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Management Consulting | Technology Advisory Services

Optimizing OutsourcingDhiren Shethia

www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP 2

Agenda

Introduction

What is Outsourcing?

What Do Companies Outsource?

New Generation of Outsourcing

Benefits and Pitfalls

Outsourcing Trends

Role of Advisors



Outsourcing IS: Giving a third-party responsibility for running traditionally internal services

Outsourcing IS NOT: 1. Offshoring 2. Layoffs 3. Immediate cost savings 4. Easily reversible

Outsourcing IS: Giving a third-party responsibility for running traditionally internal services

Outsourcing IS NOT: 1. Offshoring 2. Layoffs 3. Immediate cost savings 4. Easily reversible

www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP


“Third party management providing the best people, process and technology for the execution of non-core business functions.”

--Dermot Murphy, The Millennium Group

“A contractual relationship where an external organization takes responsibility for performing all or part of an agency’s functions. This can involve a partial or complete transfer of staff and/or resources”.

--Geoff Kilby, Uniysis U3 Conference

“Turning over the ownership of a non-core, important business process to a service provider in order to leverage the provider’s expertise, economies of scale and access to resources. The buyer determines the results it wants to buy, but it does not specifically dictate all the nuances of how the provider is to perform the service.”

---- Everest Group White Paper

Outsourcing is the act of giving a third-party the responsibility of running what would otherwise be an

internal system or service


What do Companies Outsource?

Types of Outsourcing

Business Process (BPO)

Human Resources

(HRO)

Information Tech (ITO)

Knowledge Process (KPO)

Other

Accts receivable / payable

Procurement

Travel management

Claims processing

Security

Internet Marketing

Proofreading

Call centers

Payroll

Benefits Administration

Training

Bookkeeping

Financial services

HR services, internet marketing

e-Commerce

Infrastructure

Applications

Telecom

Website development

Website hosting

IT Help Desk

Professional Svcs

Data Centers

Research (equity, market, competitive intelligence)

Analytics

Engineering and design services.

Animation & simulation services

Writing/content development

Legal Process Outsourcing (LPO)

Research Process Outsourcing (RPO)

Medical Business Process Outsourcing (MBPO)

Traditionally, BPO and ITO are most commonly outsourced; Enaxis’ outsourcing practice focuses

mainly on ITO

Forrester estimates that worldwide IT & apps outsourcing market is worth ~ $120B/year


The New Generation of Outsourcing

Outsourcing 1.0 Outsourcing 2.0

The transition of many hundredsof people (and knowledge)

Bring strategic service back in-house

Price tags in the hundreds of millions,if not billions, of dollars

More competition; Web 2.0 – advances in information gathering, evaluation and distribution; selective buying; some services retained in-house

Outsourcing being treated mostly asan event that ended at contract signing

On-going deal management

Typically no one in the company hadany related experience whatsoever

Desire to retain outsourcing knowledge and hire advisors for as-needed skill sets

Procurement Relationship Management

Process People

Low price Best value

Betting Investing

Terms & Conditions, SLAs Advanced governance model to support outside services, define escalation processes, clearly articulate roles/responsibilities and retain key knowledge


Outsourcing Benefits and Pitfalls

Benefits Reduce operating costs by leveraging lower

wages & economies of scale

Focus on core competencies

Standardize and improve business processes by accessing world-class capabilities & receiving services from highly educated/trained staff

Share risks

Decrease capital expenditures

Better utilize internal resources (outsource the routine, in-source the innovative)

Improve flexibility to add/reduce resources

Pitfalls Lack of clear goals for outsourcing

Weak SLAs (lack of accountability)

Culture not ready for outsourcing

Poorly defined SOW leading to “extra costs” for work that is not in scope

Lack of internal controls, management and/or expertise to support the outsourcing arrangement (governance)

Failure to verify provider financial stability

Artificially compressed timeline

Inexperienced acct. manager


Outsourcing Trends

More US

Staff

More US

Staff Multi-sourcing

vs Governanc

e

Multi-sourcing

vs Governanc

e

Shift from

Penalty SLAs

Shift from

Penalty SLAs

Evolutionfrom

1.0 to 2.0

Evolutionfrom

1.0 to 2.0

Technology

Advances

Technology

Advances

Provider Landscap

e

Provider Landscap

eSocial

Responsibility

Social Responsibili

ty


Outsourcing Trends

Trends

All providers are increasing US front office staff; cost savings of near-shore and on-shore outsourcing have improved in North America and Europe with increased available labor pools at lower rates as a result of the global recession

More US Staff for front office (w/o increase in cost); near shore investments by providers

Distinct trend in moving towards Performance Metrics and OLAs and away from financial penalty driven SLAs

SLAs are more complicated in the multi-sourcing environment Decreased use of ‘hard’ SLAs inspired by financial penalties Threat of lower Customer Satisfaction results (impacting aggregate

customer sat for provider and future sales) Customers want the contractual ability to effect change in the providers

operations, processes and personnel assignments

SLAs to Performance Metrics

Observations

Even though multi-sourcing is on the rise, the financial and strategic benefits of multi-sourcing are being weighed against governance and integration challenges; as a result there is a significant focus on governance models in the buying process

Multi-sourcing Benefits vs. Governance Challenges


Outsourcing Trends

Trends

Evolving Provider Landscape

Observations

Outsourcing in Oil and Gas Companies

Due to their global footprints big O&G companies continue to focus on outsourcing Most are in the 2nd wave of outsourcing (10+years) Significant number of Oil and Gas Companies are adopting a captive or

customer owned offshore facilities model Taking a hard look at Tier 2 providers (see above) Looking to outsource more complex core business processes and

systems

The global IT services outsourcing provider landscape is evolving Consolidations (vertical, size based, footprint etc.) Providers looking more like each other as the market evolves (offshore

providers investing in customer geographies and western providers continuing to invest in delivery centers)

Universal standards for provider performance decreasing contract ambiguity

Rise of the Tier 2 providers (brand less important then the team, industry expertise)


Role of Outsourcing Advisors?

Avoid the “pitfalls”

Market data to Benchmark

Knowledge of providers

Structured process and “Audit-ability”

Tools and templates

Technical expertise

Program Management

Change Management

Governance and Communication


Brooks [email protected]

713.808.1396 (o) / 832-724-9900 (c)

For More Information on Outsourcing…

White Papers and additional research: http://www.enaxisconsulting.com/research_ma

in.asp

Large Scale IT Outsourcing

– Do’s and Don’ts

Documents

TechExecs Optimizing Outsourcing Linked In