Microsoft PowerPoint - 1_OutsourcingTrends_Gartner_051110.ppt

OUTSOURCINGSAP Info Day 10.11.05

© 2005 Gartner, Inc. All Rights Reserved.Page 1

SwisscomIT Services – SAP Infoevent

consulting

Outsourcing Market & Trends

Special focus: Switzerland

Outsourcing Portfolio

Requirements & Expectations

Technology Update

Appendix



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Outsourcing: Trends

“Not so long ago, outsourcing was considered a simple cost-cutting manoeuvre. Today it looms large as a strategic initiative that will shape your enterprise for years to come. In a fast-changing market-place, the

options grow, the providers proliferate, and the pressure is on to get it right”

@ Gartner Outsourcing Summit 2005

“The worldwide IT outsourcing market will further growon a stable annual growth rate driven by cost reduction,

focus on core capabilities and lack of internal skills”

@ Gartner Research 2005

“Outsourcing of IT infrastructure or individual IT services could bring up to 35% cost saving potential. In spite of all initial doubts, outsourcing has recently become extremely attractive even within the Swiss market”

@ Computerworld 2005



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Outsourcing: Continued growth

The worldwide IT outsourcing market will grow from $180.5 billion in revenue in 2003 to $253.1 billion in 2008 at a compound annual growth rate (CAGR) of 7.2 %

OUTSOURCING2003 2008

Data Center OutsourcingWestern Europe 19,00 22,41

Switzerland 0,56 0,63Enterprise Application Outsourcing

Western Europe 7,75 9,28Switzerland 0,25 0,29



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Outsourcing: Wider attention

Key FindingsIT outsourcing market shows continuous growthCost reduction remains a strong driver for outsourcingOther critical considerations (e.g. quality, long-term effectiveness, cultural impact) get more attention than some years agoCan free corporate resources to focus on technologies that may deliver competitive advantageCan provide access to new IT capacity and functionality, without capital expenditureCan keep better control of their direct labour costs by relying on the outsourcer to scale up or down and to provide necessary levels of technology skills as needed

* Small-Medium-Businesses: up to 500 employees

More and more SMB‘s* cooperate with external partners for software and hardwaresolutions. Hereby outsourcing moves towards flexibility with custom-sized offerings



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Outsourcing: Sourcing business case

From TCO to TCSIn a sourcing decision, additional costs need to be considered, the so called ‘T’ costs (using the TCS model will ensure that all costs are included in the analysis, but will differ for each option ):

Team costs internalTactical project costsTransition costsTransfer costsTransformation costs

Gartner TCOHardwareSoftwarePersonnelRecoveryOccupancy

Gartner TCSGartner TCS

Team costs (internal)

Ongoing costs

Transition costs

Tactical project costs

Transformation costs

Transfer costs

Sourcing OptionsSourcing OptionsSSC (IT spin-off)INHOUSE OUTSOURCE

@ Gartner ITxpo 2004



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Outsourcing: Competence center / Shared services / BPO

From Traditional to EnhancedEnterprises need to broaden the scope of their competence centers to support end-to-end business processes, application integration, analytics and enterprise architecture to provide a set of services that supply value and stabilityThrough 2010, 25 percent of internal shared-service organizations will be wholly outsourced, year over year (0.6 probability)The value of the global BPO market is expected to exceed US$130 billion in 2005, growing at a compounded rate of more than 9% between 2003 and 2007 *

TraditionalTraditional

Application functional support

Application development

Application operation

broaden the

scope

EnhancedEnhancedBusiness process

enablement & functional support

Application development & integration

Application architecture & operation

@ Gartner Research 2004



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Outsourcing: SAP costs

Cost Complexity and Savings Potential **Complexity and instability increase with operational SAP costs explode driven by heterogeneous system environments, individual customization and lack of training and improvement activitiesSimple ‘cost per user’ analysis might mislead

From ‘cost per user’ to ‘cost per DB request’ or ‘cost per business process’ as up to 60% of SAP costs are related to processes and resourcesFocus on individual processes in order to determine actual cost sources

Areas of cost savingsConsolidation and harmonization of SAP systemsRe-design from individual customized solutions to SAP standardSAP system management optimization (interfaces DC - user)Scalability of data center (DC outsourcing or even BPO)

30-50% of IT costs are accountable for SAP solutions and related services. In addition, IT budgets are under pressure with an estimated reduction of 2,2% in 2005 *

* @ Forrester Research – IT spending 2005 for DE, AT, CH** @ Maturity – Reizthema SAP Kosten



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Technology Update

Appendix



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Switzerland: Outsourcing offerings

Swiss Market SurveyTop 3 outsourcing segments are webhosting / e-business, WAN services and application development and maintenanceOffshore outsourcing and complete IT infrastructure outsourcing limited feasibilityResearch: segments of interest in % (= in discussion, in progress, implemented)

