Master class outsourcing-isg-astra_08_dec14_moscow

Copyright © 2012 Information Services Group, Inc. All Rights Reserved. No part of this document may be reproduced in any form or by any electronic or mechanical means,

including information storage and retrieval devices or systems, without prior written permission from Information Services Group, Inc.

From Systems Integrator (SI) to Service Provider (SP) and Outsourcer

ASTRA Master Class Alexandre Hedayat, Director, ISG Europe

Moscow, 08 December 2014

2 Copyright © 2012 Information Services Group, Inc. All Rights Reserved

Your Speaker Today: Alexandre Hedayat


ISG Biography

Alexandre Hedayat / Александр Хедаят Director, ISG

Alexandre Hedayat

Phone: +41 79 244 63 35 Email: [email protected]

Mr. Hedayat brings 30 years of extensive experience both in Europe and the U.S. covering information systems & technology and finance. His clients have benefitted from his know-how and seasoned approach in strategic, operational, management and advisory capacities, as well as his deep knowledge both from a client’s and service provider’s perspectives.

ISG Role Prior to joining ISG, Mr. Hedayat spent 15 years on global roles working for E.I. Du Pont de Nemours, in roles such as Financial Audit, IT Service Delivery, IT Strategy, Communications, Executive Board Advisory as well as providing leadership for a $5billion outsourcing for DuPont I.T. Mr. Hedayat then joined CSC for 8 years where he held global project, delivery and business development roles, as well as working on mega-deal sized outsourcing engagements up to $8billion both in the civilian and defense sectors. He then joined Orange Business Services to build and lead their global Outsourcing Strategic Sales team, winning over $2billion worth of new business during his 6 years in Orange.

Career History

Mr. Hedayat’s multi-disciplinary breadth and depth of experience has allowed him to bring recognized and appreciated value and advisory guidance both at operational and Board level in areas such as strategy development, service strategy, service delivery, operations, very large service and outsourcing advisory; specific areas include finance, audit, security, organization, telecommunications and IT planning. Within ISG, Mr. Hedayat has led a number of sourcing transactions, developed sourcing and IT strategies, advised on critical global negotiations, supported set-up of Governance, Operations & Delivery and provided strategic advisory to a number of our clients. His experience covers a wide range of industries such as Manufacturing, Chemical Oil & Gas, Energy, Insurance, Aerospace, Banking, Finance, Consumer Goods, Telecommunications, Defense and Governments. He has supported our clients in the UK, France, Germany, Switzerland, Russia and Nordics.

ISG Experience

Mr. Hedayat is a Swiss national, has worked in Europe and U.S. and speaks fluent French and English, and understands German and Russian. He now shares his private life between Geneva where he lives, and Athens where his wife and her son both reside. He holds a degree from the Ecole Supérieure de Commerce of Geneva and has continuously refreshed and updated his expertise and thought leadership through executive education and development over 25 years. He is an active ultra-light, aircraft and helicopter pilot, remains engaged in the field of aviation, with a particular interest in the areas of human factors in aviation, resource management in flying duties, safety and training.

Education and Credentials


And why is ISG a Global Market Leader ? Who is ISG ?


Why is ISG the Leading Advisory for Outsourcing ?

The global leader for a quarter of a century (25 years) for large tenders / RFPs, benchmarking and structuring leading edge outsourcing contracts and governance.

25 Years of Global Experience

10 Years of Service Integration Experience

21 Countries 75% of Forbes 1000 Global Companies

800+ Professionals 1,800 Clients

l Outsourcing l Strategy l Tenders/RFPs l Benchmarking l Contracts l Consulting l Transition l Transformation l Governance l Service Integration

65% of All Advised

Deals

25% Total Market Share

2,700+ Global RFPs/Tenders

11,000 + Engagements

$375 Billion Advised


ISG Overall Global Engagement Experience

As trusted consultants, we have the breadth and depth of experience needed to provide strategic advice to business leaders across the globe.

