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Research » Strategy » Transformation » Governance Trends & Market Evolutions influencing Risk management in cloud (out)sourcing contracts Prepared for Cevora 26 th October 2011 Dominique Kindt, Country Manager EquaTerra KPMG BeLux

Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

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Dominique Kindt, country mngr EquaTerra KPMG Belux, over de trends en evoluties die risico's voor cloudsourcing contracten kunnen betekenen.

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Page 1: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

Research » Strategy » Transformation » Governance

Trends & Market Evolutions influencing Risk

management in cloud (out)sourcing contracts

Prepared for Cevora

26th October 2011

Dominique Kindt, Country Manager EquaTerra KPMG BeLux

Page 2: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Agenda

» About EquaTerra

» Cloud Demystified

» Market Research: 8 Key Trends & Associated Risks

influencing the operational cloud environment

» Governance fit-for-purpose

» Conclusions and Key Success Factors

2

Page 3: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

Research » Strategy » Transformation » Governance

About EquaTerra

Page 4: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Americas 64 %

EMEA 34 %

Asia Pacific 2 %

EquaTerra – the Sourcing Advisory Organisation

4

Advisor Presence

HR 16%

IT 38%

Business & Financial 20%

Other Specialist 26%

Advisor Specialisation

Advisors 350+

Engagements 2000+

TCV under control $300bn

Countries served 60+

Key Facts

Our Mission: “Helping clients achieve sustainable value in their IT and Business processes by

providing expert advice on how to get the most out of their sourcing relationships”

» One of the global leading Outsource and Shared Services

Advisory firms

» A recognised leader in IT, HR, BPO, F&A competencies

» Full Sourcing Lifecycle advisory capability

» We‟re Practitioners and trusted Advisors, not Consultants

» Global provider with 16 offices across 3 continents

» Incorporated Morgan Chambers in 2007

» Acquired by KMPG in 2011

Page 5: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

EquaTerra – What truly sets us apart...

5

» Impartial objective practical advice

» Sourcing Lifecycle specialists

» Tested Approach

Collaborative – Work together with Clients & providers (non-confrontational)

Flexible – Tailor services to meet your exact requirements (not one size fits all)

Sustainable – Look at the „big‟ picture, and what it will mean for the long term

Knowledge Transfer – We encourage 100% knowledge transfer in all our engagements

Speed to Market – Focused on achieving the objectives (not just about rigour and method)

» Track record with proven complex deal capability

» Our People

» Industry leading Methodology

Page 6: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

EquaTerra Methodology & Approach

6

» Diagnostic and

Benchmark

» Renegotiation Support

» Contract Review

» Performance & Satisfaction

Measurement

» Internal

Improvements

» Shared Services –Captive Center

» Outsourcing - Offshore

» InSource (back in house)

» Negotiation & Contracting

» Service Delivery or

Sourcing Strategy

» Service Delivery or Sourcing Assessment

» Opportunity Analysis

& Business Case

» Transition

» Transformation

» Change Management

» Project Management

» Interim

Management

Governance

» Service Delivery Management

» Business Alignment

» Governance WorkPlace

» ITO & BPO sourcing approach based on

comprehensive Sourcing Delivery Lifecycle

Methodology focusing on all sourcing

domains:

– Strategy

– Solution

– Implementation

– Optimization

– Governance

» Significant added value to our

Methodology through continuous

investments in:

– Managed Peer Networks

– Proven Market research

– Practitioner‟s Knowledge sharing

– Continuous Training and Education

Page 7: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Implementation Solution Strategy Optimisation

EquaTerra Methodology

1 Prepare and Define

2 Assess current delivery

3 Define future delivery

options

4 Develop strategy

5 Plan & align

Internal Solution

• Shared Services

• Captive Center

• Internal Process

Improvement

External Solution

• Outsourcing

• Offshore

1 Prepare & launch

2 Realign & execute

3 Govern & review

1 Prepare & define

2 Measure

3 Analyse

4 Improve

5 Monitor

7

Page 8: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Sourcing Lifecycle Advising our clients through the complete sourcing lifecycle

