Outsourcing Opportunity:“Strategic and Operational Level”

H. SrikrishnanExecutive Director

January 31, 2006

Contents

Outsourcing – “Strategic or Operational”

Outsourcing Drivers

Risk Factors - Inhibitors

Key Considerations for Outsourcing

YES BANK Case Study

Strategic ?

Or Operational ?

Strategic or Operational

BusinessValue

= Relationship Management

The Utility relationship focuses primarily on cost reduction, with the goal of maintaining consistency in the delivery of services ~ Operational

A Transformational relationship is characterised by a partnership focused on innovation and new business, changing the very nature of the basis on which an enterprise competes ~ Strategic

Operational

Strategic

Enhancement

Utility

Transformation

Relationship Impact

Key: = Contractual Management= The Partnership

TheContract

TheContract

TheContract

EffectivenessFocused

EfficiencyFocused

Competitive-Advantage-Focused

Adaptation of Gartner’s Model on Sourcing

Opportunity – Both Strategic & Operational

10%12%

12%

18%

20%

25%

36%38%

54%

55%

Function Diff icult to manage or out ofcontrolTake Advantage of OffshoreCapabilitiesShare Risks

Reduce time to Market

Accelerate reengineering benefits

Resources not available internally

Gain access to w orld-class capabilities

Free Resources for Other Projects

Reduce & Control Operating Costs

Improve Company Focus

Reasons for Outsourcing Reasons for Outsourcing Source: Outsourcing Institute

Outsourcing Drivers

Capital

Career Risk

Cost

Focus

“IPR” ?

Drivers

Focus attention and efforts on those activities that will give a distinctive advantage – Protect your IPR

Take advantage of efficiencies of scale, procurement leverage and capital appetite to improve price performance

Manage the risks by employing the specialist technical skills

Improve the career opportunities, People Management

Better manage IT investment by moving to variable operating expense-based structure

Risk Factors - Inhibitors

Outsourcing has the potential

to transfer risk, management

and compliance to third parties

who may not be regulated and

who may operate offshore

Risk Spectrum

Strategic Reputation

Compliance Operational

Exit Counterparty

Country Contractual

Access Concentration & Systematic

BASEL Committee on Banking Supervision

Key Considerations for Outsourcing

Collaboration Collaborative & Competitive Evaluation Fair & Just

Contracting Technology, Business, Regulators, Legal, SoW, Living Agreement Provide for Business Dynamicity

Communication Key for successful implementation

Camaraderie Balance of Relationship & Contractual Management Partnership Spirit

Continuance Not a transaction but it’s a lifecycle

Current internal cost of

Providing IT

Services (annual)

Annual Real

Cost of the deal

Annual Face

Price of the deal

Economies of Scale

Economies of Scope

Economies of Specialization

Other Factors

Vendor Margin

Savings Delivered by the vendor

Setup Cost

Parallel Operating Costs

Severance Costs

Asset write-downs

Governance Cost

Retained in-house capabilities

Innovation & Evolution

Contract Negotiation

Penalties

Vendor Capital recovery costs

Re-evaluation, Selection, and negotiation costs

Transition Costs

Management Costs

Termination CostsPerceived

Value

Real Value

Consider All Costs When Making Outsourcing Decisions

Source: BCG Analysis

Costs Consideration

Defining Sourcing Strategy Identification of Drivers for

Outsourcing Core Competence Analysis Outsourcing Risk Analysis Scanning the Market Deal Type Assessment

YES BANK – WIPRO CASE STUDY

Strategic Total

Outsourcing

IT Investment Portfolio

Strategic Alliances

Technology Framework and Relationships

Evaluation Framework Managed Services Capabilities Hardware & Equipments Strategic Fit Assessment Financial Decision Making Soft Factors

Deal Recognition Rated among India’s Most Wired

20 Companies (Business Today) Exclusive Gartner Case-Study On IBM Infrastructure-on-

Demand Model Networking Case Study by CISCO

Core Competence & Business Drivers Analysis Competence in Banking, Relationship & Building Human Capital Retention of Intellectual Property related to Application

Development Technology Decision making driven internally Caters to Branch Expansion and Growth Plans Dynamic Business Environment ~ Vendor Commitments

YES BANK – WIPRO CASE STUDY

Deal Uniqueness (USP) First-of-its Kind in Indian Banking Sector Unique Pay-per-use pricing model: Branch Expansion based Complete Asset Based Outsourcing: Conservation of Capital Access of World-Class Partners: IBM, CISCO, Intel Stringent but flexible Service Level Agreements Continuous Improvement on Service Delivery