Information as of March 2014

11,600+ Engagements for 1,800+ Unique Clients

Engagements by Service Area

Inform Services 140+

Assess (Benchmark) Services 5,700+

Design Services 600+

Execute (RFP/Tender) Services 2,700+

Transactions* 2,100+

Transformations 200+

Transitions 300+

Operate Services 680+

Project Management Services 570+

Governance Services 100+

Consulting Services 1,600+

*TCV of ISG Led Sourcing Contracts ($B) $375 B +

% ISG Led Contracts Valued at > $50M +50%

65% of our clients are in the G-2000

More than 80% of our engagements are with Repeat Clients

Engagements by Region

1,100+ Asia Pacific

4,000+ N America

125+ Latin America

1,400+ N Europe

1,700+ S Europe

1,800+ DACH

1,300+ Other EMEA


Detail: ISG I.T. Outsourcing Engagement Experience

Information as of March 2014

9,599 Total Engagements for 1,525 Unique Clients

Engagements by Service Area

Inform Services 98

Assess Services 5,211

Design Services 435

Execute Services 1,874

Transactions* 1,469

Transformations 154

Transitions 228

Operate Services 687

Project Management Services 558

Governance Services 85

Consulting Services 1,333

*TCV of ISG Led Sourcing Contracts ($B) $377 B +

% ISG Led Contracts Valued at > $50M 53%

64% of our clients are in the G-2000

94% of our engagements are with Repeat Clients

Engagements by Region

1,009 Asia Pacific

2,736 N America

115 Latin America

1,267 U.K. & Ireland

1,590 S Europe

1,664 DACH

1,218 Other EMEA


Why work with a Sourcing Advisor ?

According to service providers, 50% - 80% of transactions use an external advisor. This ensures objectivity, structure, process, discipline, and closure to signature.

► The Sourcing Advisor does not represent service providers, and does not seek transaction fees from service providers. Independence and discipline deliver clear strategy and outcomes.

► The Sourcing Advisor brings strong intellectual capital, a proven track record of success and a complete set of tools, methodologies and process.

► The Sourcing Advisor helps develop and drive the client’s Sourcing strategy based on extensive, proven experience, facts, and market and solutions objectivity.


Defining viable and beneficial service delivery and sourcing strategies and building effective operational service delivery organizations.

Why ISG ?

Independent advisor in Service Design, Assessment, Tender process and Implementation with over 25 years of practical experience.

Methodology covering the complete life cycle and spectrum of technologies and services from strategy, assessment to solutions, tender/RFP process and target operating model implementation.

Advisory

Independent

Pre-built modular framework which describes the majority of current I.T. services in the market and can be adapted to any client situation.

Team

International

Methodology

Comprehensive

Framework

Pre-build

Market Insights

Broad Broad market insight based on more than 11,000 projects across the globe and many client references that demonstrate our expertise.

International team of sourcing experts who have delivered to all major global companies and who bring practical lessons learned and experience.


What is the difference ? Why ? Systems Integrator, Service Provider


The Evolution: Service Delivery & Strategies: What Changed ?

The Evolution of Service Delivery Strategies

Managed Services

Outsourcing fashion IBM, EDS, CSC, HP Lift and shift ~ 7 – 10 years deals

Diversification Rise of Near Shore Maturing governance ~ 5 – 7 years deals

Global Business Services Principles Multi-Sourcing ~ 5 years deals

1980’s 1990’s

Monolithic

2000’s

Dualistic

2010’s

Pluralistic

2020’s

Confederate

Functional out-tasking New tech ~ 3 Year deals

Technology & Innovation

GPS, PayPal Google, Kindle Wi-Fi, Digitalization Utility Computing Cloud 1.0, Web 2.0 Virtualization

Internet (WWW) Email Cellphones CD Players

Facebook, Twitter Tablets Explosion Cloud, Mobility BI / Analytics 3D Printing

Robots, Droids Full Scale Automation Artificial Intelligence Smart networks

Pagers Cassette Tapes

The evolution of Service Integration

ITIL first published

Provider is Integrator

ITIL v2 and 3 Client or Mixed-model Integrator Early SIAM views

Maturing SIAM Specific Provider is Integrator Or Client Integrator

Std Models Plug & Play Interoperability

Developing


Service Integrator Service Provider

What Service Integrators Vs. what Service Providers (Outsourcers) do

Some thoughts about the different perspectives, and perceptions of a Service Integrator versus a Systems Provider (Outsourcer)

► Service Provider (SP) delivers sustained and improving business value.

