CS4255 Outsourcing and IT Outsourcing Management 2007/2008 Semester 2 Models of Outsourcing

12 Feb 2014IS5114IS5114 Information Technology Outsourcing 2012/2013 Semester 2

Outsourcing Planning and RFP Development Dr Kwong Yuk Wah Adjunct Associate ProfessorDepartment of Information SystemsSchool of ComputingNational University of Singapore12Outsourcing Phaseshttp://www.sun.com/blueprints/0402/sla.pdfEngagement TransitionTransformationExit Ongoing OperationsSign ContractBusiness as Usual (BAU)Steady State (BAU)Steady State (New)Outsourcing PhasesSource : Singapore Computer Society12 Feb 2014IS51142Gartners Sourcing Life Cycle

12 Feb 20143IS51144Outsourcing Phases and Related Competencieshttp://www.sun.com/blueprints/0402/sla.pdf

Source : Singapore Computer Society12 Feb 2014IS511445COMIT Frameworkhttp://www.sun.com/blueprints/0402/sla.pdf

Source : Singapore Computer Society12 Feb 2014IS51145Check list of IS Competencies

12 Feb 20146IS5114IS Skills Evolution

12 Feb 20147IS5114Contract vs Relationship

12 Feb 20148IS5114Different Competencies (1)

12 Feb 20149IS5114Different Competencies (2)

12 Feb 201410IS5114Different Competencies (3)

12 Feb 201411IS511412 Feb 2014IS511412

Source: Gartner (November 2010)

Collaboration Between Service Providers is Key When Multi-sourcing13Case Study : BAE-CSC(Single Vendor)1991-1994, British Aerospace (BAE) was under pressure to reduce costsManagement decided to focus on their core competencies, i.e. aircraft and defense system manufacturingBAE decided to outsource non-core IT functions which were not their core business and help them to reduce annual IT operation costs significantlySigned a contract with Computer Science Corporation (CSC) and transferred 1,500 IT professionals over CSC in 1994Sold its IT infrastructure assets to CSC in 1994http://www.computerweekly.com/blogs/inside-outsourcing/2011/11/why-has-cscs-contract-with-bae-reduced-60-in-value.htmlIS511412 Feb 20141314Case Study : British Petroleum (BP)(Multi-vendors)First outsourcing contract established in 1991 and restructuring the redundant IT units for cost savingMulti-supplier ecosystem of 7 partners, they are:- IBM, Tata Consultancy Services (TCS), Infosys, Accenture, Wipro, HP and T-SystemsEach supplier handles their vertical tower and yet collaborate as oneDeasy, BP Group CIO said You need to get them together and set their joint targetshttp://hbr.org/1995/05/it-outsourcing-british-petroleums-competitive-approach/ar/1http://www.youtube.com/watch?v=OqRuVN3inYgIS511412 Feb 20141415Case Study : JP Morgan(Multi-vendors to Single Vendor to Back-souring) Started its large scale outsourcing in 1996 to 4 vendors, i.e. Pinnacle Alliance, consortium comprising CSC, Anderson Consulting, AT&T and Bell AtlanticIn 2002, JPM signed a 7-year contract with IBM and transferred 4,000 staff to IBMIn 2004, JPM acquired Bank One, terminated the contract with IBM and brought back the IT staff transferred to IBM earlier. But, the human elements, such as lost trust from employee, caused productivity issuesIts next outsourcing strategy is offshore business process outsourcing to low cost countries such as India http://www.cio.com/article/10524/Outsourcing_and_Backsourcing_at_JPMorgan_ChaseIS511412 Feb 20141516Case Study : Proctor & Gamble(Shared Service Centre to Strategic Outsourcing) 1999 - 2002, consolidated 70 services and basic infrastructure to a shared service centre called Global Business Services (GBS) at a central locationIn 2001, conducted one year study to outsource 80% of GBS services 2003-2005, signed a 10-year outsourcing contract with HP and transferred 2,000 staff to HP, but retained some IT resources related to business unitsStrategic outsourcing, http://www.informationweek.com/news/services/outsourcing/208403237http://tech.fortune.cnn.com/2008/11/24/what-hp-learned-from-procter-gamble/IS51144 April 20121617Case Study : General Motors (GM)(Single to Multi-sourcing to Standardization)1984 to 1995, GM acquired EDS and transferred all its operations to EDS.1996 to 2001, GM spun off EDS as an independent company and became EDSs largest clients. GM transferred all its IT people, system and equipment to EDS.Didnt have a CIO or an IT department to do vendor management2002 to to-date, GM changed from single vendor to multi-vendors, they are EDS, HP, IBM, WIPRO, Capgemini, and AT&TSet up IS department and CIO function

