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Today’s Presentation
Why are companies outsourcing?
What is being outsourced?
How are companies outsourcing?
Challenges
Benefits
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21%
23%
44%
56%
63%
0% 10% 20% 30% 40% 50% 60% 70%
Accelerate Projects
Flexible CapacityModel
Gain Expertise
Focus on CoreCompetency
Reducing OperatingCosts
Why are companies outsourcing?
Percent of companies indicating key drivers of IT Outsourcing
Source: Aberdeen Group “The Business Value of IT Outsourcing Benchmark Report”, 2006
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AAFA Members
Expertise & Domain Knowledge 44% (4 out of 9)
Industry Best Practices
Offshore Opportunities 33% (3 out of 9)
Easily Augment Staff 67% (6 out of 9)
Drive Down Costs 78% (7 out of 9)
Leverage Buying Power 11% (1 out of 9)
Rapid Growth Through Acquisitions 44% (4 out of 9)
Build Competencies Quickly 67% (6 out of 9)
Other: Company Growth; Process Transformation; “Near to Customers”; Data “Security”
Why are we outsourcing?
Most AAFA members who are outsourcing are motivated by the goal of cost reductions.
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The future…
Focus On Internal Core Competencies
Labor Arbitrage
Improve (Predict) Service Levels
Enterprise Transformation
Why will companies outsource:
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What is being Outsourced?
Source: Aberdeen Group “Outsourcing Application Development and Maintenance”, 2006
Percent of companies indicating some degree of IT Outsourcing
64%
67%
67%
69%
71%
73%
79%
80%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Voice NetworkManagement
Business Continuity
IT Security
Disaster Recovery
Data NetworkManagement
Data Center
End-User Computing
Application Developmentand Maintenance
Only 30% of AAFA members indicated that they are doing any kind
of outsourcing.
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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2004 2005 2006 2007 2008 2009
What is being Outsourced?
Source: Gartner 2007 Key Issues for Outsourcing, Infrastructure and Applications
$203 Billion Dollars in 2005 (7.4% Growth Rate)
Network Outsourcing
Enterprise Application Outsourcing
Desktop Outsourcing
Data Center Outsourcing
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AAFA Members
Application Development& Maintenance 100% (9 out of 9)
End User Computing(Pc’s And Helpdesk) 22% (2 out of 9)
Data Center 44% (4 out of 9)
Data Network Management 22% (2 out of 9)
Disaster Recovery 22% (2 out of 9)
IT Security 11% (1 out of 9)
Business Continuity 11% (1 out of 9)
Voice Network Management 11% (1 out of 9)
What do we Outsource?
All AAFA members who are outsourcing are doing so in
the area of application development and
maintenance.
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The future…
Increased mix of off-shore/on-shore resources
Additional business processes(A/P, customer service, human resources, etc.)
Enterprise Architecture
Research & Development
What will be outsourced:
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How are companies outsourcing?
First Generation
SecondGeneration
ThirdGeneration
Generation “X”
ScopeOf Role
PrimaryObjectives
Resource Expertise Competency Innovation
View OfRelationship
“Vendor” “3rd Party”“Extended
Employees”“Partner”
Organizational Implications
Projects CategoriesFunctions
Limited Organizational
Impact
Senior Involvement
Integrated Organizational
Roles
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Example of Third Generation Organization
CIO
Company ITS DirectorsOutsource Manager
Flexible pool of Outsource Business Consultants
OutsourceApplications Manager
OutsourceInfrastructure Manager
OutsourceDevelopment Resources
OutsourceInfrastructure Support
OutsourceHelpdesk
Company Business Analysts
Companies avoid outsourcing business process knowledge.
Company retain ownership of applications, finance, security, infrastructure, technology, etc. by maintaining key management resources in place.
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Outsource Services Contract:
Additional Contract Considerations
Base services include service level agreements, scope and
support requirements
Metrics used to establish minimum requirements
Monetary penalties if metrics not achieved
Costs tied to benchmarks
New projects structured under change controls that describe the
scope, cost, and deliverables
All projects managed according to single overall governance
model
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The future…
Greater Focus on Partnership(Less Focus On The Company / Vendor Relationship)
Greater Focus On Innovation
Use multiple vendors
Shift in Budget Spend(From Operational “Keeping The Lights On” To Strategic)
Shorter Contracts With More Flexibility
How will companies outsource:
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Challenges
31%
37%
32%
34%
19%
27%
27%
24%
44%
47%
51%
51%
54%
48%
56%
47%
25%
16%
17%
15%
27%
25%
17%
29%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Voice NetworkManagement
Business Continuity
IT Security
Disaster Recovery
Data NetworkManagement
Data Center
End-User Computing
Application Developmentand Maintenance
Below Expectations Adequate Above Expectations
Satisfaction Levels with Outsourcing Activities
Source: Aberdeen Group “The Business Value of IT Outsourcing Benchmark Report”, 2006
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Challenges
Top Challenges with Current Outsourcing
Source: Aberdeen Group “The Business Value of IT Outsourcing Benchmark Report”, 2006
28%
30%
33%
42%
51%
0% 10% 20% 30% 40% 50% 60%
Inability to AchievePlanned CostReductions
OutsourcerManagement
ExcessiveManagement Time
Requirements
Missing ManagementSkills or Staff
OutsourcerUnderperformance
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The Outsourcing Paradox:
Challenges
“A successful outsourcing requires trust, understanding
and alignment, yet, the interests of the customer and the
service provider are not naturally aligned…
A successful outsourcing must strive to be a partnership,
yet the nature of the transaction can produce complex
agreements, lengthy deal cycles and adversarial
negotiations.”
Source: Edward J. Hansen Morgan Lewis & Bockius, LLP
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Reduced Operating Cost
Improved Version Control and Lifecycle Management
Improved Documentation of Procedures and Best Practices
Improved Development Quality
Broad-base Expertise
Internal Staff Focus on Strategic Issues
Faster Turn-around for Greater Solution
Access to Superior Expertise
Benefits
Cost
Administration
Quality
Innovation
Transformation
Val
ue
Drivers