IBM Confidential © 2012 IBM Corporation Outsourcing – A Global, National and Local View Share and Support Event

IBM Confidential © 2012 IBM Corporation

Outsourcing – A Global, National and Local ViewShare and Support Event

IBM Confidential © 2012 IBM Corporation22 IBM ConfidentialApril 2012

Key Global Trends – Summary

Growth expected mainly in emerging

markets

• The strategic outsourcing market has returned to overall growth• but the mature markets are only expected to see low, single-digit growth through 2015

• More substantial growth coming from the much smaller emerging markets.

The new focus on business outcomes

• Customers are increasingly seeking greater business value from their outsourcing engagements.

• The engagement model that appears to be gaining traction involves a deeper, longer-term partnership between the service provider and customer, spanning a variety of services and delivery types,

Outsourcing to Multi-sourcing

New supplier market dynamics

• Customers are looking to multiple delivery models, both traditional SO and public/private/hybrid cloud, to obtain the services and IT capacity they need.

• The new model of lower-cost services that allow for plug-and-play procurement, rapid provisioning, and multi-sourcing of services, is forcing change on the traditional model.

• Suppliers are focusing on long-term partner approaches to client relationships, often in a sole-sourced contract

• The engagement begins with a conversations with corporate leaders about the client’s required business outcomes.

IBM Confidential © 2012 IBM Corporation3

Direct client feedback also shows outsourcing spending will increase

April 2012 IBM Confidential3


The IT Services market is at an inflection point

10/11

April 2012 IBM Confidential


0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Today

24 Months out

Traditional IT

Client owns and manages the

hardware, software and IT staff

Outsourced IT

3rd party owns hardware, runs IT

staff, software ownership is mixed

Enterprise Private Cloud

(Internal) virtualized, dynamic resource

pools deployed and managed in house)

Hosted Private

cloud

(External) Hosted/managed by 3rd party, dedicated

to the use of my company

Public cloud

(External) subscription

software services delivered over

internet

Source: IDC's North American Cloud Survey, January 2011 n = 603 (Dir IT and above) Totals sum to 100%

+2% +3%+3% +4%+4% +3%+3%

Traditional models are graduating from project to managed through cloud

True multi-sourcing is becoming a reality at many firms

Anticipated budget dedicated to

OUTSOURCED IT cloud by 2013 = 52%-14%



Cloud is accelerating the shift to outsourced IT, with Public/Private Cloud dominating by 2020

April 20126 IBM Confidential


The Market is increasingly showing interest in bundled opportunities



Questions to Consider before Outsourcing

StrategicAlignment with business and corporate objectives

Defining the primary business drivers (e.g. savings, investment, productivity, choice, innovation)

Future proofing

Flexibility and adaptability

Cost and Commercial ModelCommissioning

Input, output, or outcome-based

Cost certainty

Value for money

Risk transfer

Pricing mechanism

RisksReputation

Operational

Performance

Sovereign

Impact on authority staff

Internal Capability and CultureCommunication & Sponsorship

Commissioning function

Roles and responsibilities

Technical and commercial skills

Relationship management

Cultural change

Systems, MI & data

Managing transition


Next Steps from UK Local Authority Perspective

Currently high variability of in-house/ shared services/ outsourcing strategies across authorities, and between directorates and services within authorities

The quick wins have been achieved; now well into planning for the next phase of austerity

Outsourcing typically has a longer planning stage than typical efficiency measures, therefore the full transformational impact of the first wave of cuts is not apparent

Some models of past outsourcing such as PFI are under review

Emphasis on strategic commissioning

Outsourcing should not be seen as a default selection and panacea for budget problems, nor the solution for ideological reasons alone. Conversely it should not be discounted from the opposite viewpoint

There is a need for new models to offer greater transparency and flexibility, particularly from those more complex services that require ongoing evolution and transformation

Are relatively inflexible models the best approach in times of uncertainty?

IBM Confidential © 2012 IBM Corporation

Collaborative Delivery ModelsShare and Support Event


Overview of the Engagement Existing contracts managed by the Council’s Highways and Transportation service were recognised by

senior management as being static, inflexible and inefficient

The Council needed to reduce costs and increase service flexibility, and also wanted greater transparency and control in its dealings with external contractors

Working with IBM Global Business Services, the Council transformed its business model to create a strategic commissioning function that steers a co-located and integrated public-private delivery team

Advisory activities included

Facilitated the development the strategic vision

Developing the contracting and commercial strategy

Short term improvement programme

First wave restructuring

Developing of the business cases, and supporting through governance

Support during competitive dialogue

Organisation design

Programme and change management


Joint Venture Strategic Partnership

(including ITS) Strategic Partnership

(excluding ITS) Current Arrangements

Commencement End of Year 1 By agreement

Progress to Joint Venture Model

Agree key details of JV model at bid and dialogue stage as a MoU

Develop business case for growth Agree business case for growthParties agree to move to the JV model

Joint Venture incorporated and staffed by Supplier

Performance Management

Amnesty period Based on operational KPIs

Amnesty period for ITS

Integrate further outcome-based KPIs

Outcome-based KPIsGainshare based on relative equity stakes

Staff

Explore pilots for co-location Co-location of Strategic Partnership delivery team

Periodic review of Client resources and Lean initiatives to optimalise staff numbers within delivery team

Determine staff to be transferred

Staff transfer to supplier / JVSupplier seconds staff into new legal entity

Evolution of the Contracting Model

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H&T Client Function

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H&T Client Function


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H&T Client Function


(Joint Venture)


Key Features of the New Delivery Model New combined organisation for delivery, with the Provider taking overall accountability for outputs

No TUPE transfer at the first stage

Guaranteed savings built into the contract, linked to budget levels

Open book, transparency of cost

Joint governance and joint business planning

Typically actual cost and target cost models

Development of a collaborative culture

Potential to transition into a separate Joint Venture entity

Benefits included• Eliminated adversarial aspects of contract management by creating a partnership model

• Created a leaner delivery function that has greater efficiency of its overheads, allowing a greater proportion of value-adding activity

• Improved end-to-end process standardisation and consistency

• Increased transparency, improved alignment of objectives and control

• Facilitated a joint business planning approach that reduces risk for both parties and ensure a more agile response to change

• Provided a platform to drive ongoing efficiency and innovation over the ten-year lifetime of the contract


Thanks

James DaniellManaging Consultant

IBM Global Business Services

[email protected]

Tel: + 44 78 4178 2134


Visioning Planning

Organisational Readiness

Procurement

Post Programme

Review

Strategic Review: Engagement Process

• Target Operating Model

• Component Business Modelling

• Maturity profiling

• Service aggregation/ desegregation strategy

• Relationship model

• High level risk transfer options

• ICT and technology options and opportunities

• Assemble team

• Implementation Plan, milestones and costing

• Procurement Strategy

• Benefits case and financial modelling

• Affordability case

• High level organisational design

• Market testing

• Pricing and performance framework

• Detailed organisational and business processes design

• ICT requirements

• Procurement/ Competitive dialogue support

• Bid evaluation framework

• Governance models

• Restructuring

• Change management

• Contract development

• Transition management

• Opportunities analysis

• Benefits review

• Process analysis/ Lean

• Supplier relationship management strategy

Strategic Business Case Outline Business Case Final Business Case Post-Programme Review

Documents

IBM Confidential © 2012 IBM Corporation Outsourcing – A Global, National and Local View Share and Support Event