IS511411 April 20121718Case Study : Cathay Pacific (CX)(Smart-Sourcing)During 1970s, CX established in-house Information Management Department to development and manage IT system.200 staff and three data centers at three different locations1991, One of the data centre in Hong Kong caught fire owing to a nearby explosion and interrupted the following IT systems for almost 12 hours Passenger reservation Engineering, Flight and Crew OperationDeparture and Arrival Control CX began their smart-sourcing in 1997IS511411 April 20121812 Feb 2014IS511419An OverviewOutsourcing Planning and RFP DevelopmentPlanning for Outsourcing

Determining the outsourcing strategyTypes of sourcing relationships

Defining Outsourcing Objectives and Scope

Outsourcing conceptsStrategic business drivers of outsourcingRisks associated with outsourcingCritical success factors of outsourcing

Developing the RFP

The RFP processForming the outsourcing project teamStrategies for information gatheringDefinition of outsourcing scope and requirementsService provider evaluation strategy and process12 Feb 2014IS511420Defining Outsourcing Objectives and ScopeOutsourcing ConceptsWhat is outsourcing?The models of outsourcingStrategic Business Drivers of OutsourcingWhat are the business drivers?Risks Associated with OutsourcingFinancial, operational, contractual and technical risksAllow an organization to take steps to mitigate the risks Critical Success Factor of OutsourcingFactors that have the most impact on the successful outcomes of outsourcing engagementAllow an organization to determine the feasibility of IT outsourcing to meet its business needs and to better manage the outsourcing engagement12 Feb 2014IS511421Planning for Outsourcing (1)Appoint a strong project manager/project director or outsourcing consultantPull firms leadership team together to discuss the firms present product processes and initial expectation outsourcing strategyConduct a readiness assessment of the organisation to help determine exactly what kind of work should be outsourced, what skills the firm already has in-house, what skills are needed from a third-party entity and cost implication of outsourcing. This information is used to decide what the nature of the outsourcing relationship should be and the type of vendor/service provider the firm needs2112 Feb 2014IS511422Planning for Outsourcing (2)Develop a business plan that clearly explains the business drivers for the initiative and addresses the organisations readiness to manage the change that will be required when the outsourcing initiative takes effectCommunicate the goals of the outsourcing initiative directly to the employees and provide constant flow of information to the employeesClearly communicate the human resource plans for the existing employees early

2212 Feb 2014IS511423Planning for OutsourcingDetermine the outsourcing strategyProcesses and SystemsPotential risks and management issuesBudget and scheduleTotal or selective outsourcing, onshore or offshoreRisks and benefitsTypes of Sourcing RelationshipSingle sourcing/traditionalCo-sourcingMulti-sourcingAllianceJoint VentureInformation gathered is used as inputs for developing the requirements for proposals12 Feb 2014IS511424Roles of Project Management Team (Planning Stage)Project manager or project director is the internal leader of the firms outsourcing initiativeThe required skills:- objectivity, investigative ability, preciseness, discretion and diplomacy skillsConduct outsourcing readiness assessmentDevelop the business planEstablish the communication strategies2412 Feb 2014IS511425Jargons (1)RFI- Request for InformationA document requesting information from potential outsourcing service providers demonstrating their capabilities, resources, experiences, and overall approach to providing services RFP Request for ProposalA document detailing a customers outsourcing requirements and the evaluation criteria that will be used for selecting the ultimate provider. Service ProviderA company that provides outsourcing services. Terms such as provider, vendor and partner are often used interchangeably each carrying a slightly different connotation intended by the user2512 Feb 2014IS511426Jargons (2)Scope of ServicesThe services provided under an outsourcing agreementSLA Service Level AgreementOutsourcing is a service. The service level agreement defines the intended or expected level of service. For example, how quickly a service will be performed, what availability, quality and cost targets will be met, which level of customer satisfaction will be achieved. In essence, every outsourcing agreement is made up of three basic elements: a description of the services to be performed; a scorecard or SLA defining in objective, measurable terms of the standards for the delivery of each service, and the prices or quotations for the services and/or products2612 Feb 2014IS511427Defining Business Requirements (1)One underlying problem in outsourcing is that organizations are not process-drivenFirms must first develop a clear understanding of their own goals and requirementsIt is important to define the current process in detail and to gain a clear understanding of the results requiredWho should be involved:- business leaders, process experts/subject matter specialists, users/customers, procurement personnel, representatives from finance, human resources and legalIdentify in-scope and out-of-scope activitiesCapture the current costs for each activity, including people, supplies, equipment, overheads and capital costs

