Business-Oriented Trends in IT Outsourcing

Business-Oriented Trends in IT Outsourcing

Alan McSweeney

January 30, 2012 2

Objectives

• To identify business-oriented trends in Information Technology outsourcing

January 30, 2012 3

Topics

• Outsourcing Trends

• Business-Oriented General IT Trends

• Transition and Transformation Within Outsourcing

• Outsourcing and Innovation

• A (Financial) Tale of Three Outsourcing Vendors

January 30, 2012 4

ITO Trends

January 30, 2012 5

State of Outsourcing in 2011

• Survey conducted by the London School of Economics Outsourcing Unit

• 1,209 Buyers, Providers and Advisors of Outsourcing Services

• Large study across spectrum of outsourcing industry

• Provides insight into market trends and therefore should be part of any organisation’s strategy

January 30, 2012 6

State of Outsourcing in 2011

• Key points

−Outsourcing increasing across all organisation sizes and organisations that do not currently outsource

− Cost an important factor

−After cost, track record, culture, global scale and knowledge are important

−Advisors playing an increasingly important role

−Outsourcing providers not aware of how they are perceived

− Focus is on business benefits rather than technology

January 30, 2012 7

State of Outsourcing in 2011 – Some Results

• Nearly three quarters or organisations plan to increase outsourcing activities

• 59% of organisations with a shared services function and planning to increase outsourcing significantly− Shared services function is an organisational infrastructural stepping stone to outsourcing

• Key reasons for outsourcing are− Cost reduction - 60-76% view as very important, depending on organisation size− More effective operations - 50-64% view as very important, depending on organisation size

• 46% have found outsourcing very effective in reducing costs• 35% have found outsourcing ineffective in innovation• 31% have found outsourcing ineffective in proving access to new technology• 31% have found outsourcing ineffective in proving access to business process knowledge and experience

• In-house delivery of IT and Business Processes still dominates with outsourcing limited to Help Desk and application development and support

• Factors rated as very important such as not being convinced of service providers’ capabilities (39%), not being convinced of long-term business benefits (30%), insufficient short-term cost savings (37%) and fear of disruption limiting (31%) decisions to outsource

• 29% of outsourcing suppliers view buyers not being convinced of their capabilities as being very important - gulf between buyer and provider

• IT infrastructure and application development and maintenance outsourcing are seen as the core outsourcing areas by buyers− 68% already outsource infrastructure and will increase or plan to outsource− 62% already outsource application development and maintenance outsourcing and will increase or plan to outsource

• 63% of medium-sized companies and 44% of large companies say outsourcing has been very effective in reducing costs

• Buyers rate financial stability, track record and change management/governance process delivery, scale, industry specific knowledge and culture as the most critically important skills of outsourcing suppliers

• The role of advisor in working with buyers on outsourcing is increasing

January 30, 2012 8

Study Respondents’ Profile

January 30, 2012 9

Buyers’ Organisation Size by Revenue

January 30, 2012 10

Buyers’ Industries

January 30, 2012 11

Outsourcing And Shared Services Delivery Dominate Global Service Models Over Next 3 Years

• Emerging from the recession, will your company increase / reduce its reliance on the following operating models for general and administrative functions, over the next three years?

January 30, 2012 12

Most Organisations With Shared Services Are Increasing Outsourcing

• Emerging from the recession, will your company increase / reduce its reliance on the following operating models for your general and administrative functions, over the next 3 years?

January 30, 2012 13

Business Challenges Driving Outsourcing In 2011

• How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important

January 30, 2012 14

Europeans Want To Drive Out Cost And Globalise –Without Changing Their Processes

• How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year?− Answer = Very Important

January 30, 2012 15

Buyers Achieving Modest Business Results Beyond Cost-Reduction With Their Outsourcing Initiatives

• How Effective Have Your Current Outsourcing Initiatives Been At Achieving The Following Business Benefits To-Date?

January 30, 2012 16

What Is Your Primary Sourcing Model For Managing The Following IT and Business Processes?

• Untapped sourcing potential

• In-house delivery of IT and Business Processes still dominant in 2011

January 30, 2012 17

Concerns Holding Back Outsourcing In 2011

• How Important Are The Following Factors Preventing Your Organisation From IT Outsourcing Or Business Processes Over The Next 12 Months?