► An SP will take care of the client.

► An SP does Service Integration

► An SP will reach out, be pro-active, will have governance and deliver for business needs.

► An SP lives and breathes for Business Value.

The client expects the SP to provide guidance, experience, business value. The SP expects from the client governance, forward –looking strategies, collaboration.

► A Systems Integrator (SI) provides technology and services as per client specification.

► An SI will take care of the tasks.

► And SI does Systems Integration

► An SI will manage technology, respond to requests, and deliver to best support to I.T.

► An SI lives and breathes at the Service level.

The client expects the SI to provide technology, task performance, and technical expertise. The SI expects the client to pay.

Question: who will be more focused on SLA’s , overall performance, and client satisfaction ?


Why are companies talking so much about Provider Governance ?

“ Lack of [service] management is central to the problems with multiple sourcing.

84% of companies do not have what

they regard as a mature governance model. ”

April 2014


How Service Providers bring focus

The Service Provider works towards an integrated and focused, Governed comprehensive service.

Service Integrator: Delivering multiple Service Service Provider: Integration and Focus

Client

Client Client

Client

Client

Client

Client

Client

Client

Client Demand Supply


What is the best approach for successful Service Provider approach ?

Defining the correct overall strategy and governance are essential steps to a successful Sourcing and Service Management / Provision approach.

l Strategy l Governance l Control

Business Objectives Service Objectives Sourcing Objectives

Align with Business Services & SLA’s Approach & Plan

Govern Internally Control Suppliers Manage Market

Principles (Initiate)

Internal : Behaviors, Requirements & Risks

External : Forces, Choices & Threats

Objectives (Discover)

Implement (Define)

Operation (Contract)


What to focus on ? (Answer: on Results)

Manage results in an enlightened way – the contract is not enough.

Footnote Example

Positive Client/Service Provider relations

HIGH level of Provider responsibility

Negative Client/Service Provider relations

LOW level of Provider responsibility

“ HOW ” Do Not Manage the Service Provider or Technical Solution

“ WHAT “ Manage and Keep

Focused on Results, as per Contract

Client Service Provider


It’s not an obvious answer. But there is an solution.

Roles: Who Has the Ultimate Responsibility for the Services ?

You are accountable for the delivery… …of the services towards your organization (“Support the business”: What ?)

Service Provider is responsible for the delivery… …of the services to the client, as defined in the contract

(“Make them happy”: How ?)

Client Service Provider


What is Outsourcing ?


The business, technical, legal and governance dimensions of outsourcing are more intertwined than in most contracts. Both the outsourcing process and the resulting contract must anticipate and address this integration complexity to achieve success.

Outsourcing Contract - General Characteristics

� An outsourcing contract is “similar” to: � Sale of an operating division:

Your internal business processes Your IT operations

� AND… a Long-term services contract: For the processes or operations by the sold division

� …But that is where the similarities end: � Contract itself is very different than others you have seen:

No “product” at the end of the process (not buying a “Thing”, buying a Service”)

Outsourcing services are not commodity services No natural “leverage” for customer once contract is signed Must regulate a long-term, evolving relationship and business environment


Our overarching goal is to help our clients develop a contract that accurately reflects the supplier’s solution and the needs of the business and anticipates the future.

Outsourcing Contract - Areas of Coverage

► General: Contract addresses four key areas: 1. Establishing the relationship 2. Managing the relationship 3. Paying for the relationship 4. Terminating the relationship (and transitioning to

a new relationship)

► Unique aspects of an outsourcing contract: � Long-term arrangement with fixed unit prices � Clear description of what is in-scope and what is out-of-scope � Clear description of the services and service levels for in-scope services � A contract for flexibility for variability of demand and continuous improvement,

adapting to change in business and IT needs. � Delegation of important operating functions to a third party

Service Levels

Price

Control and Governance

Scope


What is an outsourcing contract ?