12 Feb 2014IS511428Defining Business Requirements (2)Identify the critical success factors (CSF) and key performance indicators (KPIs) for the current process quality, customer satisfaction, timeliness, financial performance (i.e. costs, revenue), conformance to requirements (i.e. regulations, audit requirements), speed, flexibility and innovationIdentify the future process requirementsGain a clear understanding of the types of competencies and capabilities an outside organization taking over the process must have to be successfulBaseline current costs An accurate and complete baseline of current costs and performance levels as well as a gap analysis between these and best-in-class performance levels is required

2812 Feb 2014IS511429Defining Business Requirements (3)Defining desired results in clear, complete, and measurable terms is key to managing any business process, whether its outsourced or not. Service level agreements (SLAs) are often used to define process measures, while balanced scorecards are typically used to define business outcomesCSFs and KPIs are best determined by the current environment, objectives and strategies of an organization.CSFs and KPIs must be measurable, comparable and reportable. It is critical to measure the right thingsSelect the CSFs and KPIs that are most relevant to the outsourcing dealsUtilities efficiency focused make it cheaperEnhancement effectiveness focused make it betterTransformational competitive advantage make me money

12 Feb 2014IS511430CSFs and KPIs for OutsourcingCritical Success Factors (CSFs)FinancialCustomerEmployeeProcess & product innovationProgram/project innovationService level innovationKey Performance Indicators (KPIs)FinancialCustomer satisfactionPerformance SLAsProgram/Project managementSkills, competencies, trainingService/facility scalability, readiness & redundancy12 Feb 2014IS511431Reality CheckDo the CSFs and KPIsTranslate into specific actions?Provide strategic or tactical benefits?Provide leverage to institute change?Manage end-to-end results across the enterprise?Drive performance and process improvements?Allow for benchmarking to compare best practice performance?Enhance firms ability to compete in the future?Drive learning and innovation?Predictors of future performance?12 Feb 2014IS511432Developing the RFP (1)Clients Roles and ResponsibilitiesService Providers Roles and ResponsibilitiesDefine the RFP process and project scheduleDefine the outsourcing project team organisation and its role and responsibilityDetermine criteria for selecting members of the project teamDetermine strategies for information gatheringDefine outsourcing scope and requirementsWrite the RFP - Clearly establish service definitions, service levels, expectation, requirements and service level agreement (SLA) Develop service provider evaluation strategy and criteriaEstablish scope of outsourcingProvide information to support client to develop the right requirements and service level agreement (SLA)Determine if scope is within its core competenciesEstablish value proposition and a sales strategyIdentify potential key partners and alliancesIdentify high-level risksDetermine competitive positionEstimate the total cost required to support the project (during presales and delivery)Evaluate if the project should be pursuedIdentify team members with the right expertise to respond to the RFP, when issued12 Feb 2014IS511433Developing the RFP (2)The RFP ProcessSetting up the project organizationDevelop the project scheduleIdentifying relevant technology options and potential services providersEstimate the project budgetPerform a cost and benefit analysisDeveloping evaluation criteriaDeveloping the RFPDefining strategies for service provider due diligenceReviewing and approving the RFP for release to the service providersForming the Outsourcing Project teamBusiness operationsInformation TechnologyFinance and LegalHuman Resource 12 Feb 2014IS511434Developing the RFP (3)Strategies for Information GatheringRequest for Information (RFI)Engaging a ConsultantDefinition of Outsourcing Scope and RequirementsPerformance requirementsOperational requirementsMaintainability requirementsPortability requirementsSecurity requirementsUsability requirementsLook and feel requirementsTechnology requirementsService Provider Evaluation Strategy and ProcessEvaluation framework and criteria

12 Feb 2014IS511435Take-Away From This LectureOutsourcing planning and RFP DevelopmentReferences : Singapore Computer Society, Body of Knowledge, COMIT

12 Feb 2014IS511436Thank Youkwongyw@comp.nus.edu.sgdiskyw@nus.edu.sg36NameTitle

NameTitle

NameTitle

NameTitle

Team TitleCompany NameCompany NameDepartment NameCOMIT CertificationOutsourcing Competencies Management Competencies

Cost ManagementRisk managementHuman Resource ManagementCommunications ManagementInterpersonal SkillsOutsourcing Planning and RFP DevelopmentService Provider Evaluation and SelectionContract Formation and NegotiationsContract Initiation, Transition and Transformation ManagementRelationship Management and Dispute ResolutionService Quality Management and Performance MonitoringContract Migration and Handover Management