January 30, 2012 18

Providers Oblivious To Buyers’ Perception Of Them

• How Important Are The Following Factors In Preventing Your Clients From Outsourcing IT Or Business Processes Over The Next 12 Months? (Outsourcing Providers)

January 30, 2012 19

Demand For Core General And Administrative Outsourcing Reaches Unprecedented Levels

January 30, 2012 20

First-Time Enterprise Buyers Look To Jump Into BPO

• % Buy-side organizations looking to outsource for the first time over the next 12 months

January 30, 2012 21

Effectiveness Of Current Outsourcing Engagements: Mid-Market Organisations Benefitting The Most

• How Effective Have Your Current Outsourcing Initiatives Been For Achieving The Following Business Benefits To-Date?− Answer = Very Effective

January 30, 2012 22

The Enterprise Market Gears Up For An Aggressive Spike In Scope-Expansion Across Maturing Functions

• % Buy-Side Organisations Already Outsourcing And Intending To Increase Scope Over The Next 12 Months

January 30, 2012 23

After Financial Considerations, Buyers Care (Or Say They Care) About The Governance, Industry Acumen And Cultural Attributes Of Providers

• How Important Are The Following Attributes To Your Clients Today, When Considering A Service Provider Relationship For IT/BPO Services?

January 30, 2012 24

Providers Underestimate Importance Buyers Place On Change Management, Governance And Culture

January 30, 2012 25

Advisors Are Buoyant About It When Looking At Future Outsourcing Plans

• Do You Expect Your Clients To Increase Or Reduce Their Activity Across The Following Areas, Over The Next 18 Months? − Outsourcing Advisers And Suppliers

January 30, 2012 26

Management Consultants Increasingly Influencing Outsourcing

• Extent By Which Providers Have Been Seeing The Following Advisors Influence Their Clients' Outsourcing Decision-Making Over The Last Six Months

January 30, 2012 27

ITO Concerns

• Transition takes too long

• Not integrated

• Business disruptions

• Increased business risk

• Lower service quality

• Treatment of acquired employees

• Does not deliver value

• High cost of operation

• Confusion over what is being sold

January 30, 2012 28

Analysis of Some Information Technology Trends

• AICPA – Survey of members from 2001 to 2011 on initiatives in IT that are of concern to their 370,000 members

− http://www.aicpa.org/INTERESTAREAS/INFORMATIONTECHNOLOGY/RESOURCES/TOPTECHNOLOGYINITIATIVES/Pages/2011TopTechInitiatives.aspx

• Gartner – well known analyst company

• Two very different views of information technology trends

− Business-oriented

− Technology-oriented

• IT tends to be concerned with technology trends for themselves rather than their application to business

• IT outsourcing needs to concern itself with business needs rather than just pure IT

January 30, 2012 29

Gartner – Key IT Trends 2008 - 2011

2011 2010 2009 2008

1 Cloud Computing Cloud Computing Virtualisation Green IT

2 Mobile Applications and Media

Tablets

Advanced Analytics Cloud Computing Unified Communications

3 Social Communications and

Collaboration

Client Computing Servers - Beyond Blades Business Process Modelling

4 Video IT for Green Web-Oriented

Architectures

Metadata Management

5 Next Generation Analytics Reshaping the Data Centre Enterprise Mashups Virtualisation 2.0

6 Social Analytics Social Computing Specialised Systems Mashup and Composite

Applications

7 Context-Aware Computing Security – Activity

Monitoring

Social Software and Social

Networking

Web Platform and Web-

Oriented Architectures

8 Storage Class Memory Flash Memory Unified Communications Computing Fabric

9 Ubiquitous Computing Virtualisation for

Availability

Business Intelligence Real World Web

10 Fabric-Based Infrastructure and

Computers

Mobile Applications Green IT Social Software

• How relevant are these trends to the business and to end-user organisations?

• Where have the old trends gone to – lack of continuity between years?

• Are they fads more than trends?

