ECATA - Sourcing Strategies of IT Services

© LogicaCMG 2007. All rights reserved

ECATA

Sourcing Strategies of IT Services

European Consortium for Advanced Training in Aerospace

Björn Schichler, Senior Manager, LogicaCMG Management Consulting Michel Cadars, LogicaCMG Global Account Director EADS

Patrick Nolot, VP Head of Projects Management Office, BNP Paribas Personal Finance, VP ISAE Alumni Association Board

11th of October, 2007Munich/Germany

www.ecata.org

October 2007 © LogicaCMG 2007. All rights reserved 2

Agenda

• Introduction

• Market Trends

• IT Sourcing Strategies

• IT Sourcing Methodology (eSCM)

• Benefits


Emerging Market Trends - Worldwide

•All IT Outsourcing – 6.2% CAGR (2006 – 2010)

•Network outsourcing leading the way with an 8.5% CAGR between 2004 and 2009.

•Share of the IT outsourcing market devoted to application outsourcing will not change,

– CAGR of 6.5 percent through 2009 represents solid performance in the coming years

•Alternative AO delivery models in the form of SaaS will gain traction

•BPO growth to remain steady; organisations continue to demand higher-value services as they adopt more business focus in their BPO initiatives.

2006 2010

2006

AO - $45 bn

BPO - $130 bn

IO - $180 bn

Total – $355 bn

2010

AO - $60 bn

BPO - $191 bn

IO - $215 bn

Total – $466 bn

Legend: AO Application Outsourcing, BPO Business Process Outsourcing, IO IT Outsourcing, SaaS Software as a Service, CAGR Compound Annual Growth Rate


Sourcing Strategies – Opportunity & Approach

Business Case

• Define current state & requirements

• Define Sourcing criteria, targets and process performance criteria

• Define IT Sourcing Scope (Sourcing/Service Mix)

• Develop IT Sourcing options (incl. costs & benefits, risks)

• Use Sourcing Methodology

– Project plan, milestones

– Best Practices, standards

IT Services

Corporate Strategy

Business Targets

Application Management,Infrastructure Mgmt.Data Center Management,Application Development,2nd/3rd Level Support,Problem Management,Field Services,User Helpdesk, Monitoring, ….

Align the IT to business requirements and corporate strategy.Making the right decision to optimise the IT services AND using the right methodology.


IT Sourcing planning – overview

4-Technology and Data infrastructure 4-Technology and Data infrastructure

3-Governance, Organisation and Culture Design3-Governance, Organisation and Culture Design

2-Processes and Service Levels2-Processes and Service Levels

1-Strategy Management1-Strategy Management

Strategy & Analysis

Service Design & Deployment

Supplier Selection and

AgreementDelivery

Service Transition



Supplier SelectionSupplier Selection



Service Level Agreements

Service Level Agreements Service Level ManagementService Level Management

Service MigrationService Migration

Knowledge Capture & Transfer

Knowledge Capture & Transfer

IS TransformationIS Transformation

Governance ModelGovernance Model

Sourcing Scenario

Sourcing Scenario

Sourcing Opportunity

Sourcing Opportunity

Supplier Engagement

Supplier Engagement

Service Requirements

Service Requirements

AuditAudit

MonitoringMonitoring


IT Sourcing – Demand & Supply Management

User 1

Company 1

User 2

Company 2

User 3

Company 3

User 4

Company 4

….

DemandManagement (DM)

Service n+1…

IT Governance

• Users has requirements and creates service request (SR)

• DM typical tasks/activities– Ticket management– SR classification, – Effort estimation, – RFP submission, – Provider selection, – Resource Planning, and – Monitoring/Controlling

• Client defines priorities in coordination with provider and resource availability (portfolio management)

• Provider supplies services • Provider may be internal or

external (selective sourcing)

Legend:• DM – Demand Management• SLA – Service Level Agreement• OLA – Operating Level Agreement• UC – Underpinning Contract• RFP – Request for Proposal• SR – Service Request

SLA

OLA

UC

(Multi) Provider Management

Portfolio Management

Client Provider

IT Sourcing Strategy

req

uire

me

nts

Service ne.g.

network

Service 2e.g.

helpdesk

Service 1e.g.

software development


Sourcing Relationships – make or buy strategy

In-sourcing

Alliance

Co-sourcing

Traditional

Multi-sourcing

Joint-venture

N providers deliver together a service to one or more clients. One of the providers is usually in charge of interfacing with the client.