Outsourcing Contract - Structure

► Typical Outsourcing Contract Package 1. General Terms & Conditions: Master services agreement/main body 2. Services Schedule: Scope (type, geography, volume, architecture, existing, etc…)

of services and description of supplier’s solution 3. Performance Measurement: Service level agreement 4. Pricing Schedule: Pricing constructs, Baseline Volumes, definitions, unit prices, etc. 5. Governance: Structures, processes, procedures and protocols 6. Human Resources Schedule: Terms regarding transferred personnel 7. Inventory Schedules: Lists of equipment, software, contracts and people

Master Services Agreement

Equipment & Software

Supplier Services & Solutions: SOW

In-Scope Sites

HR Process Requirements

Transition &

Transformation

Pricing Constructs: Charges/Volumes/Terms

Perf. Measurement: Service Level Agmt

Key Employees

Disengagement Assistance

Approved Subcontractors Facilities

Governance


Main RFP (and Contract) Structure & Building Blocks:

Statements of Work

Current Environment Description (Tech, Fin, SLA, Vol, Loc)

Baseline Volumes

Business and Legal Terms

Service Level Agreement

RFP

Pricing and Financial

Definitions

HR Provisions Governance Model

l What Words Mean l What I do today l What I want l How I manage it


Common Problems


We’re on-budget and getting the services we signed up for, but my customers aren’t getting what they need to run the business. Now what?

Common Problems - General

► Start-up points: � “Our lawyers/negotiators didn’t understand the underlying basis of the deal and the

value we hoped to achieve.” � The business people from either or both sides don’t understand the full implications

of the contractual terms and conditions. � “We’re constantly in frequent, contentious negotiations about all the wrong things.”

► The contract doesn’t support the deal’s value proposition: � Scope is inadequately described; responsibilities are not clear � Service Level regimes are incomplete or generally meaningless for a successful

relationship � No thought to how the service is going to work operationally - measurement,

governance, interaction, etc. � Lack of flexibility to meet the inevitable changes in your business


Our service levels are being met, but we don’t like the service.

Common Problems - Service Levels

What Why Result Too Many Service Levels ► Unrealistic customer

► Inadequate or non-existent historical data

► High cost to supplier � Monitor, report, risk

� “Is this really necessary?”

► Higher price to customer � “I have this stack of reports but I

only look at 5 of them”

Service Levels Not Tied to Business Needs

► Customer losses sight of drivers (objectives)

► Supplier offers “standard offering” without regard to customer needs

► Low customer satisfaction

► Supplier frustration (“we’re meeting the contractual SLAs, but you’re still not happy”)

SLA Failure (or not?) ► Poorly documented permitted “excuses”

► Vague or undefined lines of responsibility

► Finger-pointing / disputes

► Renegotiation, failed deal


l Service Levels (SLA) l Finance: Variations (ARCs and RRCs) Selected Two key concepts


A flexible Service Level Methodology is based on a multi-level Service Level System: What items have Service Level Credits ?

What are Service Levels ? 3 Types.

Service Level Class Permanent Services

One-time Services

Service Level Credit

Critical Service Levels Adherence to these Service Levels is very important for the business of Volkswagen AG

Non-compliance results in a Service Level Credit as per the Service Level methodology

X X

Key Measurements Performance management without Service Level Credits

In the event of a non-compliance, the IT-Service Partner must produce an action plan within 4 weeks, that prevents a repeated default

X

Critical Deliverables Result oriented Critical Deliverables (e.g. milestones) for one-time services, that are guaranteed by the contract

Credits for Critical Deliverables are accrued when the service delivery does not happen by the agreed due date.

X X


What is Expected and Minimum Service Level? What is Earnback ?