January 30, 2012 30

AICPA Top 10 IT Initiatives 2001-20112011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

1 Security Of Data, Code

& Communications /

Data Security &

Document Retention /

Security Threats

Control and Use of

Mobile Devices

Information

Security

Management

Information

Security

Management

Information

Security

Management

Information

Security

Information

Security

Information

Security

Information

Security

Business And

Financial Reporting

Applications

Information

Security And

Controls

2 Connectivity / Wireless

Access / High Speed

Internet Connections /

Voice And Data

Information

Security

Privacy

Management

IT Governance Identity And Access

Management

Assurance And

Compliance

Applications

Electronic

Document

Management

Spam Technology Business

Information

Management

Training And

Technology

Competency

E-Business

3 Backup Solutions/

Disaster Recovery/

Business Continuity

Data Retention

Policies and

Structure

Secure Data File

Storage,

Transmission And

Exchange

Business Continuity

Management And

Disaster Recovery

Planning

Conforming To

Assurance And

Compliance

Standards

Disaster And

Business Continuity

Planning

Data Integration Digital OptimisationApplication

Integration

Information

Security and

Controls

Electronically-

based Business and

Financial Reporting

4 Secure Electronic

Collaboration With

Clients – Client Portals

Remote Access Business Process

Improvement,

Work Flow and

Process Exception

Alerts

Privacy

Management

Privacy

Management

IT Governance Spam Technology Database and

Application

Integration

Web Services Quality of Service Privacy

5 Paperless Workflow/

Paperless Technology

Staff and

Management

Training

Mobile and Remote

Computing

Business Process

Improvement,

Workflow and

Process Exception

Alerts

Disaster Recovery

Planning and

Business Continuity

Management

Privacy

Management

Disaster Recovery Wireless

Technologies

Disaster Recovery Disaster Recovery

Planning and

Business Continuity

Management

Training and

Technology

competency

6 Laptop Security /

Encryption

Process

Documentation and

improvements

Training and

Competency

Identity and Access

Management

IT Governance Digital Identity and

Authentication

Technologies

Collaboration and

Messaging

Technologies

Disaster Recovery Wireless

Technologies

Communication

Technologies

Bandwidth

Disaster Recovery

7 Small Business

Software / Office 2010

/ Windows 7

Saving and Making

Money

w/Technology

Identity and Access

Management

Conforming to

Assurance and

Compliance

Standards

Securing and

Controlling

Information

Distribution

Wireless

Technologies

Wireless

Technologies

Data Mining Intrusion Detection Remote

Connectivity Tools

Qualified IT

Personnel

8 User Mobility/ Mobile

Computing/ Mobile

Devices

Technology Cost

Controls

Improved

Application and

Data Integration

Business

Intelligence

Mobile and Remote

Computing

Application and

Data Integration

Authentication

Technologies

Virtual Office Intrusion Detection Web-Based and

Web-Enabled

Applications

Quality of Service

9 Tax Software/

Electronic Transmittals

Of Tax Forms

Budget Processes Document, Forms,

Content and

Knowledge

Management

Mobile and Remote

Computing

Electronic Archiving

and Data Retention

Paperless Digital

Technologies

Storage

Technologies

Business Exchange

Technology

Customer

Relationship

Management

Qualified IT

personnel

Electronic Audit

Trail

10Server Virtualization

And Consolidation

Project

Management &

Deployment of

New Systems

Electronic Data

Retention Strategy

Document, Forms,

Content and

Knowledge

Management

Document, Content

and Knowledge

Management

Spyware Detection

and Removal

Learning and

Training

Competency

Messaging

Applications

Privacy Messaging

Applications (e-

mail, faxing,

voicemail, instant

messaging)

