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Innovation in Outsourcing A View Across Europe
Outsourcing Law Group 14 October 2013
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The Outsourcing Law Group (OLG) is a group of like-minded law firms, each with a substantial outsourcing practice and a recognised market leader in the sector
On outsourcing projects, the OLG works as a single law firm, taking a unified approach under the leadership of one firm, and providing one set of rates, one bill and one currency
OLG leverages the joint resources of all OLG firms and staffs projects with the resources that have the most relevant competencies for each aspect of a project
OLG currently consists of: Morrison & Foerster: USA, UK and Asia Noerr: Germany, Central and Eastern Europe Gorrissen Federspiel: Denmark Kennedy van der Laan: Netherlands Courtois Lebel: France Orsingher Ortu – Avvocati Associati: Italy
What is the Outsourcing Law Group?
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Worldwide coverage Local knowledge
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Europe-wide Themes
Regulating innovation in outsourcing contracts What is innovation? Potential barriers to innovation Tool kit for regulating innovation
Country-specific experiences/case studies:
1) France 2) Germany 3) Netherlands
4) Denmark 5) Italy 6) United Kingdom
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Pia Mondrup Pedersen – Visiting Int’l Attorney, MoFo & Associate, Gorrissen Federspiel T: (+44) 20 7920 4024 E: [email protected]
Tim Roughton – Of counsel, MoFo T: (+44) 20 7920 4028 E: [email protected]
Speakers
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What is innovation?
Something that’s new
to a particular customer (e.g., practice, tool,
technology, process)
Something that’s completely novel, i.e.,
an invention
Something that improves the
customer’s services or costs, regardless of its
novelty
Source: IAOP 2012 survey of 202 outsourcing clients, providers, and advisors
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What is innovation?
The three communities agree that innovation is best defined as:
Source: IAOP 2012 survey of 202 outsourcing clients, providers, and advisors
Something that improves the customer’s services or costs,
regardless of its novelty
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What is innovation?
Source: IAOP 2012 survey of 202 outsourcing clients, providers, and advisors
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What is innovation?
Evolution Regulation of SLA
improvements, currency upgrades, technology refresh
Gain sharing models specific
governance structure to
regulated innovation and
investment
Outcome based
contracts
Variation in tools and different stages in maturity
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Potential barriers to innovation
Contractual barriers
Leading to
Vendor focus is on meeting pre-defined measurable
services
No incentives for vendor to deliver higher performance
or better services than those initially defined
Customer focus on control of the deliveries of services
and cost control
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Potential barriers to innovation
Contractual barriers
Leading to
Vendor suggestions on general knowledge, not
specific to customer
Customer has no funding and cannot invest time
and resources into project
Pricing is based on traditional payment for
new services
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Potential barriers to innovation
Organisational barriers
• Executive level should provide the framework • Realise and prioritise resource involvement • Comfort zone must be challenged
Customer involvement
• Assessment of vendor’s innovation capabilities
before down-selection • Track record of projects and services delivered to
other customers
Vendor capabilities
• Resources to govern the collaboration • Risk/reward – outcome-based pricing models
Willingness to invest
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Potential barriers to innovation
Organisational barriers
Multi-country, pan-European outsourcing
- Customer challenges
Different technologies
Differences in organisational
maturity Different strategies
Differences in
legislation
Different culture
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Tool kit for regulating innovation
The central purpose of the contract
The subject of specific targeted governance and
pricing mechanisms
Innovation can be pursued as:
or 2
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Tool kit for regulating innovation
Collaboration
Rigorous governance process
Executive buy-in and strategy
Innovation concepts
Financial incentives for both parties
Contractual incentives, it requires:
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Tool kit for regulating innovation Collaboration/Governance
Innovation Steering Board
Innovation Office
Innovation Manager
Innovation Project Working Groups
Ensure the commitment of resources from
both parties
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Tool kit for regulating innovation Executive buy-in and strategy
Ensure funding
Ensure the commitment of
resources
Customer executives to communicate
what shall be the focus/strategy
Other?