0 10 20 30 40 50

Webhosting / e-Business

WAN Services

Application maintenance

Server- and Storage-Hosting

LAN Services

ASP

Desktop Services

SAP R/3

Complete infrastructure running

VPN

IDS Intrusion Detection

IT Security

Telephony

Outsourcing whole IT

Offshore Outsourcing

© MSM Research 2004



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Switzerland: Market summary

Swiss Market SummaryMarket growth

The IT market will further grow on an stable annual growth rateHereby the outsourcing market will over-proportional growThe growth will be business rather than IT driven, mainly by ERP projectsAbout 66% of companies have outsourcing experiences

Market segmentsThe SMB market segment will get more attention, especially through the offerings of traditional outsourcing partnersOutsourcing requirements and complexity within SMB are less, allowing standard solutionsSMB budgets are significant lower which will challenge vendors sales and marketing approaches

Research:1500 sample contacts (enterprises more than 10 employees)470 qualified interviews



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Switzerland: Market growth

Swiss Market GrowthStable growth in outsourcing market (2004/05 estimates)


SWISS OUTSOURCING MARKET

5,2

6,5

2

8,5

7,8

3,2

7,6

9,8

1,8

11,9

10,7

5,3

9,4

13,8

2,5

13,5

11,5

7,3

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Total

Managed services

Telecom services

Application management

Desktop & Network

Data center

Growth %

2005

2004

2003



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Switzerland: SAP services

Swiss SAP MarketContinuous growth in all SAP service segments:

2004 = 485 SFR2005 = 512 SFR (+6,2%)2006 = 534 SFR (+3,5%)

SAP OUTSOURCING OFFERINGS

Consulting29%

System integration34%

Helpdesk9%Outsourcing

21%

Application management

7%© MSM Research 2004



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Switzerland: Service providers

IBMHP Swisscom IT ServicesSwisscom SolutionsEDSSBS (Siemens)

Leaders

ChallengersT-SystemsCapGeminiSunrisePayservCSCUnisysIT-PowerAscomAccenture


Outsourcing in Switzerland – Market Research

Swiss ESP Evaluation (client point of view)Outsourcing partnerService portfolioMarket positionMarketing and sales

SAP Hosting Partners Swiss *AC-ServiceHPIBMSwisscom IT ServicesTDS MultiVisionT-Systems

@ SAP (www.sap.ch)



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Switzerland: Outsourcing deals

Major Outsourcing Deals in 2004/05 (selective)

@ SwisscomIT 2005 @ Gartner Research 2005

Mainframe outsourcingSCISCSS Insurance2004Office communicationIBMEVD2004Full outsourcingSCISTamedia2004Full outsourcingSCISKPT2004

CSCZürich Financials2005Application management & data centerT-SystemsBank Graubünden2005

SAP hosting & supportSCISASCOM2004

SAP basis + server managementSCISSBB *2005Infrastructure + SAP basisSCISSWISS International2005

DEALESPCLIENTYEAR



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Technology Update

Appendix



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Outsourcing: Data center outsourcing

Data Center OutsourcingData Center Outsourcing

System operations

Tape operations

Print operations

2nd level DC support

Production control

Backup & recovery

Technical support

Performance analysis

Capacity planning

Storage management

System securityContingency planning

Asset procurement

The centralized support of computer equipment in a secure facility, the underlying networkinfrastructure, and the processes and organization that support this environment (DCO)

IT OutsourcingIT Outsourcing

Desktop Outsourcing

Network Outsourcing

Data CenterOutsourcing

Enterprise ApplicationOutsourcing



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Outsourcing: Characteristics (1)

Type of ProvidersType of suppliers used for ASP-type delivery



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Outsourcing: Characteristics (2)

Software ApplicationsOutsourcing intentions regarding specific software applications and/or suites



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Outsourcing: Scenarios SSC (1)

Benefits SSC / OutsourcingEconomies of scale and significant reduction of costs through process centralizationQuality improvement through concentration of expertise

Processes / Modules (BPO focus)Payables & ReceivablesFinanceCredit managementTravel managementPayrollHuman resources

@ SAP



consulting

SSC ModelSSC Basis Model

Objective: cost reduction, process standardizationFocus: financial service functions (AP, AR, G/L, payroll, travel expense)

SSC Marketplace ModelObjective: cost reduction, quality improvementFocus: financial service functions + advisory services

SSC Advanced ModelObjective: competition against external service providers within companyFocus: enhanced financial service functions + advisory services

SSC Independent ModelObjective: completely independent business with revenue generationFocus: enhanced financial service functions + advisory services

SSC FutureMore processes to be incorporated into the SSCBPM: business process management by complete outsourcing