Application Service

Provider

January 30, 2012 31

AICPA Top 10 IT Initiatives 2005-20112011 2010 2009 2008 2007 2006 2005

1 Security Of Data, Code &

Communications / Data

Security & Document

Retention / Security Threats

Control and Use of

Mobile Devices

Information Security

Management


Management


Management

Information Security Information Security


Access / High Speed

Internet Connections /

Voice And Data

Information Security Privacy Management IT Governance Identity And Access

Management

Assurance And

Compliance Applications

Electronic Document

Management

3 Backup Solutions/ Disaster

Recovery/ Business

Continuity

Data Retention Policies

and Structure

Secure Data File

Storage, Transmission

And Exchange

Business Continuity

Management And

Disaster Recovery

Planning

Conforming To Assurance

And Compliance

Standards

Disaster And Business

Continuity Planning

Data Integration

4 Secure Electronic

Collaboration With Clients –

Client Portals


Improvement, Work

Flow and Process

Exception Alerts

Privacy Management Privacy Management IT Governance Spam Technology



Staff and Management

Training

Mobile and Remote

Computing

Business Process

Improvement,

Workflow and Process

Exception Alerts

Disaster Recovery

Planning and Business

Continuity Management

Privacy Management Disaster Recovery

6 Laptop Security / EncryptionProcess Documentation

and improvements

Training and

Competency

Identity and Access

Management


Authentication

Technologies

Collaboration and

Messaging Technologies

7 Small Business Software /

Office 2010 / Windows 7

Saving and Making

Money w/Technology

Identity and Access

Management

Conforming to

Assurance and

Compliance Standards

Securing and Controlling

Information Distribution

Wireless Technologies Wireless Technologies


Computing/ Mobile Devices

Technology Cost

Controls

Improved Application

and Data Integration

Business Intelligence Mobile and Remote

Computing

Application and Data

Integration

Authentication

Technologies

9 Tax Software/ Electronic

Transmittals Of Tax Forms


Content and Knowledge

Management

Mobile and Remote

Computing

Electronic Archiving and

Data Retention

Paperless Digital

Technologies

Storage Technologies

10 Server Virtualization And

Consolidation

Project Management &

Deployment of New

Systems

Electronic Data

Retention Strategy

Document, Forms,

Content and

Knowledge

Management

Document, Content and

Knowledge Management

Spyware Detection and

Removal

Learning and Training

Competency

January 30, 2012 32

Security, Privacy, Governance, Disaster Recovery2011 2010 2009 2008 2007 2006 2005



Security & Document


Control and Use of

Mobile Devices


Management


Management


Management



Access / High Speed Internet

Connections / Voice And Data


Management

Assurance And


Electronic Document

Management


Recovery/ Business

Continuity

Data Retention

Policies and Structure

Secure Data File


And Exchange

Business Continuity

Management And

Disaster Recovery

Planning


And Compliance

Standards


Continuity Planning

Data Integration

4 Secure Electronic


Client Portals


Improvement, Work

Flow and Process

Exception Alerts





Training

Mobile and Remote

Computing

Business Process

Improvement,


Exception Alerts

Disaster Recovery




6 Laptop Security / Encryption Process

Documentation and

improvements

Training and

Competency

Identity and Access

Management


Authentication

Technologies

Collaboration and




Saving and Making

Money w/Technology

Identity and Access

Management

Conforming to

Assurance and







Technology Cost

Controls




Computing


Integration

Authentication

Technologies




Content and Knowledge

Management

Mobile and Remote

Computing


Data Retention

Paperless Digital

Technologies



Consolidation

Project Management

& Deployment of New

Systems

Electronic Data

Retention Strategy

Document, Forms,

Content and

Knowledge

Management


Knowledge Management


Removal


Competency

January 30, 2012 33

Data, Information and Document Management/ Integration and Analysis and Related Initiatives

2011 2010 2009 2008 2007 2006 2005



Security & Document


Control and Use of

Mobile Devices


Management


Management


Management



Access / High Speed Internet

Connections / Voice And Data


Management

Assurance And


Electronic Document

Management


Recovery/ Business

Continuity

Data Retention Policies

and Structure

Secure Data File


And Exchange

Business Continuity

Management And

Disaster Recovery

Planning


And Compliance

Standards


Continuity Planning

Data Integration

4 Secure Electronic


Client Portals


Improvement, Work

Flow and Process

Exception Alerts





Training

Mobile and Remote

Computing

Business Process

Improvement,


Exception Alerts

Disaster Recovery




6 Laptop Security / Encryption Process

Documentation and

improvements

Training and

Competency

Identity and Access

Management


Authentication

Technologies

Collaboration and




Saving and Making

Money w/Technology

Identity and Access

Management

Conforming to

Assurance and







Technology Cost

Controls




Computing


Integration

Authentication

Technologies




Content and

Knowledge

Management

Mobile and Remote

Computing


Data Retention

Paperless Digital

Technologies



Consolidation

Project Management

& Deployment of New

Systems

Electronic Data

Retention Strategy

Document, Forms,

Content and

Knowledge

Management


Knowledge

Management


Removal


Competency

January 30, 2012 34

AICPA Top IT Initiatives

• Notice any differences?