The Service Level Methodology establishes two types of Performance Targets, and recovery rules:

► Expected Target � Level of service contract (provided) � Below this level, Supplier is not delivering

contracted service quality � Three months below Expected is a Default

► Minimum Target � Defines “bad service” where the service

quality is so low that the business is clearly adversely affected

� One time below Minimum is a Default

► Earnback is a critical concept: � Following a service level default, supplier

can Earn Back this default � Usually after 3 months of consecutive

excellent service � This motivate service excellence, not only

payments for defaults.

100%

Minimum

Expected (Contract)

Months 0%

r

95%

85%


Defaults happen when Services Levels are not met based on the clear rules. Not every Default means a Service Credit. Penalties/Credits do not motivate service.

4 Examples of Defaults

Example 1: Many Expected SLAs Defaults. Normally, a Service Credit is only after 3 Defaults in rolling 12 mths. Example 2: Minimum Service Level Default Example 3: Expected Service Level Default after a Minimum Service Level Default


Can we recover from a Service Level Default ? Yes: the Service Level Methodology allows for an “Earnback” of Service Level Credits. This motivates good service !

Earnback methodology is essential (recovering from SLA default).

For an Expected/Minimum Service Level Default, the due Service Level Credits can be earned back when:

The average of the Service Levels in the previous contract year lies above the Expected Service Level

Volkswagen AG removes a Service Level before the end of the previous contract year

¨ The Earnback process rewards the Supplier to prevent additional Service Level Defaults and to improve the stability of the service delivery, so that the Earnback can be obtained.


Service Provider Pricing / Financial elements

Key concepts:

► Usage-based pricing system with ability to vary usage within certain parameters

► Annual Base Charge that includes fixed costs and variable / marginal costs for stated annual baseline volumes

► Unit prices above or below Baseline volumes represent only variable costs (ARCs/ RRCs)

► Separate One-Time Charges ARC = Additional Resource Charge (Pronounced: “Arc”)

RRC = Reduced Resource Credit (Pronounced: “Rouk”)

ISG ARC/RRC mechanism: an integrated approach for variability of volumes during contracts (=Variations from initially declared volumes model for RFP purposes).

The Financial World of an Outsourcing Contract


Resource Unit Pricing Structure: ARCs & RRCs = Variable costs only.

3,000

0

2,000

Year 1 Year 5 Year 10

Resource Uni t

Each Unit consumed over the Baseline is charged as an Additional Resource Charge (ARCs)

Each Unit not consumed in the Baseline is credited as a Reduced Resource Credit (RRCs)

+’s

-’s

Baseline Volumes (Resources)

Base Charge covers a projected level of Resources consumption for each year (Baseline). Covers all FIXED costs for contracted volumes.


The pricing model is based on pre-defined Resource Units whose unit price changes depending on the volumes

ARCs and RRCs: how it works – practical example (1/2)

ARC Tier 1 (+10% of volume)

RRC Tier 1 (-10% of volume)




RRC Tier 3 (-35% of volume



Additional Resource Units (volume) above the Baseline are charged as an Additional Resource Charge (ARC).

Reduced Resource Units (volume) below the Baseline are credited as an Reduced Resource Credit (RRC).

Volu

me

0

X

VBL

Year 1 Year N

RRC Limit (Floor)

ARC Limit (Ceiling) Band 4 Band 3 Band 2 Band 1

Band 1 Band 2 Band 3 Band 4

Base Charge (for Baseline

Volumes)


The pricing model is based on pre-defined Resource Units whose unit price changes depending on the volumes

ARCs and RRCs: how it works – practical example (2/2)

ARC Tier 1 (+10% of volume). Unit = 0.9 = RUB 1800

RRC Tier 1 (-10% of volume). Unit = 0.9 = RUB 1800







Base Price = RUB 2000 per Month

0

X

VBL

Year 1 Year N

RRC Limit (Floor)

ARC Limit (Ceiling) Band 4 Band 3 Band 2 Band 1

Band 1 Band 2 Band 3 Band 4

Volu

me

ARC Price cover ONLY for marginal / variable part of supplier costs.