New Services?
New or improved business
processes? New tools and technologies?
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Tool kit for regulating innovation Innovation concepts
Customer Strategy New technologies
Transformation of service areas
Implementing new infrastructure for SAP environment and new
functionality in SAP
Concepts
Projects
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Tool kit for regulating innovation Example Innovation projects
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Tool kit for regulating innovation Financial incentives
Who pays and which incentives shall be
applied?
Investment
Penalties and bonuses
Charging models
Other models
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Tool kit for regulating innovation Gain share example 1 – reduced consumption
• Service Desk – pricing based on unit charges (no. of calls to help desk)
• Innovation project introduces user self-help tool which reduces need for calls to service desk
• Investment (implementation of tool and training) = €500k • Annual reduction in service charges = €1,000k • Parties agree that “reduced consumption” innovation projects have a
benefit sharing period of two years and 75/25 split • Net benefit to customer over 2 years = (€1,000k x 2) - €500k =
€1,500k • Supplier receives 25% of net benefit = €375k
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Tool kit for regulating innovation Gain share example 2 – reduced costs
• Innovation project identifies opportunity for supplier to reduce software licence costs by €5 million per annum
• Parties agree that “reduced charges” innovation projects have a 50/50 split and a benefit sharing period for the remainder of the term (or for as long as benefit is realised)
• Unit charge (or fixed price) is therefore reduced so that the aggregate charge is reduced by €2.5 million per annum
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Innovation in outsourcing
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Recognized expertise in particular on collective employment issues and company restructuring
Enabling clients to implement successful strategic projects
Advice in all the main areas of business law affecting outsourcing projects
Providing assistance with high added value, focused on the needs of our clients
• For over 40 years, Courtois Lebel offers its national and international clients a wide range of legal services in the key areas of business law.
• Courtois Lebel has expanded its areas of expertise in order to offer its clients comprehensive pragmatic solutions, both in legal advice and litigation.
• Courtois Lebel has strong links and shared background with major European consultancies.
• Courtois Lebel has an significant experience of the execution of major outsourcing projects for clients, in France and internationally,
Courtois Lebel - France
Key contact:
Herve Gabadou
T: (+33) 1 58 44 92 74
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Introduction
A change of behaviour is needed to reach the full potential of BPO contracts (2012 Accenture survey)
What about ITO and cloud computing contracts?
Barriers to innovation in BPO and ITO contracts
Some outsourcing operations are still contemplated for bad reasons
Contract incentives are skewed towards lower cost services and immediate gratification
But some thoughts in relation with more adapted mechanisms for obtaining and keeping value are gaining ground (value scorecards)
Innovation: A View from France
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A discrepancy between objectives and legal drafting remains
• Need for proactive remedies that provides more flexibility and a more constructive partnership mind-set
• Due to alleged regulatory constraints, some Telco operators claim that their T&Cs are not negotiable.
Cloud computing is perceived as a breakthrough innovation
Gives rise to organizational issues
The labour cost of cloud computing is a concern. Journalistic only?
The appropriate choice of cloud services remains a concern (see French DPA recommendations)
The due diligence process carried out for cloud computing companies acquisition is not as mature as in the U.S.A.