Operate &

Innovate

In-sourcing

& Transforming

Governance

Design (Process & Structure)

Strategy &

Assessments

Outsourcing

Transactions

Transition &

Change Mgmt

Assistance

Mark to

Market

Health Checks

& Remediation

Value Assurance

/ Benchmarking

Re-negotiations

& Re-bidding

• Infrastructure

• Operations

• Apps. Development

• Apps. Maintenance

• Network (ICT)

• Accounting

• Banking Processes

• Insurance Processes

• Re-engineering

• Transformation

• Source-to-pay

• Click-to-procure

• Category Mgmt

• Procurement process

• Frameworks

• Admin. (inc. Payroll)

• Resourcing

• Talent Management

• Org. Effectiveness

• Learning & Dev.

I.T.

Human Resources

Finance & Acc.

Supply Chain

Page 9: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

Research » Strategy » Transformation » Governance

Cloud Demystified

Page 10: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Definition of Cloud: from horizontal to vertical sourcing

10

Horizontal Outsourcing

Vertical Outsourcing

aka Cloud

Page 11: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Why organizations chose cloud solution

» Minimized capital expenditure

» Access to systems regardless of location or device

» Multi-tenancy (enabling a pool of users to share resources and cost)

» Reliability/redundancy for business continuity

» Scalability & access to new applications

» Energy efficiency through shared infrastructure

» Convenient on demand access

11

But … often main reason for choosing cloud solutions is

CapEx & OpEx costs savings driven by the business

Page 12: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Can Cloud Pricing Really Bring a Shower of

Savings?

» Paying by the drink is appealing to many buyers.

But:

– Hidden clauses, such as minimum volume levels, can automatically

lock you into a minimum level of commitment for fees.

– Unit of measure pricing is inclusive of all services, including

software and hardware upgrades.

– The conditions on software functionality, and how your price

changes with requests for new functionality.

– The sustainability of your pricing over time. Will it remain valid for

changes in volume or technology?

– The upfront and ongoing costs associated with configuration and

integration needs, if any, back into legacy internal applications.

– The upfront and ongoing costs associated with training, user

support, etc.

– The termination charges for exiting these types of agreements.

– The potential costs associated with changing business operations

and processes to support the new cloud environment.

– The standard SLAs that are offered

12

Cloud Service

Provider is controlling

& standardizing the

environment and

“dictates” SLAs and

QoS

In other words: you

chose to step into

their standard way of

working … better be

prepared and

understand where the

real cost saving is …

Page 13: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Typical Risks in Cloud

» Security & Privacy Outsourcing data storage to a cloud, for example, could mean housing it beyond agency firewalls, which

could potentially raise the risk of compromise. Another concern is service providers‟ security measures,

which could affect an agency‟s compliance with regulatory guidelines

» Transitional & ancillary costs Despite the cost advantages of cloud computing, organizations will still need to invest in the transition.

Preparing custom applications to run on the cloud, for example, will be a time- and labor-intensive activity,

and you may need to continue supporting the legacy applications that don‟t run on the cloud

» Availability & Performance Cloud providers promise great processing power and scalable services, but the reality is that leasing space

on a cloud means you‟re dependent on someone else‟s capacity. Downtime, even if it‟s scheduled, will

directly affect your access to cloud resources.

» Change Management Cloud computing, still an emerging technology, may not be widely understood in all organizations. For

example, your constituents and internal customers will have rapid access to servers, storage and computing

platforms that were once the exclusive turf of IT.

13

Page 14: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Cloud Service Providers

» Next to typical & traditional global

players (often offering cloud back-end

solutions), the market will more and

more be dominated by niche players

offering a very specific business

solution (often offering cloud front-

end solutions) (www.cloudbook.net

select Directories -> Applications)

» Also, service providers that were in a

totally different business enter the

cloud arena (e.g. Amazon)

» Access to cloud services is made very

easy: Visa should do the job.

14

Page 15: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Good Cloud – Bad Cloud

Cloud computing is not a

good option when ...

