Benefits & Risks Related to Global IT Outsourcing

getting the right work to the right partners in the right locations

Russian Outsourcing & Software Summit9-11 June 2004 St. Petersburg, Russia

Procter & Gamble

$44 billion consumer goods corporationNearly 100,000 employees worldwide 28 on the Fortune 500 listMarkets more than 300 brands to more then 5 billion consumers inover 160 countriesMade up of Global Business Units (product categories), Market Development Organizations (geographical units), and Global Business Services (a shared services organization)

William P. Metz

Current role:Section Manager Global Business Services - PMO

Previous experience:Project Manager for recent Application Development & Maintenance outsourcing effort Section Manager IT Strategic SourcingSection Manager Technology Solutions ConsultingApplication & Data Technologies Architect with responsibility for application development technologiesFounder of P&G’s Jedi competency development program

Contact Information: metz.wp@pg.com

What We’ll Cover

P&G’s Sourcing StoryWhy Outsource?Why Go Global?Risks, Challenges, Risks, and Counter Measures

P&G’s Sourcing Story

1999 Created Global Business Services (GBS) Organization8500 employees, more then 40 products and services.Organized in service bundles which include: Central IT, Workplace Services, IT Business Solutions (Supply Chain), Accounting & Financial Reporting, Employee Services, Purchasing Services and Business Information Services. Established global data centers in Cincinnati, Brussels, and Singapore and shared service centers in Manila, Costa Rica, and Newcastle.Established low cost ADM centers in Warsaw and Torontoand began setting up low cost offshore IT services with third party suppliers (e.g. ABAP Factory, Notes Factory, etc…).Globalized, consolidated, integrated hundreds of work processes,systems, and technologies in more then 70 countries.Delivered $500 million in savings in 3 years.

P&G’s Sourcing Story2002 Established IT Strategic Sourcing Organization

Conducted Sourcing Assessment, Developed Sourcing Plans, Sourcing Financial Model, Site Evaluation ModelContinued to build business with low cost offshore third party suppliers (e.g. Infrastructure, Web Applications, eLearning). Eliminated large numbers of local staff augmentation contractors.

2002 Investigated Large BPO Deal2003 / 2004 Signed Several Strategic Sourcing Agreements

IT Infrastructure, Desktops, Application Development & Maintenance (HP)Facilities Management (Jones Lang LaSalle)HR / Employee Services (IBM)Consumer Relations (Sykes)Transactional Accounts Payable (HP)

What is a Global Sourcing Model?

A global sourcing model is a model that leverages the resources that provide the best value independent of where they are located or who they work for

Why Adopt a Global Sourcing Model?

The value proposition associated with adopting a global sourcing model has many different dimensions

Flexibility Focus

Expertise

MonetizationSavings

External Vendor Co-Located

• Technology Support (requiring touch)• Hardware & Software Deployment

(requiring touch)• Training Delivery (requiring presence)

P&G Co-Located

P&G AnywhereExternal Vendor Anywhere

• Business Management• Customer Management• IT Architecture • Business / Data Analysis

• Technology Support (not requiring touch)• Technology / Service Mgt, Admin,

Operation• Software Deployment (not requiring touch)• Training Delivery (not requiring presence)• Call Center/ Help Desk operation

Can

be

anyw

here

C

o-Lo

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ctor

Mus

t be

co-lo

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d

Can be done by any qualified resource Differentiation Factor Must be done by P&G resource

• Training Development (not P&G specific)• Application Construction• Application Support

• Technology Engineering & Initial Deployment

• Sourcing & Vendor Management• Technology & Application Integration• Training Development (P&G specific)• Application Analysis & Design

• IT Research & Development• Business Process Engineering

• Work with low co-location factor that exposes highly restricted data or processes

Sourcing Options

ADM(HP)

ASP

ITO(HP)

BPO(IBM, JLL)

Offshore(TCS) Captive Center

(Re-siting: Costa Rica, Manila, Newcastle)

Well Known Challenges

Culture and language differencesTime zone differencesIntellectual property protectionPrivacy concerns

Additional Challenges

Defining, quantifying, and understanding the current cost of thework you want to outsourceFinding the right suppliers and handling seams between themEstablishing common processes across multiple suppliersBuying what you need at the right level of granularityMeasuring what you are buyingAcceptance of new work processes by the retained organizationRemaining a knowledgeable buyerKeeping projects under control

Facilitating Success

What things can you do to help address these challenges and ensure that your transition to a global outsourced environment is successful?

Establish an Internal Shared Services Organization

Drives work consolidation and standardizationHelps service consumers get used to the customer / supplier modelGives you an opportunity to establish a catalog of standard products and services

Establish Measures & BaselinesEstablishing service measures and establishing baselines will facilitate setting cost and service level expectations. There are many different types of measures including:

Cost (e.g. cost per transaction, total cost of service)Quality (e.g. % items delivered meeting quality standards)Quantity (e.g. # users, GBs stored, web cast minutes)Productivity (e.g. #items delivered per resource)Competence (e.g. resource & organization certifications)Availability (e.g. down time of employee services web site)Timeliness (e.g. on-time delivery)Customer Satisfaction

Find the Right SuppliersUnderstand the global market, who plays where, big players, niche players, etc…Cast a wide net, consider using pilots to narrow the fieldMake sure the work is a fit with the suppliers strategic directionMake sure the supplier has the skills, experience, capacity and financial resources required to be successfulCreate win/win situationAccept that there will be problems and evaluate the strength of the relationship on both sides based on how well the problems are managed

Put a Comprehensive Contract in Place

Clearly define:The scope of the work to be performedThe service levels requiredThe charging mechanisms and their linkage to the work performed

Develop a Governance Model

Don’t wait till the deal is done to think about how you’re going to manage the relationship.Establish “Day One” processes as soon as possible and evolve them as you go.While no two deals are identical you can learn a lot from those who have gone before you, leverage them.

Key Governance Processes

Relationship ManagementService RequestProblem, Change, Incident ManagementPerformance ManagementProgram / Project ManagementInvoice Verification & PaymentContract ManagementArchitecture ManagementSecurity Management

Communicate & Management the Change

Make sure people understand what you are doing and whyBe open and honest about any potential impact Address people’s fears and concerns, seek their input, and try to gain their support, or at a minimum their cooperationProvide training to bring everyone up to speed on the new way of doing businessCommunicate early, often, and use a variety of methods

Questions