Innovation: A View from France
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• A Europe-wide established employment law team with pre-eminent know-how and reputation
• Well-suited to handling highly sophisticated international transactions
• Close interaction with internal practice groups and industry teams, e.g. outsourcing
• Long track record of outsourcing projects in a wide range of sectors
Among Germany’s leading independent law firms with 450 lawyers
Experience of more than 100 often highly complex outsourcing projects
Excellent presence in CEE: offices in Warsaw, Prague, Moscow, Bucharest, Budapest and Bratislava
Most innovative German law firm - Financial Times Innovative Lawyers
Noerr – Germany and CEE
Key contact:
Peter Brautigam
T: (+49) 89 28628145
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Handling Innovation: Example from the Insurance Industry
Create a Clause, obliging the Parties to adapt the System, so that it meets the State of Technology
3 Steps
Collecting and Consolidating of Innovations
Evaluation
Implementation and delivery
Establish an Innovation and Technology Board
Contractor has to inform the Customer about Innovation
Contractor has to evaluate Usability in the Hardware Environment of the Customer
Consider Service Level Agreements
Contractor and Customer discussing the Implementation of new Technology
Contractor will introduce new Roadmaps based on original Plans
Customer agrees to new Roadmap
Conduct Change Management Process
Innovation: A View from Germany
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Meetings of the Technology and Innovation Board
The Technology and Innovation Board should meet in a periodic time interval (e.g. every Year)
Roadmaps should include especially
Names of IT solutions and Products
Current state of the System
Short descriptions of supported Processes
Description of the IT environment
Expected costs
Innovation: A View from Germany
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One of the top 20 independent law firms in the Netherlands
More than half of the firm’s work is for international clients
Top tier in many practice areas with a strong focus on technology and employment law
Innovative, open, friendly, informal and totally engaged with clients
• The leading IT firm in the Netherlands
• Innovative out-of-the-box thinking and entrepreneurial savvy
• Broad experience in IT and business process outsourcing
• Our outsourcing team supports in all aspects of outsourcing: drafting, negotiating of the agreement(s), HR issues and transactional aspects.
Kennedy Van der Laan – The Netherlands
Key contact:
Patrick Wit
T: (+31) 20 5506 642
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Introduction
Innovation comes from Provider’s business improvements
Customer ideas and requirements for change
Market developments
Most contracts include clauses on continuous service improvement and innovation
Nothing ever happens, at least not during the lifetime of the contract
Way to go forward
Separate innovation from the services and change control , include commitment to propose
Create a market-place, business case driven and project oriented (run and change distinction)
Requires access, transparency, commitment to work together: all part of the contract
Innovation: A View from The Netherlands
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One firm, multiple perspectives
Consistent dedication to quality and understanding of our clients' needs
An integrated firm with more than 220 lawyers
Covering all branches of Danish and EU commercial law
• Gorrissen Federspiel is based in Copenhagen and Aarhus, has 226 lawyers, 44 partners and is one of the leading corporate law firms in the Nordics
• Broad experience of IT and business process outsourcing in Denmark and abroad
• Has advised on many of Denmark and the other Nordic region’s largest and most complex outsourcing transactions
Gorrissen Federspiel - Denmark
Key contact:
Tue Goldschmieding
T: (+45) 33 41 42 03
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Innovation: A View from the Nordics
•Evolution can successfully be regulated by contract clauses and SLAs.
•Evolution is the gradual improvement, including HW and SW currency obligations. No separate payment unless the threshold of “New Services” is reached
Distinguish between
innovation and evolution
•Over the last 15 years, we have tried long-winded and complex innovation clauses with and without SLAs and financial incentives. They don’t work!
•Despite gain sharing clauses, vendors have an overriding interest in maintaining status quo (which there business case was based upon)
•A vendor would always rather sell more of the same than reducing consumption!
