Tampa Bay Technology Leadership Association Tampa Bay Technology Leadership Association May 8, 2008 May 8, 2008

Speaker

Natasha Veltri, Ph.D. Assistant Professor at UT Researching backsourcing for 6

years Reasons for backsourcing Outsourcing vs Backsourcing Success factors in backsourcing

Panelists

Frank Edwards Knowledge Quest Education resident

Professor and Director of Education 32 year background working for Equifax, EDS,

and Washington Mutual/Citigroup holding VP/CIO positions

specializes in soft skill training that includes Business Administration, Customer Service, Team Leadership, Executive Leadership, Organizational Psychology, Diversity, Customer Service, Team Building, and Project Management Methodology

Panelists

James Garoutsos leads the technology direction for all the

departments under the Board of County Commissioners in Pinellas County since 2005

previously served as Director of Architecture and Store Systems for the Eckerd Corporation and was in charge of the Enterprise Architecture and Business to Business Centers of Excellence

Panelists

Eileen Peitsch technology executive specializing in

Pharmacy, Governmental Healthcare Programs and Project Management

27 years of experience in various IT roles at WellCare, Eckerd, IBM Global Services and most recently held the CIO position at Eliant

has extensive experience with onshore and offshore vendor management

JPMorgan Chase Story

December 20, 2002 signs outsourcing agreement with IBM $U.S. 5 billion 7-year deal Largest outsourcing contract at the

time September 15, 2004 backsources

IBM agreement Merged with Bank One on July 1,

2004

OUTSOURCING REASONSOUTSOURCING REASONS BACKSOURCING REASONSBACKSOURCING REASONS

Technology as a key competitive advantage

Create capacity for efficient growth

Accelerate the pace of innovation

Reducing costs Increase quality

Best for the long-term growth and success of the company

Competitive advantages Accelerate innovation Become more

streamlined and efficient

JPMorgan Chase Story

IS Backsourcing

Outsourcing: BIG Global Industry 70% of outsourcing clients have negative

experiences with outsourcing; 25% of them backsourced (Deloitte Consulting, 2005)

96% of 70 surveyed N. American companies would consider outsourcing (Compass, 2006)

Almost one-third of the canceled contracts are eventually brought back in-house (Lacity and Willcocks, 2001)

Business practice in which a company takes back in-house assets, activities, and skills that are part of its information systems operations and were previously outsourced to one or more outside information service suppliers

IS Backsourcing

Companies that backsourced

Xerox Washington Mutual UMass Memorial

Health Care UBS Sears Prudential Karolinska Hospital

in Stockholm

Halifax Bank of Scotland

Gateway Farmers Group Continental Airlines Bank One Amtrak Express

Parcels, UK ABB Power

REASONS FOR BACKSOURCING

Reaction to problems Higher than expected costs Poor service quality Loss of control over outsourced services

Response to opportunities Recognition of a new role for IS Changes in executive management External pressures or changes

Outsourcing cost savings are often overestimated

Cost savings may be short lived (18 months)

Additional costs: Employee time coordinating provider

activities and transition period Disruption of current work processes Increased turnover of IT employees Lowered employee morale

Higher than expected costs

Companies that backsource experience lower service and product quality than those that switch providers or continue outsourcing

70% of outsourcing clients have negative experiences with outsourcing

Poor service quality

25% of companies that backsourced had originally mislabeled IT functions as non-strategic

Critical success factors Client and provider incentives do

not align and the power shifts to the provider

Client-facing vs core

Loss of control

Business strategy undergoes modifications

Impact on IS strategy Happens at the executive level Core vs non-core Need for innovation

New role for is

New executives are three times more likely to trigger a radical change in their new organization

Shifts in corporate power New hire to lead the change Executive sponsorship

Leadership changes

Executive leadership Well understood processes Documentation of outsourcing Detailed plan Support of in-house personnel

Successful backsourcing

Outsourcing arrangements are not forever

Backsourcing is costly and difficult

Poor morale, loss of employee trust

IT projects slow down Keep your customer in mind

Lessons learned

Does your company outsource?

Yes

, IT o

utsourc

ing

Yes

, BPO o

utso

urcin

g

Both

IT a

nd BPO

No

27%

54%

8%12%

1.Yes, IT outsourcing

2.Yes, BPO outsourcing

3.Both IT and BPO

4.No

If your company outsources, what was the main reason for outsourcing?

Cost

Acc

ess

to e

xper

tise

a..

Outs

ource

d non-c

ore...

Stre

amlin

e op

erat

ions

New

exe

cutiv

e le

ade.

..

Pre

ssure

from

anoth

e...

Mer

ger, s

pin

off, a

cqui

...

31%

54%

8%

0%0%0%

8%

1. Cost2. Access to expertise

and resources3. Outsourced non-

core activities4. Streamline

operations5. New executive

leadership6. Pressure from

another company7. Merger, spin off,

acquisition etc.

Have you experienced backsourcing?

Yes

No, w

e ar

e co

ntinui

ng...

No, w

e nev

er o

utsou...

28%

36%36%1. Yes2. No, we are

continuing to outsource

3. No, we never outsourced

If your company backsourced, what was the main reason?

Cost

Pro

blem

s with

outs

o...

Red

efin

ition o

f the

rol..

.

New

exe

cutiv

e le

ade.

..

Mer

ger, s

pin

off, a

cqui

...

Pre

ssure

from

anoth

e...

29%

43%

0%0%

14%14%

1. Cost2. Problems with

outsourcing contract

3. Redefinition of the role of outsourced services

4. New executive leadership

5. Merger, spin off, acquisition etc.

6. Pressure from another company