» You‟re running applications that

weren‟t written for the Internet

» You want permanent or

inflexible parameters on IT

spend

» You have significant sunk cost

that will affect your business

case

» You approach it opportunistically

Cloud computing is a good

option when …

» You‟re running modern Internet

enabled applications

» You want variable costs due to

varying levels of consumption

» You‟re trying to reduce capital

expenditure for data processing

» You know exactly what you

want in the cloud and with what

service provider(s)

15

Page 16: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

Research » Strategy » Transformation » Governance

Market Research: 8 Key Trends & Associated Risks influencing

the operational cloud environment

Page 17: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

8 Key Trends & Associated Risks Different EquaTerra Research Sources to present market information & trends

17

» Pulse Surveys: Quarterly and periodic market studies of EquaTerra advisors business and IT service

providers, and buyers of third party services. Global, regional (UK, Netherlands), industry (US public

sector, life sciences) and functional (legal, HR) focus.

» EquaTerra Echo: A quarterly wrap-up analysing all business & IT services market events and reporting.

» Service Provider Performance and Satisfaction (SPPS) Studies: Yearly market study by geography and

function on outsourcing trends and buying patterns and buyer assessment of service provider performance

and satisfaction.

» Topical and customised commissioned and EquaTerra internal market research studies

» Research embedded in EquaTerra client engagements, events, and service provider offerings

» Events: EquaTerra hosted buyer events, primarily in the European market; potential select service provider

sponsorship.

» Customised consulting: Flexible and customisable services to support vendor and service providers‟

strategic and operational needs. Sample topical areas covered include the following.

– Strategy projects (e.g., market and service offering positioning, M&A support)

– Sales and marketing effectiveness (e.g., brand management, training: pursuit, commercial, legal, working with sourcing

advisors)

– Operational efficiency (e.g., service delivery, transition management, outsourcing governance and relationship

management)

Page 18: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

18 18

Comparison 2009/2010/2011:

70%

60%

30%

29%

22%

8%

55%

43%

34%

36%

16%

8%

56%

50%

22%

28%

16%

16%

44%

54%

31%

15%

14%

8%

Cost savings

Access to skills

Quality improvement

Financial flexibility

Time to market

Change agent

2011

2010

2009

2008

Trend 1: Increasingly, cost savings and War for Talent drive outsourcing

Risk 1: Both drivers often are contradictory (good skills don’t come cheap)

Page 19: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

» Often buyers are not employing the most

applicable outsourcing governance model to

meet the needs of their outsourcing efforts

» Mismatched needs and models can limit

outsourcing governance effectiveness and

work against overall outsourcing

governance success

» Even when the most applicable model is

identified some buyers may not have the

skills, resources and support to deploy it

successfully

» Implementing the outsourcing governance

model starts during transition, another area

where many buyers struggle

19

5% 4%

51%

26%

32%

37%

12%

26%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Advisors Service Providers

5 - Very good fit/supports outsourcing efforts well

4

3 - Neutral

2

1 - Poor fit/does not support outsourcing efforts well

To learn more:

• Sourcing Governance and Change Management: Elusive Enablers of Outsourcing Success

• Governance 2.0: New Management Tool Supports Achievement of IT Sourcing Objectives

• Best Practice in Governing Outsourcing Contracts: Establishing and Managing a Center of Excellence

