speakers: david timms associate director...
TRANSCRIPT
B7: To outsource or not to outsource?
Speakers: David Timms
Associate Director KPMG
Richard Scholes
ICT Director The Hyde Group
To outsource or
not to outsource?
National Housing Federation IT Conference
20 November 2013
1 © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a
Swiss entity. All rights reserved.
Agenda
What are the drivers for IT outsourcing?
Evaluating the benefits for your
organisation
Examining the emerging models
Factors to consider to ensure you get a
successful IT sourcing arrangement in
place
The information contained herein is of a general nature and is not intended to address
the circumstances of any particular individual or entity. Although we endeavour to
provide accurate and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will continue to be
accurate in the future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation.
2 © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a
Swiss entity. All rights reserved.
What are the drivers for outsourcing of IT?
Take out cost from the business
Outsource the “chores”, focus on the core
Need to consider this strategically
Managing your risks There’s an awful
lot to consider!
3 © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a
Swiss entity. All rights reserved.
Evaluating the benefits for your organisation
Cost savings ranging from 10% to 35%
across major back-office functions (IT,
Finance, HR)
Improved processes resulting in 8% to
13% less spend on indirect goods and
services
Access to skills and resources and reduce
reliance on key individuals
Increase resilience and security of IT
networks and systems
4 © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a
Swiss entity. All rights reserved.
IT Sourcing Models
Client
Prime contractor
Sub
Contractor
A
Sub
Contractor
B
Eg HMRC, DWP, DVLA
Historic
Client
Prime
contractor
A
Eg, Hyde
Prime
contractor
B,C,D
One contractor delivering
core services with some sub-
contracting
Best of breed with a number
of suppliers to deliver
specific services
Client
Tower 1
Multi
Suppl
Eg GM, DWP, HMRC, DVLA
(future)
Tower 2
Multi
Suppl
Best of breed service delivery
(towers) model
Tower 3
Multi
Suppl
Strategic Delivery Partner
Risk v Benefit Less dependent on one supplier but the risks associated with managing many suppliers increases
5 © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a
Swiss entity. All rights reserved.
Factors to consider to ensure you get a successful IT sourcing
arrangement in place
Get the governance right - Why is it important to get the governance right?
Invoice &
Credit Errors
Reduction/
Redeployment
of Gov. Staff
Consumption
Management
Unnecessary
Change
Orders
Low Adoption
Rates
Failure to
Innovate
Risk
Mitigation
Cost Recovery Cost Reduction Cost Avoidance Value Creation Risk
Management
2%–10%
Value
2%–10%
Value
5%–15%
Value
10%–15%
Value
2%–5%
Value
Total
Potential
Value in
Business
Case
Realised
Value
17% - 40%
unrealised
potential
6 © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a
Swiss entity. All rights reserved.
Factors to consider to ensure you get a successful IT sourcing
arrangement in place
Get the governance right
■ Service delivery governance must be closely tied to broader organisation governance efforts and needs as
they relate, for example, to regulatory compliance, corporate governance, and risk management
Service Quality
and
Performance
Management
Change
Management
Contract
Management
Risk &
Compliance
Management
Financial
Management
Relationship
Management
Service
Performance
Management
Service Change
Management
Contract
Management
External
Compliance
Management
Invoice
Verification and
Payment
Management
Stakeholder
Communications
Stakeholder
Satisfaction
Management
Project Initiation
and
Authorization
Contract Change
Management
Internal
Compliance
Management
Service Cost
Allocation
Management
Stakeholder
Relationship
Management
Service
Knowledge
Management
Program
Management
Market
Comparison
and
Benchmarking
Risk
Management
Financial Benefits
Realization
Management
Continuous
Improvement
and Innovation
Issue
Management
Demand and
Consumption
Management
Financial
Performance
Reporting
Service Provider
Relationship
Management
Support Transition Service Commencement 90 Days Post Go Live Governance
Reporting
and Review
7 © 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a
Swiss entity. All rights reserved.
Other factors to think about – The “6 P” areas of a contract
Plan and
Potential Perception
People &
Governance
Price &
Commercial Performance Process
Foundation Domains
Differentiation Domains
Innovation
Proactivity
Benefits realisation,
tracking and reporting
Business case and critical
success factor review
Planning reviews and
documentation
Perception management
Perception measurement
Communication
Adherence to contract
Governance meeting execution
Decision making
Governance purpose Governance structure
Organisational objectives
Governance tools
Organisational staffing
Organisational design and structure
Management of
commercial issues
Price predictability
Price competitiveness
Billing accuracy
Resource Units
Value
Reporting
Service Levels
Service Improvement Plans
Incentive scheme
Process documentation
Process roles, responsibilities
and ownership
Continuous improvement
Process adherence
Value
Creation
Plan
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of
KPMG Europe LLP and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative,
a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International Cooperative (KPMG
International).
The information contained herein is of a general nature and is not intended
to address the circumstances of any particular individual or entity. Although
we endeavour to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is received or
that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough
examination of the particular situation.
