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Transformational Outsourcing: Responding to change in the e-business marketplace
IBM Global ServicesMay 2001
Prepared for IBM Global Services
IBM Global ServicesPage 2
Contents
2 Trends and directions
4 Outsourcing: The new wish list
5 What companies need to know
7 How IBM is responding
Staying ahead of the e-business curve
In today’s ever-changing marketplace, technologies have become inextricably
linked with business issues and strategies — critical to remaining flexible,
responsive and competitive. CEOs, CFOs, CIOs and business-unit executives
alike therefore must share the burden of ensuring the most reasonable
and profitable use of their information technology (IT) investments — from
legacy systems to new, e-business-focused applications and processes.
But providing centralized, skilled and cost-effective administration of IT
infrastructures is just one concern; companies must now approach their
technology investments much like they would an investment portfolio —
appropriating certain portions to help lower costs, others to launch new busi-
ness initiatives, and still others to bring the enterprise closer to customers,
partners and suppliers.
Trends and directions
Most executives would agree that e-business has made IT everyone’s business,
and that their companies’ systems infrastructure plays an increasingly pivotal
role in gauging and assuring the overall state of their business. Managers
at every level are being called upon to participate in ensuring the prudent
planning and effective deployment of their companies’ crucial IT environ-
ments. Many are choosing to delegate these activities—turning to outsourcing
providers to assume responsibility for overseeing the design, implementation
and management of their essential IT underpinnings, including their applica-
tions, systems infrastructure and networks. Others are taking this concept a
step further.
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According to Frank Casale, CEO and chairman of the Outsourcing Institute,1
“Five to seven years ago, companies started to consider outsourcing for the first
time by saying, ‘Let’s outsource some of these noncore activities.’ Now, in some
companies, there’s been a shift from noncore to core. They’re saying, ‘What
functions and processes are most important and need world-class attention?’”
Once viewed as simply a tool for reducing IT costs, outsourcing is today evolv-
ing to encompass strategically focused, comprehensive management of critical
business processes, including the transformation of legacy systems and applica-
tions to support newly crafted e-business initiatives. This emerging outsourcing
model is referred to as transformational outsourcing — a broader but highly
refined group of competencies that combines proven technologies, expert skills
and services with thought leadership, business and industry acumen and pro-
cess knowledge.
Transformational outsourcing provides a platform for growth that takes into
account both present and future requirements. It is important to note that one
of the value propositions of transformational outsourcing assumes that the
service provider can achieve near-term results, as well as partner to deliver
longer-term business benefits. This is especially important when one considers
the pressures to realize a return on IT investments while responding quickly to
rapid changes — both in technology and the business environment.
Once relegated to commodity
status, outsourcing is evolving
quickly to encompass strategi-
cally focused, comprehensive
management of critical business
processes, including the trans-
formation of legacy systems
and applications to support newly
crafted e-business initiatives.
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Outsourcing: The new wish list
Priorities are shifting quickly as business and technology issues coalesce.
According to a recent study commissioned by IBM, senior executives across
industries share new, common agendas, business- and technology-wise, for
what they want to derive from their IT portfolio.
Business needs
• Accelerate speed to market and speed to delivery of value-rich offerings and services
• Strengthen links with partners, suppliers and customers
• Expedite integration of environments resulting from mergers and acquisitions
• Close skills and knowledge gaps
• Speed e-business initiatives.
Technology demands
• Build a strong, scalable, flexible e-business infrastructure
• Implement new Web-based initiatives
• Integrate systems and processes, including those from vendors, partners — even customers
• Automate processes (such as procurement) to achieve short- and long-term advantages
• Protect and leverage existing investments while pursuing new initiatives (such as wireless)
• Enable realtime collaboration, knowledge and content management.
How does outsourcing fit in? For the most part, companies are looking at this
option to help them lower costs, trim cycle times and enable faster business
transformation. The latter concern is taking precedence as enterprises focus
on equipping their infrastructures — and their business — for the future.
According to a recent study
commissioned by IBM, senior
executives across industries
have similar agendas in terms
of what they want to derive from
their IT infrastructures.