• It is better to secure innovation through strong benchmarking clauses or by acquiring “New Services”
Keep innovation out of the contract
•The only exception to the above is a recent trend. Namely outcome-based outsourcing where the remuneration to the vendor is based on the customer’s achievement of revenue, profitability, OPEX or CAPEX targets
•Under such circumstances, the interests of the vendor and the customer are sufficiently aligned
Outcome-based outsourcing
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Focused on technology outsourcing as a core market
Significant international capacity: with 60% of clients from outside Italy
Accessible, available, responsive and reliable: offices in Rome and Milan
Rated top tier on major directories in Intellectual Property, Information Technology, Telecommunications and Media
• Italian leader in Telecoms, Media and Sourcing
• Focused Technology sector group with significant experience of outsourcing and access to a wider full-service practice familiar with issues affecting the Technology sector
• A young and dynamic team
Orsingher Ortu - Avvocati Associati - Italy
Key contact:
Domenico Colella
T: (+39) 02 89 075050
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Introduction
ITO involving an international bank
Scope: IT infrastructure and SW applications managing the bank’s operations
Multi-vendor scenario
Mission-critical factors
A Case Study
Technology Tools (e.g., IaaS)
Governance: Innovation Committee
Financial Incentives
Benchmarking
Mutual and continuing transfer of knowledge and know-how
Flexibility and proactive support tools (e.g., regulatory issues)
Innovation: A View from Italy
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One of the largest law firms in the world, with a unique technology focus
Full, first-tier service on sourcing projects in the United States, Europe and Asia
Using a collaborative style to create enduring outsourcing relationships
Client-focused ethos and global geographic reach
• With over 1,000 lawyers in 16 global offices, MoFo is one of the top 25 global law firms
• MoFo has a clear focus on technology law, the technology sector and complex services-based projects
• 60 specialist technology and outsourcing lawyers offer flexible, scalable resource on all types of technology and outsourcing projects
• Projects include outsourcings for large government agencies (H.M. Revenue & Customs (U.K.), State of Georgia), banks (Lloyds Banking Group, Bank of America), manufacturers (Novartis), technology businesses (McKesson, Amadeus)
Key contact:
Alistair Maughan
T: (+44) 20 7920 4066
Morrison & Foerster - UK
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Introduction
What to Incentivize?
When to Incentivize?
Who to Incentivize?
What Incentives?
A Case Study
Tactical short-term changes: charge reduction initiatives
Strategic longer-term changes: use of Transformation Fund
Agreed savings initiatives
Joint investment
Shared process governance
“more for less” leading to “more for more”
Protections and benefits for vendor
Innovation: A View from the UK
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Courtois Lebel is in the top 5 of the independent firms in the Technology field (Legal 500).
We act for both technology businesses such as Logica (CGI), Sopra Consulting and SAS Institute (the Business Intelligence leading company) and leading French companies such as Aviva, BNPP, Lafarge, Natixis, etc.
Courtois Lebel has more than twenty years of experience in this area. The firm has one of France’s largest technology and outsourcing teams with 10 lawyers, including 3 partners
The DNA of the IT & telecommunications department is in its capacity to understand and give a legal classification of a technical and operational situation that is often complex.
The team has developed dedicated tools and methodologies for use by and on behalf of its clients
Courtois Lebel A leading French technology and outsourcing adviser
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Noerr has grown to become Germany’s leading independent law firm with 15 offices across Germany and the CEE/CIS region, with additional locations in Alicante, London and New York City. Starting out in Munich in 1950, Noerr today is a full-service law firm with its own distinctive style and culture, and widely recognized for providing interdisciplinary advice and quality services responsive to the needs of its national and international clients.
Noerr’s preeminent IT group has in-depth knowledge and expertise in handling licensing, procurement, outsourcing, sales, auctions, and technology transfer transactions that involve computers, software, networks, telecommunications equipment, and other intellectual property. Noerr’s IT partners are acknowledged throughout Europe as leading minds in outsourcing, IT outsourcing and other IT projects. The firm also provides a dedicated Outsourcing & IT Outsourcing Group, combing the firm’s hybrid expertise in business, communications, technology law, and IP, which allows them to provide exceptional business-focused legal advice in relation to demanding transactions.