N providers set up a JV to deliver a service to one or more clients. The first client is usually member of the JV.

A provider delivers a service to a client.

2 providers deliver together a service to a client.

N providers deliver a service to a client.The client is responsible for managing the integration of the providers.

An internal entity of the client is chosen as a provider and managed as an external entity. (ex: Shared Services Centers...)


BU BU BU

Board of Directors

Company

a

SSC as joint venture or

alliances

e

f Service firm

Staff department

Central Service

a

Shared Service Center (SSC)d

Part of a division

c

SSC as infrastructure

b

Sourcing Organisations – SSC (Service Service Center)

Constraints

• Before IT services can be outsourced the environment should be harmonized, standardized and simplified

• Centralization of IT services is an option

• IT organization have to support user requirements

• Best organizational solution to be selected

• One option is to outsource IT services


Barriers to success

Potential Risks

• Complex outsourcing process but clients often have no outsourcing experiences nor selection criteria

• Success criteria for the relationship are often not well understood

• Clients expectations often change as the nature of the service change, due to rapid shifts in technology

• Managing and meeting client expectations is a major challenge

• The transfer of personnel, equipment and knowledge is often problematic

• High management attention

• The relationship must overcome many challenges to be successful

Price (76%) and technical competence (70%) are the most important selection

criteria!

40% of the clients do have problems with the outsourcing solution!

45% of the clients are having a poor relationship with the service provider!

13% of the outsourcing contracts are cancelled during the contract period;

58% are cancelled because of the miserable service delivery quality!

Source: Unilog – IDC outsourcing study, April 2006


eSCM – the best practices sourcing approach

• Developed by Carnegie Mellon University (US) Institute for Software Research, International (ISRI), published 2001

– IT Services Qualification Center (ITsqc)

– In partnership with IT service providers in the outsourcing field e.g. Satyam Computer Services Limited as founding partner in the global consortium

• eSCM is the acronym for the eSourcing Capability Model for IT enabled (out-)sourcing activities to address typical issues and deliver best practices for capability models and qualification methods

• The target is to define and improve the relationship between service providers and clients

• Best practices Capability model made of 2 symmetric parts:–eSCM-CL, for CLient Organizations

–eSCM-SP, for Service Providers

• Each part has 2 subsections–Historical background, principles and structures of the model

–Implementation and relationships with other models

The eSourcing Capability Model for Service Providers (SP) and Client Organisations (CL)

History 2000 2001 2002 2003 2004 2005 2006 2007

eSCM-SP v1 v2 v2.01

eSCM-CL v1.0 v1.1


Sourcing Definition

• eSourcing: IT-enabled sourcing uses information technology as a key component of service delivery or as an enabler for delivering services

• Main characteristics:

– Long-term relationships

– Strong integration between the organization and the provider

• Actually, it encompasses every service for which IT is a key component:

– Operational processes: HR, Purchasing, Finance & Accounting, Document Scanning, etc.

– Software Development Projects

– Facilities management (applications, server management, desktop maintenance)

– Service support (help desk, etc.)

– Etc.

IT SOURCING

TASK & BUSINESS PROCESS SOURCING

SOURCING

Application Service Provider (ASP)

Data Center Support

Desktop Maintenance

Telecommunications Network Support

Applications Management

Finance & Accounting

Engineering Services

Human Resources Customer Care

Purchasing

Data Capture, Integration & Analysis

eSourcing

Medical/Legal Transcription

The IT Service Management stage of maturity


The 2 parts of the eSCM model

The Service Provider model(eSCM-PS)

The Client Organisation model(eSCM-CL)

eSCM = (eSCM-SP) + (eSCM-CL)


Visual presentation of eSCM-CL

eSCM can be described in a 3D model

Capability Areas• Sourcing Strategy Governance

• Governance Management

• Relationship Management

• Value Management

• Organisational Change Mgmt.

