Transformational Outsourcing: Responding to change … · Transformational Outsourcing: ... izations are also mindful of the pressing requirement to stay up to speed in ... network

Transformational Outsourcing: Responding to change in the e-business marketplace

IBM Global ServicesMay 2001

Prepared for IBM Global Services

IBM Global ServicesPage 2

Contents

2 Trends and directions

4 Outsourcing: The new wish list

5 What companies need to know

7 How IBM is responding

Staying ahead of the e-business curve

In today’s ever-changing marketplace, technologies have become inextricably

linked with business issues and strategies — critical to remaining flexible,

responsive and competitive. CEOs, CFOs, CIOs and business-unit executives

alike therefore must share the burden of ensuring the most reasonable

and profitable use of their information technology (IT) investments — from

legacy systems to new, e-business-focused applications and processes.

But providing centralized, skilled and cost-effective administration of IT

infrastructures is just one concern; companies must now approach their

technology investments much like they would an investment portfolio —

appropriating certain portions to help lower costs, others to launch new busi-

ness initiatives, and still others to bring the enterprise closer to customers,

partners and suppliers.

Trends and directions

Most executives would agree that e-business has made IT everyone’s business,

and that their companies’ systems infrastructure plays an increasingly pivotal

role in gauging and assuring the overall state of their business. Managers

at every level are being called upon to participate in ensuring the prudent

planning and effective deployment of their companies’ crucial IT environ-

ments. Many are choosing to delegate these activities—turning to outsourcing

providers to assume responsibility for overseeing the design, implementation

and management of their essential IT underpinnings, including their applica-

tions, systems infrastructure and networks. Others are taking this concept a

step further.


According to Frank Casale, CEO and chairman of the Outsourcing Institute,1

“Five to seven years ago, companies started to consider outsourcing for the first

time by saying, ‘Let’s outsource some of these noncore activities.’ Now, in some

companies, there’s been a shift from noncore to core. They’re saying, ‘What

functions and processes are most important and need world-class attention?’”

Once viewed as simply a tool for reducing IT costs, outsourcing is today evolv-

ing to encompass strategically focused, comprehensive management of critical

business processes, including the transformation of legacy systems and applica-

tions to support newly crafted e-business initiatives. This emerging outsourcing

model is referred to as transformational outsourcing — a broader but highly

refined group of competencies that combines proven technologies, expert skills

and services with thought leadership, business and industry acumen and pro-

cess knowledge.

Transformational outsourcing provides a platform for growth that takes into

account both present and future requirements. It is important to note that one

of the value propositions of transformational outsourcing assumes that the

service provider can achieve near-term results, as well as partner to deliver

longer-term business benefits. This is especially important when one considers

the pressures to realize a return on IT investments while responding quickly to

rapid changes — both in technology and the business environment.

Once relegated to commodity

status, outsourcing is evolving

quickly to encompass strategi-

cally focused, comprehensive

management of critical business

processes, including the trans-

formation of legacy systems

and applications to support newly

crafted e-business initiatives.


Outsourcing: The new wish list

Priorities are shifting quickly as business and technology issues coalesce.

According to a recent study commissioned by IBM, senior executives across

industries share new, common agendas, business- and technology-wise, for

what they want to derive from their IT portfolio.

Business needs

• Accelerate speed to market and speed to delivery of value-rich offerings and services

• Strengthen links with partners, suppliers and customers

• Expedite integration of environments resulting from mergers and acquisitions

• Close skills and knowledge gaps

• Speed e-business initiatives.

Technology demands

• Build a strong, scalable, flexible e-business infrastructure

• Implement new Web-based initiatives

• Integrate systems and processes, including those from vendors, partners — even customers

• Automate processes (such as procurement) to achieve short- and long-term advantages

• Protect and leverage existing investments while pursuing new initiatives (such as wireless)

• Enable realtime collaboration, knowledge and content management.

How does outsourcing fit in? For the most part, companies are looking at this

option to help them lower costs, trim cycle times and enable faster business

transformation. The latter concern is taking precedence as enterprises focus

on equipping their infrastructures — and their business — for the future.

According to a recent study

commissioned by IBM, senior

executives across industries

have similar agendas in terms

of what they want to derive from

their IT infrastructures.


