seeing through the fog
TRANSCRIPT
Seeing Through The Fog:
April, 2012 Phil Hassey: - Founder capioIT
Outsourcing is changing in a
changing world
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
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
3 Prepared by capioIT 24/04/2012
Drivers Disconnect to Outcomes – Wither
Innovation?
Source: HfS Research and the London School of Economics Outsourcing Unit, 2011
Sample: 347 Buyers of Outsourcing Services
5 Prepared by capioIT 24/04/2012
Who is Buying
How it is managed
What is being bought
Seeing Through The Fog
What is happening in your organisation?
6 Prepared by capioIT 24/04/2012
IT Budgets Shrink
IT investment growth
Changing organisational procurement
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
processes, not just IT 7 Prepared by capioIT 24/04/2012
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
8 Prepared by capioIT 24/04/2012
What are some of your Outsourcing
delivery choices?
9 Prepared by capioIT 24/04/2012
Platform Services
Best of Breed
Tie and Run
Technology Augmentation
Wash your
Hands
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.
10 Prepared by capioIT 24/04/2012
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.
11 Prepared by capioIT 24/04/2012
What are some of your Outsourcing
delivery choices?
12 Prepared by capioIT 24/04/2012
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
Is this your Vendor Management Future?
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
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
• 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
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
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
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
Phil Hassey: - Founder capioIT
Blog – http://capioit.wordpress.com
Twitter - phassey
www.capioIT.com
Ph - +61 422 231 793
Questions?