Outsourcing:
From personal experience
Richard Scholes
ICT Director, The Hyde Group
NHF – IT in Housing
20/11/2013
Fast Facts about The Hyde Group
• £260m turnover
• £2.9bn assets
• 95,000 residents
• 49,000 homes
• 1,200 staff
• 45 years old
• The Hyde Group is one of the UK’s leading and
award winning providers of housing
Why Did We Outsource?
• 2010 – Review of the ICT Structure
• Looked at the service we needed to deliver
• Looked at options:
• To improve service
• To reduce risk
• To increase Value for Money
• Concluded that there were two areas where
outsourcing should be considered:
Software support and
development where we lacked
the internal skills
Telecoms – because of the risk
Why some software and not all?
In 2010/11 we developed our CRM application TED as a key
component of our business change programme One Hyde One
Vision (OHOV)
Microsoft Dynamics base
Biztalk interfaces to Northgate
Housing and Serengeti DMS
Built by a team of contract
resource
Cost of recruiting a permanent
team with the skills to support
and develop were prohibitive -
circa 10 FTE needed
Outsource option for support
and future development:
• Quicker to implement
• Better VFM – about £350k
p.a. cheaper
In other areas such as the
support of Northgate
Housing we already have a
team of experts
• Considered it to be more
risky to outsource than
keep in house
Why Network & Telecoms?
Contract with BT was up for renewal
Run internally by a small team
Networks
IP telephony
Call Centre
All expertise in one place
Decided to spread the risk
Outsource the function
TUPE the staff to the new supplier
Procurement
Don’t
underestimate
the time and
effort needed
to procure
your chosen
solution
If you know
what you
want:
Restricted
procedure
If you don’t
know what you
want:
Competitive
dialogue??
Software Support & Development
Setup a
framework with
four suppliers for
flexibility and
competitiveness
Award
Produced a
spec’
Went to
tender
Suppliers on
the framework
bid for the
business
Scored the
responses
Transition
About 9
months end
to end
We knew
what we
wanted
Telecoms
Intention was to
get the best deal • Service Innovation
Opted for
“Competitive
Dialogue”
Requirements less
clear cut
Ended up with 1
competitor – the
incumbent supplier
15 months end to
end
Still managed
to save £2.8m
over 4 years
Recommendations
Plan ahead. You can’t circumvent the procurement legalities
Get good procurement advice
Take your time over the contract to get what you need
Don’t forget you will need to manage your new outsourced
service
Document & agree the transition and go live
Don’t give away your crown jewels
Outsourcing:
From personal experience
Richard Scholes
ICT Director, The Hyde Group
NHF – IT in Housing
20/11/2013
Fast Facts about The Hyde Group
• £260m turnover
• £2.9bn assets
• 95,000 residents
• 49,000 homes
• 1,200 staff
• 45 years old
• The Hyde Group is one of the UK’s leading and
award winning providers of housing
Why Did We Outsource?
• 2010 – Review of the ICT Structure
• Looked at the service we needed to deliver
• Looked at options:
• To improve service
• To reduce risk
• To increase Value for Money
• Concluded that there were two areas where
outsourcing should be considered:
Software support and
development where we lacked the
internal skills Telecoms – because of the risk
Why some software and not all?
In 2010/11 we developed our CRM application TED as a key
component of our business change programme One Hyde One
Vision (OHOV) Microsoft Dynamics base
Biztalk interfaces to Northgate
Housing and Serengeti DMS
Built by a team of contract
resource
Cost of recruiting a permanent
team with the skills to support
and develop were prohibitive -
circa 10 FTE needed
Outsource option for support
and future development:
• Quicker to implement
• Better VFM – about £350k
p.a. cheaper
In other areas such as the
support of Northgate
Housing we already have a
team of experts
• Considered it to be more
risky to outsource than
keep in house
Why Network & Telecoms?
Contract with BT was up for renewal
Run internally by a small team
Networks
IP telephony
Call Centre
All expertise in one place
Decided to spread the risk
Outsource the function
TUPE the staff to the new supplier
Procurement
Don’t
underestimat
e the time and
effort needed
to procure
your chosen
solution
If you know
what you
want:
Restricted
procedure
If you don’t
know what you
want:
Competitive
dialogue??
Software Support & Development
Setup a
framework
with four
suppliers for
flexibility and
competitivene
ss
Award
Produced a
spec’
Went to
tender
Suppliers on
the framework
bid for the
business
Scored the
responses
Transition
About 9
months end
to end
We knew
what we
wanted
Telecoms
Intention was to
get the best deal • Service Innovation
Opted for
“Competitive
Dialogue”
Requirements less
clear cut
Ended up with 1
competitor – the
incumbent supplier
15 months end to
end
Still managed
to save £2.8m
over 4 years
Recommendations
Plan ahead. You can’t circumvent the procurement legalities
Get good procurement advice
Take your time over the contract to get what you need
Don’t forget you will need to manage your new outsourced
service
Document & agree the transition and go live
Don’t give away your crown jewels