Though cost is certainly an issue, today’s companies are more focused on

value, including extracting as much worth as they can from their legacy

systems — either by consigning them to commodity service, retiring them

completely or “e-enabling” them to support e-business growth. These organ-

izations are also mindful of the pressing requirement to stay up to speed in

today’s increasingly Web-based, “take no prisoners” marketplace.

What companies need to know

Traditional outsourcing approaches can be limiting, since they focus primarily

on IT concerns. Considering the very fluid landscape most businesses must

now traverse, it is understandable that companies are expecting more from

today’s outsourcing providers, who must be prepared to exhibit:

• Thought leadership driven by a deep reserve of intellectual capital and resources, and supported by best-in-class technologies, methodologies, skills and practices

• A willingness to share both risks and rewards, as well as to “sit at the table” to address and resolve challenges

• A proactive approach reflected in the ability to quickly and cost-effectively align services with IT, industry and business imperatives, with the goal of closing gaps between legacy systems and new technologies and applications

• Industry knowledge that offers added value in terms of aligning IT strategies and applications with business and market concerns

• A global presence incorporating the necessary know-how, technologies and infrastructures

For the most part, companies are

looking at outsourcing to help

them lower costs, trim cycle times

and enable faster business trans-

formations. The latter concern is

taking precedence as enterprises

focus on equipping their infrastruc-

tures — and their businesses — for

the future.


• Scalable, asset-based “plug and play” capabilities that include, but are not limited to, Web site and application hosting, storage and other utility services, and packaged application management services

• Proven skills in developing and deploying key e-business solutions, including knowledge and content management, collaboration, call center, electronic procurement and industry-specific applications

• Flexible financing packages that offer convenient payment options and accommodate both short- and long-term contracts.

Issues to ponder when considering outsourcing

The decision to outsource must take into account a number of issues from

both IT and business perspectives:

• Have you identified your core business processes?

• For both core and non-core business processes, is your execution world-class? Could alternative sourcing improve execution?

• What are your critical transformation challenges? Are you focused on:— Growing your business through the introduction of new offerings?— Strengthening your connections with customers, vendors and partners?— Expanding your business through mergers and acquisitions?— Improving speed to market and speed to delivery?— Web-enabling your business processes?— Squeezing optimum value from your legacy systems?— All of the above?

• Have you systematically assessed how well your systems environment can support your business transformation efforts?

• What have you done to date to align your IT environment with your business processes and e-business strategies? Who is leading these initiatives?

The decision to outsource must

take into account a number of

issues from both the IT and busi-

ness perspectives.


• How do you perceive the role of an outsourcing firm in supporting your transformation? What would drive you to contract for their services?

• What type of relationship would you like to build with them?

• What do you hope to derive from outsourcing some or all of your IT-related and/or non-critical business processes?

How IBM is responding

IBM offers a unique value proposition for companies looking to augment

their business with comprehensive outsourcing services. As perhaps the world’s

most successful e-business, we have experienced — and overcome — the same

challenges as our customers, and have customized our offerings and services

accordingly to help these organizations realize lasting business benefits.

The components of IBM transformational outsourcing services focus on

helping enterprises address and resolve key issues, including:

• Business Transformation. For companies looking to create new business initiatives, engage in mergers and acquisitions or dramatically reengineer their business processes, IBM offers industry-focused consulting services, plus assist-ance in designing and running the resultant business and IT infrastructure.

• Technology Transformation. e-business transformation is directly dependent upon a company’s IT infrastructure. IBM professionals are experienced in helping enterprises integrate and elevate their current IT environment — includ-ing hardware and software platforms, legacy applications, data centers and networks — to comply with the increasingly heavy demands of next-generation e-business. IBM also provides “start to finish” assistance in managing and maintaining these complex environments.


IBM Global Services has built

a strong consulting practice that

brings together industry, technol-

ogy and e-business expertise to

help companies transition quickly

and successfully to e-business.

Our consultants address business

concerns from both tactical and

strategic vantage points — a critical

requirement when integrating IT

and business strategies.