Trend 2: Inadequate Governance due to cost savings outsourcing driver

Risk 2: Too optimistic Clients & opportunistic Service Providers that

underestimate impact of governance endangering the deal and relationship

Page 20: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

20 20 20

“Net” Value Gained

From the

Relationship

Total Potential Value

Gained From the

Relationship

10%–20%

Value Loss

Operational

Challenges

20%–30%

Value Loss

Performance

Challenges

5%–10%

Value Loss

Portfolio Management

Challenges

Efforts

Duplicated Resources

Wasted Problems

Not

Managed

Performance

Not at

Expected

Levels

Vendors

Deployed

Against

Conflicting

Or Wrong

Goal Opportunities

Untapped

Loss of Value from Ineffective Service Provider Governance

Trend 2: Inadequate Governance due to cost savings outsourcing driver

Risk 2: Too optimistic Clients & opportunistic Service Providers that

underestimate impact of governance endangering the deal and relationship

Page 21: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

1,0 2,0 3,0 4,0 5,0

Limitation of liability

Indemnities

Regulatory compliance

Step-in rights

Supplier financial risk

Data protection/privacy

Pre-defined direct damages

IT systems/network/data security

Financial covenants

Proprietary intellectual property rights

License/usage of third party intellectual property

Representations and warranties

Audit rights

Physical security

Force majeure

1=Not Challenging, 5=Very Challenging

Global

Europe

North America

Trend 3: “The usual suspects” in contract legal terms & conditions

negotiations

Risk 3: too much focus on these GTCs as procurement is driving many

outsourcing deals currently

Page 22: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

1,0 2,0 3,0 4,0 5,0

Termination fees

Termination rights

Service levels

Fee structure

Transition fee/credit structure

Scope of services

Transformation

Inflation

Foreign exchange rates

Consent fees for third party contracts/licenses

Service provider labor

Service provider delivery locations

1=Not Challenging, 5=Very Challenging

Global

Europe

North America

Trend 4: High focus on Termination in commercial negotiations

Risk 4: Too much focus on building a super flexible (and super complex)

contract able to exit at all times

Page 23: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

23

Trend 5: Today, most companies are in search for rapid ROI as many projects

& investments have been frozen in 2008 - 2009

Risk 5: Outsourcing does not bring rapid ROI

Page 24: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

24

Trend 6: Advisors Key Challenge = Retained Org & Management Support

Trend 6: Service Providers Key Challenge = Change, Politics & Market

Risk 6: Misaligned RfPs and Negotiations leading to inadequate contract

Page 25: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

25

Trend 7: Indian Service Providers lead 2010 European Customer Satisfaction

Risk 7: It looks “tempting” to work with Pure Plays, but it requires different

governance skills to manage them

Page 26: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Trend 8: Ever increasing contract & market complexity

Risk 8: Contract not in the satisfaction zone

26

Page 27: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

Research » Strategy » Transformation » Governance

Governance fit-for-purpose

Page 28: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

28 28 28

“Net” Value Gained

From the

Relationship

Total Potential Value

Gained From the

Relationship

10%–20%

Value Loss

Operational

Challenges

20%–30%

Value Loss

Performance

Challenges

5%–10%

Value Loss

Portfolio Management

Challenges

Efforts

Duplicated Resources

Wasted Problems

Not

Managed

Performance

Not at

Expected

Levels

Vendors

Deployed

Against

Conflicting

Or Wrong

Goal Opportunities

Untapped

Loss of Value from Ineffective Service Provider Governance

Trend 2: Inadequate Governance due to cost savings outsourcing driver

Risk 2: Too optimistic Clients & opportunistic Service Providers that

underestimate impact of governance endangering the deal and relationship

Page 29: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Demand – Supply Management Best Practice

Page 30: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Demand – Supply Management Best Practice

Management

Management

control

Operational

control

Change

&

innovation

Business

governance

Strategic

planning

Service manager

Contract manager

Vendor (portfolio) manager

Asset manager

Application/ infraconsultant

Project sourcingmanager

Release manager

Test manager

IT project manager

Service portfolio manager

IT landscape architectInformation architect

Application portfolio manager

Security & complianceofficer

Business processarchitect

Business service manager

Administrativesupport

Project portfolio manager

Functional support

Change manager

Data administrator

Data quality analyst

Information analyst

End user

Information strategyanalyst

Program manager

Key user

Business processManager

Information owner

Application owner

Quality officer

Business director

Risk & complianceofficer

Business project manager

Service desk agent

Business consultant

IT process manager

Database administrator

Application engineer

Systems engineer

Process owner

CEO IT director

Information securityofficer

Demand manager Supply manager Delivery manager

Business processdesigner

Meta data manager Test coordinator Solution test manager Solution tester

IT purchaser

Service level Manager

IT controller

Service deliverymanager

Contract deliverymanager

Service coordinator

Solution architect

Solution designer Solution engineer

Deployment manager

BusinessDemand

management

Supply

managementIT Delivery

Enterprise architect

CIO

Auditor

Manager

Page 31: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Demand – Supply Management Ratio’s