RRC Price cover ONLY for marginal / variable part of supplier costs. ARC/RRC ARE SYMETRICAL.


Governance: Client Side and Supplier Side Typical Service Issues – And how to Resolve


At The Start Evaluation / Negotiation

In The Beginning …

Effective Sourcing Governance and Service Provision

Contract

Baseline

Client’s Expectations/Requirements and Service Provider’s Performance Aligned

The Framework • Terms and Conditions • Statement of Work • Service Levels • Transition Plan • Mutual Agreement and

Understanding on ‘The Way Forward’

Client

Service Provider


Moving Forward At The Start

But, Over Time …


Contract

Baseline

Client

Client’s Expectations/Requirements and Service Provider’s Performance Risk Diverging

ISSUES

Service Provider


Effective Sourcing Management and Service Provision

Issues and Challenges

► Diverse contract interpretations

► ‘Lost’ deliverables

► Unanticipated costs

► ‘Perceptions’ of service deterioration

► Out-of-Scope work, unauthorized work

► Inconsistent interactions/protocols

► Service Provider optimization activities

► Dramatic business shifts

► Loss of knowledgeable staff

ISSUES


Moving Forward Evaluation / Negotiation

Managing The Relationship


Contract Baseline

Aligned Expectations

Aligned Performance

Effective Sourcing Goverance Is Critical To Maintaining Alignment

Client’s Perception and Expectations

Service Provider’s Performance

Client

Service Provider

Sourcing Governance


Four Disciplines of Sourcing Management. Do these 4 things:

Implementing a Sourcing Management Operating Model

Strategy & Objectives

►Customer Satisfaction ►Business Unit Liaisons ►Communications & Forums ►Escalation Management ►Issue Tracking

►Service Delivery Requirements ►Service Level Reviews ►Problem Management ►Project Monitoring ►Change Management ►Work Prioritization

►Contract Compliance ►Contract Amendments /

Renegotiations ►Benchmarking ►Document Management &

Repository ►Policy & Procedures

►Invoice Verification ►Charge Back ►Receipt of Service ►Service Consumption

Analysis ►Demand/Affordability

Management ►Budget & Forecasting

Relationship Management

Performance Management

Financial Management

Contract Administration

ISG’s perspective on Sourcing Management includes both Client and Service Provider

facing activities

Right Work, Done Right Validate and

Manage Costs

Satisfaction, Direction Setting Ensure Compliance


And why outsource ? How to Run a Correct Outsourcing Process


What is the correct methodology to achieve a good Contract ?

Sourcing Management

Contract: Contract Development

Define: Due Diligence & BAFO

Discover: Proposal and Evaluation

Initiate: Assessment and Preparation Initiate: Phase 1

Discover: Phase 2

Define: Phase 3

Conract: Phase 4

Manage: Phase 5


What is the correct methodology to achieve a good Contract ?

Sourcing Management

Contract: Contract Development

Define: Due Diligence & BAFO

Discover: Proposal and Evaluation

Initiate: Assessment and Preparation Initiate: Phase 1

Discover: Phase 2

Define: Phase 3

Conract: Phase 4

Manage: Phase 5

So

luti

on

s P

roc

ess

Fin

an

cia

l Pro

ce

ss

Hu

ma

n R

eso

urc

es

Pro

ce

ss

Co

mm

un

icat

ion

s P

roc

ess

So

urc

ing

Ma

na

ge

me

nt


ISG – World class Sourcing Methodology

ISG’s Methodology allows our clients to conduct sourcing transactions in a structured, documented, and process-based manner, with clear outcomes.