Our open, end-to-end framework addresses virtually every component

necessary to equip an enterprise for success in e-business — quickly, safely

and cost-effectively. This includes:

Consulting

IBM Global Services has built a strong consulting practice that brings together

industry, technology and e-business expertise to help companies transition

quickly and successfully to e-business. Our consultants address business

concerns from both tactical and strategic vantage points — a critical require-

ment when integrating IT and business strategies.

Global reach

Our presence encompasses 140,000 people, 175 data centers and a worldwide

network of IBM Business Partners — plus groundbreaking alliances with indus-

try leaders like Siebel Systems, Cisco Systems and i2 Technologies. These

relationships offer the added value of open, best-of-breed service elements.

Renowned systems-integration skills

IBM systems integration capabilities span the lifecycle of an outsourcing

engagement — from requirements analysis through solution development,

installation, rollout and end-user training.

Flexible financing

Financing offerings from IBM Global Financing provide flexible payment

structures that allow companies to more effectively distribute initial costs

and match payments to service benefits.


Recent IBM customer engagements

The value of transformational outsourcing can only truly be measured by the

success afforded to those who contract for these services. Working with IBM,

companies across industries are today achieving tangible results.

IBM and Mercedes: Bringing the M-Class to the Front of its Class

Located in Tuscaloosa County, Alabama, Mercedes-Benz U.S. International

(MBUSI) is home to the company’s M-Class, arguably one of the world’s

most popular all-activity vehicles. The US$300 million facility, which began

construction in 1994, speaks to Mercedes’ success in extending its global

presence and staking its claim in the arena of sport utility vehicles. With 300

vehicles rolling off the assembly line on any given day, the plant continues

to set new standards for quality and efficiency.

When formulating plans for the facility’s IT infrastructure (which would

include a sophisticated supply chain network), Mercedes turned to IBM Global

Services to provide consulting, implementation and ongoing support. IBM

first helped Mercedes define its key business processes, including order entry,

purchasing and finance, among others. Next, IBM analyzed enterprise resource

planning (ERP) applications from more than 70 software vendors before

recommending a BAAN package. IBM then provided an integrated business

process model, as well as a blueprint for the plant’s complex infrastructure.

The entire project — from concept through implementation — was completed

in just over three years. Today, IBM continues to provide ongoing consulting

and outsourced support for ERP applications, the data center, desktops and

networking; service is slated to continue through 2006.


IBM and Xcel Energy: Moving to the next generation of outsourcing

Xcel Energy Inc. is among the nation’s ten largest utilities, providing electric

and natural gas to three million electricity customers and 1.5 million natural

gas customers in 12 Western and Midwestern states. The company, which was

formed in August 2000 through the merger of Minneapolis-based Northern

States Power Co. and Denver’s New Century Energies, offers a complete

portfolio of energy-related products and services.

Having first come to IBM Global Services in 1995 for help in running its IT

infrastructure, Xcel subsequently turned to IBM to fulfill another role—that

of thought leader and industry expert. IBM assumed responsibility for spear-

heading four annual business and technology summits for Xcel, bringing in

leading industry and technology experts from around the world. Additionally,

veteran IBM executives with extensive utility experience conduct regular

forums to keep Xcel executives abreast of new marketplace developments. As

part of its work with Xcel, IBM Global Services has set up a “Competitive

Advantage Fund” that motivates both IBM and Xcel to reduce the latter’s IT

costs and reinvest those savings in areas which produce strategic advantage.

IBM also offers ongoing guidance and support in helping Xcel manage its

business transformation — a function that includes dealing with mergers and

synergy savings. The relationship between Xcel and IBM is a good example

of “second-generation” outsourcing —a model that depends and thrives on

shared knowledge, trust and collaboration.


For more information

To learn more IBM Global Services and transformational outsourcing, contact

your IBM sales representative, or visit:

ibm.com/services

References

G510-1871-00

1 “Our Vendors, Ourselves.” CIO Magazine, November 1, 2000.

© Copyright IBM Corporation 2001

IBM Global ServicesRoute 100Somers, NY 10589U.S.A.

Produced in the United States of America05-01All Rights Reserved

IBM, the IBM logo and the e-business logo are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both.

Other company, products and service names may be trademarks or service marks of others.

References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates.

Documents

Transformational Outsourcing: Responding to change … · Transformational Outsourcing: ... izations are also mindful of the pressing requirement to stay up to speed in ... network