Outsourcing: Scenarios SSC (2)



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Outsourcing: Business process outsourcing

Ensuring that BPO Delivers Measurable Results -> SAPAcross the globe, organizations are reducing costs, improving operations, and achieving competitive advantage by outsourcing non-core business processes. But BPO can bring complexities and risks that threaten to outweigh its benefitsSAP has invested in long-term relationships with select BPO providers that deploy their services on SAP solutions and the SAP NetWeaver platform (SAP itself does not offer BPO services!)SAP solutions and services support business process outsourcing -- enabling organizations to reduce costs, mitigate risk, and realize business value

The right platform

The next generation of governance

The best providers

The more benefits and less risks

SAP software solution



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Outsourcing: Special focus SAP

Gartner BenchmarkA proven tool to measure the operational cost of different SAP systems. It can tell what resources a project will need, how much it will cost to support, and where money can be saved

? Operational costs breakdown ? ? Cost per user / staffing requirements ?



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Technology Update

Appendix



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Outsourcing: Market parameters

MotivationCost reductionProfit increaseConcentration on core competenciesLake of internal skills

ChallengesCost pressureCustomer focusNew market segment development

Globalization and market competition drive companiesthink about future IT strategies like outsourcing

GoalsReduction of routine activitiesFocus on critical areasBusiness value optimization

BarriersLoss of know-how and flexibilityFear of unknown (e.g. offshore)High external costsHistory of failed initiatives

Market parameters

Increased cost pressure Customer focus & Customer Relationship Business transformation

Time to marketReduced product life cycle Structural market changes Globalization

Market deregulation



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Outsourcing: Pro’s

PROCost reduction, transparency of outsourcing costsFocus on core competenciesLack of internal skillsResearch: top 3 reasons for outsourcing in %

Outsourcing PRO's

0 10 20 30 40 50 60 70

Cost reduction

Focus on core competencies

Lack of internal skills

Increased productivity

High requirements (7x24)

Access to new technology

Learning

Go with market

Best practices




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Outsourcing: Provider capabilities

Magic Quadrants help identify external service providers that can deliver the infrastructureand support services required for data center outsourcing, now and in the future

Key IssuesProvider selection should be based on a detailed evaluation of client‘s outsourcing objectives and technical requirements It is not enough to consider price and technical capability as the main evaluation criteria. Also the overall vision of the ESP and the strategy supporting the development of the service solution portfolio need to be considered

Practice area profile

Contract / dealstructure

Pricing acceptance

Metrics & measurements

Effective resourcing

Transition management

Security & disaster recovery

Clarity of services,responsibilities

Relationship management

Subcontractormanagement

Innovation

Technical supportExpertise

Strategic plan and vision

Practice area profile

Portfolio of servicesand solution sets

Methodology

Management acumen

Innovation & leadership

Marketing and salesresponsiveness

Financial stability

Business development

Alliances andpartnerships

ESP Capabilities

Ability to ExecuteC

ompl

eten

ess

of V

isio

n



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Outsourcing: Lesson’s learned

Strategic sourcing decisions and the analysis of IT-infrastructure sourcing options is not a simple add-and-subtract calculation

RecommendationsQuantify the strategic sourcing decision by using the TCS modelincluding not only TCO but also the T-costsThe least expensive options is not always the winner as qualitative factors should be considered (e.g. management attention, risk, inability to execute, organizational restructuring, trust, …)Make sure that sourcing options are comparable matching the scope of services for an in-house solution to the one from outsourcing scenariosUpdate the financial business case continuously to take changes between sourcing strategy development and ESP signing into consideration



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Outsourcing: Measurements

How to Measure EfficiencyObjectives:

Ensuring agreement to and monitoring of an optimal level of IT service in close cooperation between provider and customerMaintaining and improving IT service quality, through a constant cycle of agreeing, monitoring and reporting upon IT service achievements and instigation of actions to eradicate poor service — in line with business or cost justification

It is important to measure and report the performance of the SAP live production system with a detailed SAP service level agreementApproach should anyway be incorporated into the overall company guidelines regarding ITIL with service management as core componentThe monthly SLA report should at least include actual data for:

Hours of availability, unplanned outages and their causesBusiness transaction volumes, online and batchEnd-user response timesDB growth, changes appliedIncidents, problems (tickets)



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Outsourcing: ITIL service management

Metrics & KPIWhat # or % of services are covered by SLA’s? Are SLA’s being monitored and are regular reports being produced? Documentary evidence that issues raised are being followed up and resolved? Are service level achievements and customer perception improving?Are IT costs decreasing for services with stable service level achievements?What # or % of service targets are being met and what is the number and severity of service breaches?