31

Page 32: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Demand – Supply Management Ratio’s

32

The impact of scale on demand supply spend:

1. In small organizations the tactical

coordination of IT is relatively expensive

2. The optimum lies around 25 MiO; with spend

above 25 MiO complexities increase, as do

the demand supply mgt costs

3. Above 75 MiO scale advantages lead to

decrease in spend towards the optimum

€ 25 MiO

Millions Outsourced

€ 75 MiO

24%

12%

Spend on

Demand mgt

+ Supply mgt

as a % of total

IT spend

1

2

3

1

2

3

The impact of the investment strategy on

demand supply spend:

1. Apart from scale, the second factor with a

large impact on demand supply management

spend is the investment strategy.

Organizations that invest aggressively in

improvement projects tend to score on the

high end of the spectrum. The graph

represents an average investment strategy

4

4

Page 33: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

Research » Strategy » Transformation » Governance

Conclusions & Key Success Factors

Page 34: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Key Success Factors

34

Page 35: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

Conclusions

» Know and understand the market (local, European and global)

» RfI, RfP & Contract should be market competency driven combined with

translation of internal (business) need

» Understand the service provider community to know on what they react

well and what “scares them off”

» Understand what is driving the current market (and how service

providers react, position and protect themselves against current market

trends)

» Know your own (internal) strengths & weaknesses before addressing the

market

35

Page 36: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

Research » Strategy » Transformation » Governance

Contact Details

Page 37: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

37

Dominique Kindt

» Dominique Kindt has a strong expertise in ITO and BPO advisory in different industries. He

developed a particularly expertise with respect to Financial Services Industry and Supranational

(Government) Institutions. Dominique is able to provide assistance in all phases of the IT and

Business Process Outsourcing Lifecycle. This equally includes providing guidance in governance,

project risk management, organizational (re)design and process and financial methodologies.

» Before joining EquaTerra, Dominique headed the Outsourcing Risk Advisory business unit at

Deloitte. He was responsible for the delivery of several ITO and BPO projects. Prior to joining

Deloitte, Dominique obtained hands-on people management and outsourcing experience in working

at a Belgian fund institution acting as an ICT and general manager responsible for the internal

services. He reorganized the internal service lines in selecting multiple vendors and service

providers for ITO and BPO solutions to outsource eg. competence management, facilities,

infrastructure and software development activities.

» Dominique has served, amongst others, companies like Argenta, LBK, ING, ING IM, Dexia, Fortis

IM, Aon, Swift, Euroclear, Base, City of Antwerp, Tech Data, Kyphon, BARC, Avnet, Unilin,

Deloitte, Fabricom, VIL, Infrabel, ICANN, Puratos, Eurocontrol and NATO across multiple

geographies.

» Dominique initiated his career at the University of Antwerp (Ufsia) where he was engaged as

research and education coordinator.

» Dominique holds two Master degrees. He holds a Master in Applied Economics at the University of

Antwerp and achieved an additional Master in Applied Computer Science at the University of

Brussels. He successfully graduated both degrees with distinction.

» Dominique is the founder and chairman of the Belgian Chapter of the European Outsourcing

Association (www.eoa-belgium.be).