• People Management

• Knowledge Management

• Technology Management

• Threat Management

• Sourcing Opportunity Analysis

• Sourcing Approach

• Sourcing Planning

• Service Provider Evaluation

• Sourcing Agreements

• Service Transfer

• Sourced Service Management

• Sourcing Completion

(1) Capability Areas

logical grouping of Practices to help

users better remember and

intellectually manage the content of the

eSCM

(2) Sourcing Life-Cycle

Analysis, Initiation, Delivery,

Completion

(3) Capability Levels describing an improvement path that client organizations should expect to

travel


Sourcing Life-Cycle

pre contract

5 E

lem

ents

contract execution

post contract

eSCM Capability Levels

Improvement path

Level 1 : Performing Sourcing

Level 2 : Consistently Managing

Sourcing

Level 3 : Managing

OrganizationalSourcing Performance

Level 4 : Proactively

Enhancing Value

Level 5 : Sustaining Excellence

The third dimension indicates the capability level of the practice

People

Organisation

Technology

Business Operations

Knowledge


1. Define current state

2. Sourcing criteria

3. Demand identification

4. Sourcing options

5. Sourcing approach

6. Business case

7. Governance model

8. Impact & risk analysis

9. Sourcing initiation decision

Sourcing opportunity Sourcing approach

The Analysis phase includes 2 areas and 9 practices

Analysis Initiation Delivery Completion

PH

AS

ES

AR

EA

SP

RA

CT

ICE

S

Life-cycle eSCM-CL practices


The Initiation phase includes 4 areas and 20 practices

Establish sourcing project

Service definition

Service provider selection procedures

Evaluation criteria

Prepare service requirements

Sourcing planning

Communicate requirements

Evaluate potential service providers

Select candidate service providers

Provider evaluation

Negotiations guidelines

Confirm existing conditions

Negotiations

Agreement roles

Define SLAs & measures

Create agreements

Amend agreements

Sourcing agreements

Service transition

Verify design

Resources transferred out

Personnel transferred out

Knowledge transferred out

Service transfer


PH

AS

ES

AR

EA

SP

RA

CT

ICE

S



Perform sourcing management

Performance monitoring

Financial management

Agreement management

Problem and incident monitoring

The Delivery phase includes 1 area and 11 practices

Service delivery change management

Service change management

Review sourcing performance

Stakeholder feedback

Service value analysis

Continuation decision

Sourced service management


PH

AS

ES

AR

EA

SP

RA

CT

ICE

S



The Completion phase includes 1 area and 5 practices

Reversibility plan

Service continuity

Technical resources transfer

Personnel transfer

Knowledge transfer

Sourcing Completion


PH

AS

ES

AR

EA

SP

RA

CT

ICE

S



eSCM Benefits

• Managing / Reducing risks throughout the sourcing life-cycle

• Capability to identify gaps in business performance

• Independent and transparent verification / benchmark of current performance against world class practices

• Consistency and transparency in assessing suppliers capabilities

• Conducting service provider governance and performance management

• Improving ability to provide high quality sourcing services

October 2007 © LogicaCMG 2007. All rights reserved 21© LogicaCMG 2007. All rights reserved

LogicaCMG MCVespucci HouseAm Sandtorkai 72D- 20457 Hamburg

Contact:Björn SchichlerSenior ManagerT: +49 (0)40 27071 133F: +49 (0)40 27071 272www.logicacmg.com

About LogicaCMG

LogicaCMG is a major international force in IT services. It employs around 40,000 people across 41 countries. LogicaCMG’s focus is on enabling its customers to build and maintain leadership positions using LogicaCMG’s deep industry knowledge and its track record for successful delivery. The company provides business consulting, systems integration and IT and business process outsourcing across diverse markets including telecoms, financial services, energy and utilities, industry, distribution and transport and the public sector. Headquartered in Europe, LogicaCMG is listed on both the London Stock Exchange and Euronext (Amsterdam) (LSE:LOG; Euronext:LOG).

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