© Gartner 2004



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Technology Update

Appendix



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Technology: ESA features

What is it?Breakdown of "apps" to tasksthat can be exposed as services(enterprise services architecture)

Why do I need it?Enables process change and management of eventsEnables outtaskingEasier integration with partners

How will it affect me?SAP will use services to build new functionality into applicationsSAP will offer some services in an open repository for use by partners in their ecosystemSAP will use service architecture to move from traditional apps. solutions to industry-specific solutions

2004mySAP ERP

ApplicationApplication

ReceivablesOrder Entry Fulfillment

Application

2007mySAP ERP

ConfigureCredit Check Ship Bill CollectPrice



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Technology: SAP research

Strategic Planning AssumptionsBy 2010, at least 30 percent of the SAP installed base will adopt NetWeaver as a platform for composing and orchestrating business processes (0.7 probability)By 2008, NetWeaver components will be widely used in the SAP installed base, replacing components by competitors such as IBM WebSphere and Microsoft .NET (0.8 probability)SAP as leader for software vendors with a clear strategy for next generation solutions



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Technology Update

Appendix



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Literature

GartnerGartner Outsourcing & IT Services Summit 2005Consider These Checklist Items Before Selecting an ASPApplication-Hosting Services Growth SlowsVendors Develop Variations of the ASP ModelApplication Service Providers: 2000 and BeyondASP Six-Layer ModelCriteria Defined for 'Ability to Execute,' 2005 Data Center Outsourcing Magic QuadrantASP Requirements - User PerspectivesMarket Share: IT Services, Worldwide, 2004 (Preliminary Statistics)Magic Quadrant for Data Center Outsourcing in Western Europe, 4Q04Magic Quadrant Criteria for Data Center Outsourcing in Western Europe, 4Q04: Ability to ExecuteMagic Quadrant Criteria for Data Center Outsourcing in Western Europe, 4Q04: Completeness of VisionMarket Trends: Application Outsourcing, Europe, Middle East and Africa, 2004 (Executive Summary)Continued Growth Forecast for IT Outsourcing SegmentsUser Guide for Making Application Outsourcing Provider ChoicesHow Does Your IT Support Provider Compare With Others?



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Literature

Gartner (cond.)Cost, Focus and Speed Drive Continued Adoption of Application Service Provider SoftwareHow IS Organizations Should Benchmark Their Own PerformanceUser Survey: Attitudes to Application Outsourcing, Western Europe, 2004 (Executive Summary)User Survey: Attitudes to Application Outsourcing, Western Europe, 2004User Survey: Attitudes to IT Infrastructure Outsourcing, Western Europe, 2004User Survey: Attitudes to IT Infrastructure Outsourcing, Western Europe, 2004 (Executive Summary)User Survey: Business Process Outsourcing, Western Europe, 2004NetWeaver Positions SAP as a Business Process Platform EnablerSAP's Visionary NetWeaver Platform May Prove a Risky BetMarket Focus: Brand Awareness in Consulting and Development and Integration ServicesGartner evaluates SAP: can you afford the vision?Building an SAP Competence Center: Q&A“SAP Competence Centres - Pain or Gain?”The business value of SAP Competence CentresComparing the TCO of Centralized vs. Decentralized ERPMaximizing ROI From R/3 With an SAP Competence CenterBenchmark the Operational Cost of Your SAP ApplicationsCompetence Centers Needed for All Business Applications



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Literature

MSM ResearchSAP Dienstleistungen im Schweizer Markt, 2004 – 2006ICT Outsourcing in der Schweiz, 2003 – 2005

Swisscom IT ServicesApplication Management & SAP Services

SAPSAP Info, KMU NewsletterSAP White Paper: Shared ServicesSAP Solution Brief: BPO business process outsourcing

MATURITYKein Durchblick bei den SAP Kosten?

OGC (Office of Government Commerce)ITIL – The business perspectiveITIL – Service delivery & service supportITIL – Planning to implement service management



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Acronyms

Acronym KeyASP Application service providerBI Business intelligenceBPM Business process managementBPO Business process outsourcingCAF Composite application frameworkDCO Data center outsourcingERP Enterprise resource planningESA Enterprise services architectureESP External service providerISV Independent software vendorITO IT outsourcingJ2EE Java 2 platform, enterprise editionLAN Local area network

MDM Master data managementSAAS Software-as-a-serviceSLA Service level agreementSMB Small and midsize businessSOA Service oriented architectureSSC Shared service centerTCO Total cost of ownershipVPN Virtual private networkWAN Wide area networkWAS Web application serverXI Exchange infrastructure



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Contact

Gartner ConsultingChristian A. TITZEConsulting region [email protected]+43 664 8458582

Documents

Microsoft PowerPoint - 1_OutsourcingTrends_Gartner_051110.ppt