Checkpoint Walk-through EAS MVD Q&A Due Diligence

1. Initiate

6 – 12 Weeks

2. Discover (RFP)

9 – 12 Weeks Example Times

Typical Steps & Deliverables

Interaction examples

12 – 14 Weeks

3. Define (Proposal)

12 – 16 Weeks

4. Contract

D E M W

RFP(s) ready and released on Market

C

C

C C

NDA, Management / Board level alignment

Signature process Final Agreement

Q&A’s, Proposals, Workshops, Updates

Proposals Reviews Report Cards

Revised (BAFO) Proposals

Draft Agreement Negotiations

Transition Launch

Q

Walkthrough(s) (MVD)

Q&A: responds to Service Provider’s specific questions regarding the RFP Walkthroughs: are used to clarify and improve Service Providers’ proposals

Executive Alignment Sessions (EAS): focus on establishing and maintaining Executive relationships Mutual Value Discovery (MVD): collaboration sessions focus more on Scope and Impact of Requirements than Solution

Due Diligence: allows Client to confirm Service Provider’s capabilities and allows Service Provider to validate Client’s environment

EAS MVD MVD

Q&A Due Diligence Q Q D D

M M M E W W

Due Diligence (DD) & Supplier DD Report

Finalize Sourcing Strat,, RFI, Short List, RFP draft

Program Initiation Sourcing Strategy

Manage sourcing journey program, market presence, tender process governance and results, selection, transition and implementation.

Project Team on Board & Ready


Example: Guiding Principles from 10 Key Executives

Objectives

Other Potential Benefits

► Enable Workforce/Process/Technology Changes that We Are Unwilling to Make Internally

► “Pay By Usage”, Reduce Capital Consumption

► Increase Cultural Discipline around “Non-Core” Activity

► Allows stinger focus on critical core activities

► Cost Reduction

► Increased Strategic Focus

► Operational Performance Improvement

Key Solution Attributes

► Global / Cross-divisional standardization

► Consistent or Improved Service Levels & supplier performance

► Self-Service/Automated Solutions when possible

► Stable or Slightly Reduced Cost in Y1 & Y2 with Significant Reduction Over Time

► Global / Regional Staffing Models for optimized costing

► Balance Speed of Implementation with Organizational Risk


Opportunities for Outsourcing

► Organizations often pursue outsourcing for financial reasons. � Desire to reduce costs (short-term and long-term) � Ability to better address variable demand by shifting from a fixed-cost structure to a

variable cost structure � Lack of capital for business process and/or IT infrastructure improvement

► Organizations also implement outsourcing solutions to improve flexibility to address competitive pressures. � Moves focus to the core business for existing and new markets � Removes internal issues related to the challenges of new solutions, change,

standardization and efficiencies � Suppliers are able to scale to provide the level of service required, when it is required

► Organizations typically consider an outsourcing solution when they are going through change (mergers, acquisitions, divestitures, growth) and/or trauma (restructuring, downsizing, bankruptcy, deregulation).


A Dose of Reality: what are typical issues ?

Impact Probability Potential Risks

M M

M M

M H

M H

H L

M M

H M

M M

► Potential risk to our brand with moving services off-shore

► Loss of control over operations, ability to make decisions and resolve issues.

► Loss of flexibility in resolving issues and responding to business needs

► Lack of discipline and difficulty changing behavior our employees may limit the benefits that have been identified.

► Management will assume that all problems will be resolved through outsourcing

► Difficulty managing the relationship / supplier effectively.

► Services will not be delivered as expected / required and changes to the contract will be costly.

► Non-brand risks associated with moving services off-shore � Geopolitical instability � Data security � Increasing offshore salaries


In Order to Come to a Decision, Following Questions Need Answers

If you believe… Then… ► There are no more improvements we can make

► There is not an opportunity to reduce costs either internally or externally.

Do Nothing

► We can hold someone accountable for the benefits realization.

► We can make the capital investment needed to support process improvements.

► Our culture will not support an outsourcing agreement.

Internal Solution / Process Improvement

► We need to establish an option for future benefits (functionally or globally).

► It will be easier for us to hold an outside vendor accountable for the benefits.

► The benefits of outsourcing outweigh the potential risks and we can mitigate the risks (brand, people).

Outsource


Your Contact in ISG: ►Mr. Alexandre HEDAYAT Director, ISG Europe

eMail: [email protected] Mobile: +41 (79) 244.63.35.

Thank you

mailto:[email protected]



Documents

Master class outsourcing-isg-astra_08_dec14_moscow