seeing through the fog
TRANSCRIPT
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Seeing Through The Fog:
April, 2012 Phil Hassey: - Founder capioIT
Outsourcing is changing in a
changing world
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What I would like you to remember
• Dynamic models of outsourcing will change your
delivery and management of IT capability
significantly.
• Your organisation will be in ongoing state of flux
in terms of new delivery models.
• Core requirements remain non negotiable
Governance
Change Management
Sustainability
• Pricing and vendor management will require
change to your organisation 2 Prepared by capioIT 24/04/2012
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Fundamental drivers of outsourcing
remain the same
• Ability to derive economies of scale and service
delivery automation
• Labour and skill based benefits, both with global
and local delivery
• Flexibility to meet variable, subsidiary and
distributed work environment requirements
• Cross organisational processes integration
• Optimise communication and collaboration
capability
• (and) Cost
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Drivers Disconnect to Outcomes – Wither
Innovation?
Source: HfS Research and the London School of Economics Outsourcing Unit, 2011
Sample: 347 Buyers of Outsourcing Services
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Who is Buying
How it is managed
What is being bought
Seeing Through The Fog
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What is happening in your organisation?
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IT Budgets Shrink
IT investment growth
Changing organisational procurement
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Technology Change is enabling real
change to Technology Procurement
• SaaS
– HR
– Sales and Marketing
– Senior Management
• Analytics
– Supply Chain
– Business Development
– Finance
• Collaboration tools
• IaaS
Remember the impact is across all business
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Fundamental Technology needs of
changing procurement still exist
Don’t believe everything you hear
Integration
Governance
Change Management
In the Cloud world, they matter more than ever
• IT needs to own, educate and enable
• Understand requirements will be different to
traditional vendor management
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What are some of your Outsourcing
delivery choices?
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Platform Services
Best of Breed
Tie and Run
Technology Augmentation
Wash your
Hands
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What are some of your Outsourcing
delivery choices?
No one approach can work for an organisation. Will need to
develop a flexible approach to delivery.
Wash your hands
• Allow a outsourcer/provider to come in and run all your
IT process functions.
Tie and Run
• Simple model as the outsourcer simply takes control of
hardware, networking and software to deliver services
Platform services
• Customer procures existing pre-integrated applications
and pre-built processes ―owned‖ by the
outsourcer/provider. Clearly SaaS/Cloud core examples.
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What are some of your Outsourcing
delivery choices?
Best-of-breed solutions
• Full capability across key business issues and
requirements. Multiple solutions and integration needed
to solve core business issues.
Technology augmentation
• Outsourcers/providers look to deliver capability to the
service provider implements tools that serve as ‗add-ons‘
to fulfil identified service delivery holes. When well
executed can provide rapid benefits to organisational IT
service delivery.
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What are some of your Outsourcing
delivery choices?
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Approach Ideal
Contract
Length
Transforma
tion
Governance Change
Managem’t
Custom-
isation
Industry
Focus
Shared
Outcome
Opps
Wash Your
Hands
5 years Limited Moderate Limited Limited Limited Moderate
Tie and Run 1-3 years Limited Moderate Moderate Limited Limited Limited
Platform
Services
> 1
month
Limited Limited Significant Limited Moderate Moderate
Technology
Augmentation
3-5 years Moderate Moderate Significant Moderate Limited Limited
Best of Breed 5-years Significant Significant Significant Moderate Significant Moderate
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Is this your Vendor Management Future?
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Next Generation Vendor Management:
A new profession rather than a part time job
Str
ate
gic
Alig
nm
ent Regulatory changes
Mergers/acquisitions
Changes in corporate strategy
Policy, process and system changes
Culture change management
Day t
o D
ay G
overn
ance
Stakeholder management
Contract changes
Performance management
Invoice review and approval
Staff development
Business continuity planning
Day t
o D
ay V
endor
Managem
ent Volume changes
Workforce management
Transaction management and reconciliation
Quality reviews
Issue resolution and root cause analysis
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Key Trends in Pricing
• Cost of sales remains high for providers
• Providers take on more risk to ―buy‖ the business
• Especially impacting ―premium-priced‖ providers
Extreme Rate Pressure in New Deals
• Providers exercising leverage of switching costs
• Smart clients exchanging higher rates for lower risk
• Especially impacting relationships >3 years old
Rate Creep in Renegotiations
• Win-win: providers get non-linear revenue and buyers get lower risk, more flexibility
• Easier said than done: either party likely to back off at the last minute
Outcomes-Based Pricing
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• Tier 1 Indian cities and Shanghai/Beijing
• Increased opportunity for regional centres in Australia
Clear Premium for Certain Locations
• Early trend: sophisticated buyers cutting out line items in favor of simplicity
• Units becoming more inclusive, especially in mature relationships
Simplification of Pricing
• Providers increasingly willing to expose their cost drivers
• Buyers increasingly unwilling to expose their budgets and history
Transparency Conflict
Key Trends in Pricing
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New Models of Outsourcing
impact pricing
FTE
Transaction
Gainshare
» Rare for a relationship to be purely transaction or gain-share-based
» Majority of all relationships will start with FTE until transactions/outcomes can be measured to the satisfaction of supplier and buyer
» Not a step process FTE => Transaction => Gain-share
» FTE is being augmented with transaction and gain-share
» Certain processes lend themselves to transaction, some to gain-share and some to FTE
» Pricing change from model change
Custom Blend
Transaction
Gainshare FTE
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Large enterprises can learn outsourcing
best practice from the mid-market
• Research shows mid-market orgs can achieve benefits
of outsourcing more quickly than large enterprises.
• More aggressive when it comes to scope—more likely to
outsource ―end-to-end‖
• More willing to switch to provider platforms and
solutions—lest ―lift and shift‖
• Greater need/leverage for provider‘s global scale
• Faster transitions—choose acute, temporary pain over
dull, long-term pain
• Smaller executive teams mean less powerful
stakeholders at the table, simpler governance
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Final Points
• If an Analyst/Advisor tells
you that the market is easily
defined and put in boxes,
ignore them.
• Regardless of model choice
you need execution to
outsourcing fundamentals
• Poor execution and
strategy will lead to
significant challenges
– Pricing/Value generation
– Vendor management
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Phil Hassey: - Founder capioIT
Blog – http://capioit.wordpress.com
Twitter - phassey
www.capioIT.com
Ph - +61 422 231 793
Questions?