnel should be trained to understand

outsourcing organization’s business environment, culture and goals

§ Define benefits upfront—the “ROI”

§ Consider a Service Level Agreement

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OUTSOURCING –CRITICAL SUCCESS FACTORS

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§ Some activities have long been outsourced:§ Journal subscription marketing/administration§ Distribution of print product to customers§ Large parts of the production process—typesetting and printing§ Copyright administration§ Document delivery

§ More recently others:§ Web product development and delivery system§ More pieces of production/editorial

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OUTSOURCING IN STM PUBLISHING SPACE

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OFFSHORINGWhat is it ?It is the relocation of labor-intensive service functions from high labor cost regions to lower labor cost regions. Offshoring often includes “near-shoring”, “best-shoring” and “captive offshoring”

Key Drivers for offshoring

§ Increasingly competitive global markets in all industries leading to constant search for sustainable growth and competitive advantage thru lower costs and focus on core competencies

§ Separation of information from physical media leading to geographical independence§ Global availability of low-cost computing power, web-based interconnectivity and

telecom bandwidth. Globalization and use of English as the language of business in offshore centers

§ Standardized software packages such as SAP, MS Office & Windows, Acrobat and Oracle available globally

§ Most non core business functions (“services”) can be automated and carried out from remote locations

§ Rapid adoption of best practices based on landmark offshoring success stories of Fortune 100 companies

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BENEFITS OF OFFSHORINGWhy are organizations doing it ?To meet the ever increasing challenge to grow, or at least maintain, competitiveness in today’s economy

Benefits§ More cost-effective§ Improve service quality§ Drive revenue growth§ e.g. Increase the amount of follow-up on the receivables to increase

collections§ e.g. Offer customers mores service such as 24x7 support

§ Offshoring is a win-win game

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§ Offshore outsourcing delivery will show the highest growth§ Cost & quality levels are the biggest drivers

Source: Industry Analysts, TCS

Outsourcing Industry Growth

38%

1.5%

26%

Onshore Outsourcing& Shared services

Offshore outsourcing Captive offshoring

CA

GR

(20

01 -

2008

)

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TRENDS IN OFFSHORINGOffshoring is here to stay

18235Captive Offshoring

16417Offshore Outsourcing

36643304Onshore outsourcing + Shared Services

20082001USD Billion

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Recent trends in offshoring§ Multiple offshoring destinations competing with each other. It is important

to match skill sets required for the “outsourced process” with the capabilities of a particular location

§ Consolidation in the vendor space across industries as vendors look for opportunities to offer end-to-end capabilities

§ Risk mitigation and corporate governance are becoming increasingly important

§ Customers are becoming more hands-on in the actual execution of the outsourced arrangement

§ Many offshoring models emerging – near-shoring, best-shoring, hybrid models etc

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TRENDS IN OFFSHORING

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Common offshoring myths§ Less costly equals lower quality or slower process or less flexible service

§ Only really simple, basic activities

§ Sweat shops

§ Everyone’s doing it, so it must be good and I should do it too

OFFSHORING MYTHS

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Research Services§ Content development§ Product design services§ CAD / CAM servicesKnowledge Services§ Customer analytics§ Portfolio & risk management§ Equity researchBack Office§ Finance and Accounting§ HR and shared services§ Technology supportContact Services§ Inbound customer relations &

helpdesk § Outbound telemarketing§ CollectionsData Processing§ Basic data entry§ Transaction processing§ Document management

Project Management

Technical Editing

Subscriber/Author Customer Service

Complex Copyediting

Software Application Devp.

Multimedia Production

Basic Copyediting

Typesetting

Keyboarding

STM PublishingComplexityOffshoreable processes

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WHAT CAN BE OFFSHORED

LOW

M

ED

IUM

H

IGH

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Plan§ Offshore Strategy§ Portfolio Assessments§ Sourcing models

Source§ Build, buy or outsource§ RFI/RFP Management § JV/Supplier Due Diligence§ Location/Supplier Selection§ Contract Negotiations

Manage§ Transition Management§ Program Management§ Financial§ Contract/Operations§ Performance§ Relationship

§ Benchmarking Source: TPI, Company sources

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OFFSHORE LIFECYCLE

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0 1 2 3 4 5 6 7

Technology

Onshore Presence

Security/BCP

Customer Service &Project Mgt

Scale & Flexibility

Cost

Referencable Clients

Offshore Process/methodology

Source: Company estimates

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VENDOR SELECTION CRITERIA

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0 1 2 3 4 5 6 7

Managing risk throughmetrics & transparency

Managing change withinthe organization

Managing communication& culture

Selecting the rightvendor

Deciding what tooutsource

Source: Company estimates

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TOP CHALLENGES IN OFFSHORING

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Offshoring is not a delivery option but a strategic competitive tool

Selection of vendor should be based on sustainability and value delivery

Focusing on change management and long term value delivery rather than success of a pilot is crucial

Clear definition of objectives of outsourcing along people, process and technology adoption and organizational readiness is imperative

Re-engineering of processes is important to obtain long-term value

It is important to manage expectations by realizing that offshore is not a nirvana solution

Contractual flexibility is important to engage and enable returns

Source: TCS, Industry sources

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KEY TAKEAWAYS

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§ Participants: Elsevier, U. of Chicago Press, Rockefeller U. Press, Blackwell, AGU, Capital City Press

§ Major Objectives in Considering Offshore Service Provider§ Price—Three listed as number one objective§ Three indicated same criteria as onshore provider objectives§ Speed; XML/SGML and electronic deliverables ability

§ Transition Concerns§ Communications (time zones, cultural, language) § Quality§ Internal employee reactions§ Company and political stability

§ Steps in Choosing Offshore Service Provider§ Reference checking and site visit§ Samples, tests, proof of concept project§ Do not rush the process

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SURVEY – PUBLISHERS USING OFFSHORE SERVICE PROVIDERS

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§ Transition Process Lessons§ Communication (regular, detailed feedback, personal visits, direct)§ Commitment to relationship§ Staff training and cultural sensitizing§ IT support

§ Experience Relative to Perception (1-5 scale: worse to better)§ Product/Content Quality - Better (3.8)§ Speed/On-time Delivery - Better (4.2)§ Service/Responsiveness - Better (4.5)§ Innovation - Better (4)§ Value for Money - Better (4.5)

§ Experience Relative to Onshore Service Providers (same 1-5 scale)§ Product/Content Quality - Same (3.3)§ Speed/On-time Delivery - Better (3.8)§ Service/Responsiveness - Better (4.2)§ Innovation - Better (3.8)§ Value for Money - Better (4)

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SURVEY – PUBLISHERS USING OFFSHORE SERVICE PROVIDERS

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