Recognized as “an authority in IT” by Chambers Europe 2012, Noerr has a reputation as “one of the few [German firms] to focus clearly on this field” (German JUVE guide 2011)
For more information, see www.noerr.com or our Outsourcing & IT Outsourcing Group http://www.noerr.com/en/Desktopdefault.aspx/tabid-332
Noerr An elite IT team
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Kennedy Van der Laan is a Dutch law firm with an international focus. The firm is based in Amsterdam, has 95 lawyers and civil notaries and 25 partners. Chambers Europe describes the firm as “Kennedy Van der Laan is one of the Netherlands top independent law firms, based in Amsterdam. The firm has excellent legal knowledge in all avenues of work, offers prompt and practical advice, deals with legal issues and creates the right solutions in an unconventional and socially responsible way.”
Kennedy Van der Laan is leading in technology and outsourcing in The Netherlands with more than twenty years of experience in this area. The firm has the largest technology and outsourcing team with 20 lawyers, including 6 partners.
The practice covers both IT outsourcing and BP outsourcing (incl. HR service, financial services and facilities). The majority of the clients are AEX listed multinationals in areas like banking, insurance, retail and industry. The firm also supports some selected providers of outsourcing services.
The lead partners of the outsourcing practice, Patrick Wit, Reinoud Westerdijk and Joost Linnemann, are all recognized as among the best technology and outsourcing lawyers in the country. Reinoud Westerdijk is a member of the board of ITechLaw. Patrick Wit is the legal member of the program committee of the Dutch Outsourcing Platform.
Kennedy Van der Laan The leading technology and outsourcing practice in The Netherlands
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Gorrissen Federspiel is based in Copenhagen, has 225 lawyers, 41 partners and is one of the leading corporate law firms in the Nordic region
Gorrissen Federspiel has the only fully dedicated outsourcing team in the Nordic region and is generally recognised as the leading outsourcing practice. The team consists of 1 partner, 3 project lead attorneys, 1 attorney, and 2 junior associates. Most of the lawyers in the outsourcing team are ITIL v3 foundation certified
The practice is based on large-scale international projects and deals primarily with cross-border transactions, often with no domestic or Nordic team lead
Ole Horsfeldt, is the author of IT Outsourcing, published by Thomson, the only legal and practical book on outsourcing published in the Nordics, and has for several years been chairman of ITechLaw’s outsourcing committee. Ole Horsfeldt is part of IAOP’s Nordic leadership
Gorrissen Federspiel The leading practice in the Nordics
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Orsingher Ortu – Avvocati Associati is a TMT specialized Italian law firm that counts 25 lawyers and fee-earners. Our partners are consistently rated top tier on major directories in Information Technology and Outsourcing, Media and Intellectual Property and have spent a significant number of years as head of practice at international firms such as Freshfields or Dewey LeBoeuf
Our outsourcing team has more than 15 years of experience in advising multinational corporations on complex transactions including ITO/Infrastructure, BPO, HR deals
This team is skilled to assist your company for any aspects of an outsourcing transaction including corporate, employment and regulatory matters
Technical excellence, business-orientation, responsiveness and reliability are key values underlying the relationship with our clients
The Firm “advises clients from a plethora of industries, but particularly those in the media sector. Domenico Colella [handles] complex technology deals” // Chambers, 2012
Orsingher Ortu – Avvocati Associati Italian top player in the TMT sector
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MoFo is one of the leading international law firms, with more than 1,000 lawyers in 16 offices in Europe, Asia and the United States. Our clients include some of the largest financial institutions, corporations and government agencies
We have had an office in London since 1980. Today, our London office includes 16 partners and 55 lawyers – and focuses on technology & outsourcing, corporate, litigation and finance projects
Technology and outsourcing are key MoFo strengths. We act for technology businesses such as Apple and Intel in their global operations, and for large organizations such as Lloyds Bank, Novartis and the UK government in their technology and outsourcing projects
Chambers has called MoFo “the premier IT firm in the World” For more information, see http://www.mofo.com/outsourcing-services/ or our tech
blog http://www.mofotechblog.com/
Morrison & Foerster A leading international technology and outsourcing adviser
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