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Though cost is certainly an issue, today’s companies are more focused on
value, including extracting as much worth as they can from their legacy
systems — either by consigning them to commodity service, retiring them
completely or “e-enabling” them to support e-business growth. These organ-
izations are also mindful of the pressing requirement to stay up to speed in
today’s increasingly Web-based, “take no prisoners” marketplace.
What companies need to know
Traditional outsourcing approaches can be limiting, since they focus primarily
on IT concerns. Considering the very fluid landscape most businesses must
now traverse, it is understandable that companies are expecting more from
today’s outsourcing providers, who must be prepared to exhibit:
• Thought leadership driven by a deep reserve of intellectual capital and resources, and supported by best-in-class technologies, methodologies, skills and practices
• A willingness to share both risks and rewards, as well as to “sit at the table” to address and resolve challenges
• A proactive approach reflected in the ability to quickly and cost-effectively align services with IT, industry and business imperatives, with the goal of closing gaps between legacy systems and new technologies and applications
• Industry knowledge that offers added value in terms of aligning IT strategies and applications with business and market concerns
• A global presence incorporating the necessary know-how, technologies and infrastructures
For the most part, companies are
looking at outsourcing to help
them lower costs, trim cycle times
and enable faster business trans-
formations. The latter concern is
taking precedence as enterprises
focus on equipping their infrastruc-
tures — and their businesses — for
the future.
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• Scalable, asset-based “plug and play” capabilities that include, but are not limited to, Web site and application hosting, storage and other utility services, and packaged application management services
• Proven skills in developing and deploying key e-business solutions, including knowledge and content management, collaboration, call center, electronic procurement and industry-specific applications
• Flexible financing packages that offer convenient payment options and accommodate both short- and long-term contracts.
Issues to ponder when considering outsourcing
The decision to outsource must take into account a number of issues from
both IT and business perspectives:
• Have you identified your core business processes?
• For both core and non-core business processes, is your execution world-class? Could alternative sourcing improve execution?
• What are your critical transformation challenges? Are you focused on:— Growing your business through the introduction of new offerings?— Strengthening your connections with customers, vendors and partners?— Expanding your business through mergers and acquisitions?— Improving speed to market and speed to delivery?— Web-enabling your business processes?— Squeezing optimum value from your legacy systems?— All of the above?
• Have you systematically assessed how well your systems environment can support your business transformation efforts?
• What have you done to date to align your IT environment with your business processes and e-business strategies? Who is leading these initiatives?
The decision to outsource must
take into account a number of
issues from both the IT and busi-
ness perspectives.
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• How do you perceive the role of an outsourcing firm in supporting your transformation? What would drive you to contract for their services?
• What type of relationship would you like to build with them?
• What do you hope to derive from outsourcing some or all of your IT-related and/or non-critical business processes?
How IBM is responding
IBM offers a unique value proposition for companies looking to augment
their business with comprehensive outsourcing services. As perhaps the world’s
most successful e-business, we have experienced — and overcome — the same
challenges as our customers, and have customized our offerings and services
accordingly to help these organizations realize lasting business benefits.
The components of IBM transformational outsourcing services focus on
helping enterprises address and resolve key issues, including:
• Business Transformation. For companies looking to create new business initiatives, engage in mergers and acquisitions or dramatically reengineer their business processes, IBM offers industry-focused consulting services, plus assist-ance in designing and running the resultant business and IT infrastructure.
• Technology Transformation. e-business transformation is directly dependent upon a company’s IT infrastructure. IBM professionals are experienced in helping enterprises integrate and elevate their current IT environment — includ-ing hardware and software platforms, legacy applications, data centers and networks — to comply with the increasingly heavy demands of next-generation e-business. IBM also provides “start to finish” assistance in managing and maintaining these complex environments.
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IBM Global Services has built
a strong consulting practice that
brings together industry, technol-
ogy and e-business expertise to
help companies transition quickly
and successfully to e-business.
Our consultants address business
concerns from both tactical and
strategic vantage points — a critical
requirement when integrating IT
and business strategies.