» Dominique is based in Brussels, Belgium

Page 38: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

38

Str

ate

gy

Sele

ction

Imple

menta

tion

Optim

aliz

ation

Govern

ance

2011 Financial Institution – Belgium Benchmark on full outsourced ICT environment

2011 European Financial Institution – Service Providers Customer Satisfaction program and Off-shoring

workshops

2011 Service Provider – Belgium Development of a companywide Service Catalogue

2011 Energy Provider – Belgium Workshops and definition of ICT sourcing strategy.

2011 Government – Belgium Assistance in definition and implementation off-shoring processes.

2011 Government – Belgium Benchmark on Servers, Storage and Network environment.

2011 Government – Belgium Strategy and go-to-market definition of BPO process.

2010 Chemical Manufactoring – Global Strategy and Selection support for BPO (HR) process

2010 Global Commercial Bank – Belgium Assistance in vendor selection of back-office environment.

2010 HR services organization – Belgium Definition of ICT strategy outsourcing.

2010 Belgian Retail Bank – Belgium Definition of Infrastructure management outsourcing strategies, RFP

and contracting & negotiation.

2010 Global Beverage Company – Europe Benchmark of the Deskside support activities in Europe.

2010 Global Beverage Company – Europe Review and Benchmark of Project Management activities in

Europe.

2010 Belgian Retail Bank – Belgium Benchmark of the LAN/WAN outsourced services

2010 Belgian Energy Provider – Belgium Benchmark of housing and hosting services

Belgian Railway Infrastructure operator (2009)

Advisor for delivery of SLA‟s and Governance models for IT Infrastructure and Telecom services delivered by

a Shared Service Center.

European Financial Transaction Company (2009) – Brussels Outsourcing strategy and risk assessment of

the Order to Cash process

Flemish Government (Maritime) Transport Organiation (2008) – Antwerp Trusted advisor in the setup

and implementation of a new platform (full BPO advise)

European Financial Clearing Company (2008) – Brussels Audit of the Vendor Management organization

Global Insurance Company (2008) – Hong Kong: Development of a sourcing strategy, Rfp, MSA, Contract

Schedules and Selection process

European Aviation Controlling Body (2007-2009) – Brussels trusted sourcing advisor and operational

support through a 3 year framework agreement for all phases of all ITO and BPO deals

Global Internet Controlling Body (2007) – Los Angeles Outsourcing risk assessment and business impact

assessment in global RFP release procedure

Global Supranational Government Organization (2005- 2009) – Belgium: support and trusted advisor in

several ITO and IT governance projects.

Global bank (2004-2009) – Brussels / Netherlands support and trusted advisor in several ITO and IT

governance projects.

Mobile Operator (2006) – Brussels Contract review of a strategic & company wide IT renewal project

Global Investment Management Organization (2004-2006) – Netherlands support and trusted advisor in

all phases of a strategic / pilot ITO deal.

» A selection of Dominique's sourcing projects:

Dominique Kindt

Page 39: Trends+market evolutions influencing risk mngt in cloud sourcing contracts D.Kindt EquaTerra KPMG

© 2011 EquaTerra Europe Limited, a UK limited liability company, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its

circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”). The

EquaTerra name and logo are trademarks of KPMG International.

39

Contact us

BeLux: +32 (0)2 709 29 32 [email protected]

China: 86 (0)21 28909093 [email protected]

Finland (Baltics and Russia):

+358(0) 925 108100 [email protected]

Germany: +49 (0)69 67733423 [email protected]

India: +91 80 4022 4209 [email protected]

Netherlands: +31 (0)88 002 2900 [email protected]

Sweden (Nordic HQ): +46 (0)8 662 30 67 [email protected]

UK: +44 (0) 845 838 7500 [email protected]

Americas: +1 713 470 9812 [email protected]

About EquaTerra

EquaTerra sourcing advisors help clients achieve sustainable

value in their IT and business processes. Our advisors average

more than 20 years of industry experience and have supported

over 2000 transformation and outsourcing projects across more

than 60 countries.

Supporting clients throughout the Americas, Europe, and Asia

Pacific, we have deep functional knowledge in Finance and

Accounting, HR, IT, Procurement and other critical business

processes. EquaTerra helps clients achieve significant cost

savings and process improvement with internal transformation,

shared services and outsourcing solutions.

Key Contacts

Dominique Kindt Country Manager, EquaTerra BeLux +32 (0) 477 77 2512 [email protected]