Sourcing Global and Israeli trends 2008

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Galit FeinSenior Analyst & VP

[email protected]

Sourcing Sourcing

Israeli Israeli TrendsTrends

20082008



Agenda

WW outsourcing trends

Israeli outsourcing trends

Selective outsourcing

Infrastructure, HD, QA/Testing, BPO

Professional Services

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Outsourcing Objectives – Unchanged

Cost reduction is most companies' primary

objective for pursuing IT outsourcing – 65%

Focus on core business – 58%

Lack of inhouse resources – 52%

Better expertise – 26%

Moved fixed cost to variable cost – 15%

Avoid capital investment- 10%



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Top Factors for Failed Outsourcing

Management lacks prior experience with outsourcing

Management lacks skill at writing & negotiating outsourcing contracts

The work outsourced is difficult to standardize

Quality didn’t not meet expectations


What kinds of work are you currently outsourcing or planning to outsource?

5Source: Cutter


For what reasons have you considered insourcing?

6Source: Cutter



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Outsourcing Model Israeli Trends

Outsourcing model evolution or equilibrium?

Outsourcing market has matured & customer are deeply aware of the advantaged & risks involved

1/3 of deals were total IT function, especially with SMBs

Rest of deals were of transferring processes & specific fields to outsourcer:

Help Desk

Infrastructure



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Outsourcing Israeli Trends

Outsourcing market growth has narrowed:

• Overcoming recessional economy

• End of vendors’ “suicidal prices”

• Extreme changes in the IT executive lead

• Advertised disagreements & problems with the contract between Mataf & EDS




Most orgs. are successful in achieving their objectives, but in general they feel neutral about the results

Companies generally have difficulty evaluating vendor capabilities & outsourcing outcomes

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Companies are choosing vendors with proven

abilities to deliver services according to SLA

Clients changing preference – smaller contracts~

3-5 years

Highly competitive market with increasing no.

of vendors

New players are entering the IT arena: Bynet ,

Taldor




Engagement with multiple vendors

Vendor portfolio restructuring

Consulting company or dedicated IT Executive

are in charge of Client-Vendor negotiation &

mngt

Main players:

Ness, EDS, IBM, Malam-Team, HP11



Selective Outsourcing Israeli Trends

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Comprehensive outsourcing

• Loss of Flexibility

• Increased Risk

• Loss of Internal

Expertise

Selective examples:

EDS: Kneset

HP: Tower

Malam – Team: Dan

Ness: Tadiran Appliances

Selective outsourcing

• Vendor Competition

• Shared Objectives

• Core Competencies

Selective examples:

Malam-Team: Tel-Aviv municipality

HP: Telrad

EDS: Alvarion

Ness?


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Infrastructure Outsourcing

TACTICAL IT

• Tactical functions

simply keep the

business up & running

on a day-to-day basis:—HW/ SW maintenance

—DBA

—System management

—Network management

—Security

—ERP

STRATEGIC IT

• Strategic functions drive

the company’s dollar,

stock value , &

competitive advantage:—Business development—New system

development—Product marketing

support—Sales force automation—R&D—Business & IT

alignment

Perform similar activitiesbetter than rivals

-Perform different activities

than rivals do. -Perform same activities

butin different ways than

rivals

Out

sour

cing

In-h

ouse



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Service Desk Israeli Trends

IT service & support represents up to 10% of IT

operating budget

ITOs that do not manage operating costs efficiently will likely find themselves outsourced

Selective examples:

Calanit-Carmon – IAI; Malam-Team-Tel-Aviv Municipality, EDS - Alvarion

Personalized service does not equal higher quality of service



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Service Desk Israeli Trends

To compete with outsourcers ITO must:

• Manage Labor Resource Career Pathing

• Leverage technology to automate the processes (self-service, integration between the HD, asset & change)

• Adopt methodology (ITIL)



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Service Desk Israeli Trends Labor Resource Career Pathing

Vendors expertise in managing problematic HD 1st level support:• High turnover • Lack of loyalty • Lack of vivid career path

Dedicated HR & specific qualification

Mngt of the career paths of staff• Rotation of 36 month



QA/Testing Management Israeli Trends

Rapidly growing field Acknowledging the advantage & cost saving by

outsourcing: the transition from PS to outsourcing

Israeli near shore: • Main Player: Matrix (Talpiot) • Malam (Ma’alot)• Ness (EDC)• Aman (Tehila)

Main Players:

Ness & Tescom, Malam-Team, Matrix17



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Business Process Outsourcing

BPO adoption: unraised in past two years

Strategic concerns about losing their core capabilities

Intellectual property, privacy, & security issues

BPO will increase in markets dependent on

unskilled labor



Measurement

Major obstacle - measurement

ITOs are not satisfied with their abilities to

acquire & use productivity metrics

ITOs still struggle with metrics design &

implementation

ITOs mostly rely on the vendor's estimate

The measurement problem pertains not only to

outsourcing but also to the overall operation of

a firm 19



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Professional Services Israeli Trends

Professional services growth has narrowed

In-sourcing trend as management perception

Opposite trends in private versus public sectors

Need for flexibility & specific proficiency:

• Demand on professional niche experts (BI, SQL,

Security, Oracle Applications, etc)



Professional Services Israeli Trends

ITOs prefer fix prices (overtime hours, sick pay, miluim)

Transparency with the suppliers Paradoxical situation

PS Advantages Employee’s preservation (training, professional

support, excursions, pay increase, high mobility)

FTE Advantages Employee’s sense of belonging Cost saving

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Professional Services Trends

Increase in professional services rates:

• BI– major increasing: 15-20%

• Programming .NET & Java ~ 10%

• Oracle Apps ~ 10%

• System ~ 10%

• QA – increasing demand ~ 10%

• HD & PC technicians - no change


Which IT skills are you planning to outsource?

23Source: Cutter


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Thank you!

Galit FeinSenior Analyst & [email protected]

Economy & Finance

Sourcing Global and Israeli trends 2008