Our open, end-to-end framework addresses virtually every component
necessary to equip an enterprise for success in e-business — quickly, safely
and cost-effectively. This includes:
Consulting
IBM Global Services has built a strong consulting practice that brings together
industry, technology and e-business expertise to help companies transition
quickly and successfully to e-business. Our consultants address business
concerns from both tactical and strategic vantage points — a critical require-
ment when integrating IT and business strategies.
Global reach
Our presence encompasses 140,000 people, 175 data centers and a worldwide
network of IBM Business Partners — plus groundbreaking alliances with indus-
try leaders like Siebel Systems, Cisco Systems and i2 Technologies. These
relationships offer the added value of open, best-of-breed service elements.
Renowned systems-integration skills
IBM systems integration capabilities span the lifecycle of an outsourcing
engagement — from requirements analysis through solution development,
installation, rollout and end-user training.
Flexible financing
Financing offerings from IBM Global Financing provide flexible payment
structures that allow companies to more effectively distribute initial costs
and match payments to service benefits.
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Recent IBM customer engagements
The value of transformational outsourcing can only truly be measured by the
success afforded to those who contract for these services. Working with IBM,
companies across industries are today achieving tangible results.
IBM and Mercedes: Bringing the M-Class to the Front of its Class
Located in Tuscaloosa County, Alabama, Mercedes-Benz U.S. International
(MBUSI) is home to the company’s M-Class, arguably one of the world’s
most popular all-activity vehicles. The US$300 million facility, which began
construction in 1994, speaks to Mercedes’ success in extending its global
presence and staking its claim in the arena of sport utility vehicles. With 300
vehicles rolling off the assembly line on any given day, the plant continues
to set new standards for quality and efficiency.
When formulating plans for the facility’s IT infrastructure (which would
include a sophisticated supply chain network), Mercedes turned to IBM Global
Services to provide consulting, implementation and ongoing support. IBM
first helped Mercedes define its key business processes, including order entry,
purchasing and finance, among others. Next, IBM analyzed enterprise resource
planning (ERP) applications from more than 70 software vendors before
recommending a BAAN package. IBM then provided an integrated business
process model, as well as a blueprint for the plant’s complex infrastructure.
The entire project — from concept through implementation — was completed
in just over three years. Today, IBM continues to provide ongoing consulting
and outsourced support for ERP applications, the data center, desktops and
networking; service is slated to continue through 2006.
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IBM and Xcel Energy: Moving to the next generation of outsourcing
Xcel Energy Inc. is among the nation’s ten largest utilities, providing electric
and natural gas to three million electricity customers and 1.5 million natural
gas customers in 12 Western and Midwestern states. The company, which was
formed in August 2000 through the merger of Minneapolis-based Northern
States Power Co. and Denver’s New Century Energies, offers a complete
portfolio of energy-related products and services.
Having first come to IBM Global Services in 1995 for help in running its IT
infrastructure, Xcel subsequently turned to IBM to fulfill another role—that
of thought leader and industry expert. IBM assumed responsibility for spear-
heading four annual business and technology summits for Xcel, bringing in
leading industry and technology experts from around the world. Additionally,
veteran IBM executives with extensive utility experience conduct regular
forums to keep Xcel executives abreast of new marketplace developments. As
part of its work with Xcel, IBM Global Services has set up a “Competitive
Advantage Fund” that motivates both IBM and Xcel to reduce the latter’s IT
costs and reinvest those savings in areas which produce strategic advantage.
IBM also offers ongoing guidance and support in helping Xcel manage its
business transformation — a function that includes dealing with mergers and
synergy savings. The relationship between Xcel and IBM is a good example
of “second-generation” outsourcing —a model that depends and thrives on
shared knowledge, trust and collaboration.
IBM Global ServicesPage 11
For more information
To learn more IBM Global Services and transformational outsourcing, contact
your IBM sales representative, or visit:
ibm.com/services
References
G510-1871-00
1 “Our Vendors, Ourselves.” CIO Magazine, November 1, 2000.
© Copyright IBM Corporation 2001
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