• Business-oriented focus of IT initiatives−Not concerned with IT plumbing and infrastructure (such as cloud)

but on business concerns - running the business - and business-related IT concerns – potential impact of IT systems on the wider business

− Security, privacy, disaster recovery/business continuity and governance concerns dominate

• How will pure technology trends assist in delivering these initiatives?

• Effective IT outsourcing assist with addressing these concerns

January 30, 2012 35

Transition and Transformation Within Outsourcing

• Transition is the entire process for assuming operational responsibility for the acquired entity− Transition moves the acquired entity organization from its current mode of

operation to an integrated managed mode of operation− Transition includes the takeover of the “as-is” business and operating

environment as well as contractual requirements necessary to facilitate the transfer.

• Transformation is the implementation of completed integrated solution within a specified time, that lead to entirely integrated operation, service enhancements and/or quality, productivity, technology improvements and cost savings/reductions

• An approach to transformation is very important for successful outsourcing

• Transformation is the basis for greater cost savings and innovation

• Outsourcing without transformation is a risk as what is outsourced can stagnate over time

January 30, 2012 36

Transition and Transformation

Transition TransformationSteady State

Operation

Customer

Infrastructure

and

Applications,

Staff, Support

Processes and

Tools

Customer

Infrastructure

and

Applications,

Transferred

and Being

Supported by

Supplier

Standardised

Infrastructure

Through

Refresh,

Customer

Support

Processes and

Tools

Replaced by

Supplier

Standards

Primary

Support

Transferred to

Appropriate

Cost Location

• Transition and transformation is a process that must be articulated effectively to customers

• Customer must understand the implications and must accept the process

• Delays or stoppages affect supplier’s costs

January 30, 2012 37

Evaluation and

Decision

Negotiation and

Contract Signing

Pre-Operation and

Pre-Integration

Start

Transition Transformation

Steady State

Operation of

Integrated Entity

Preliminary

Transition Plan

Due Diligence

Final Transition Plan

Integration

Preparation

Transition Initiation

Finalise Integration

Solution

Architecture

Due Diligence

Review and

Confirmation

Transformation

Planning

Contract

Effective Date

Service

Commencement Date

Outsourcing Process

Contract ReviewTransformation

Delivery

Transition

Completed

Transformation

Completed

January 30, 2012 38

Propose, Negotiate and Close

Planning

Research, Analysis, Identification

Preliminary Transition and

Transformation Plans

Due Diligence

Final Integrated Transition Plan

Transition TransformationOngoing

Operation

Transition Initiation/Kick-off

Post Contract Verification

Solution Handoff

Acquisition Management Office

Transfer

Operation Commencement

Preparation

Final Integrated Transition Plan

Transformation Initiation/Kick-off

Stabilisation

Standardisation

Transformation Close

Signed ContractIntegration Start

Review

Transition

Criteria Achieved

Terms and

Conditions

Transition to

Delivery Handoff

Transformation

Review

Transformation

Criteria Achieved

Transformation

to Delivery

Handoff

Delivery

Quality Review

Milestone

Handoff Events

Key Reporting

Events

Acquisition

Engagement Stage

Transition and

Transformation Phase

Activity

Transition and Transformation Management

January 30, 2012 39

Types of Outsourcing Arrangement

• Efficiency/Utility (Make it Cheaper) arrangement outsourcing focuses primarily on cost control and, over time, cost reduction, with the goal of maintaining consistency in the delivery of services

• Business Enhancement (Make it Better) arrangement is about business productivity. The organisation’s performance, as compared with their competitors, will improve, resulting in movement toward defined business goals

• Transformational (Make me Money) arrangement is characterised by a partnership between the service provider and service recipient that is focused on innovation and new business, changing the very basis on which an organisation competes

• Which arrangement are you looking for?

• Clearly understand what your expectations are

January 30, 2012 40

Problems With Outsourcing

• Many organisations take a “fire and forget” approach to outsourcing

• Problems with outsourcing are as much the fault of the outsourcing organisation as they are of the supplier

• Outsourcing organisation need to define an operating model and be engaged with the outsourcing relationship

• You can outsource anything except the management of the outsourcing relationship

January 30, 2012 41

Outsourcing and Innovation

• Outsourcing is not viewed by buyers or suppliers as a source of innovation−Not seen as an agent of change, innovation, transformation,

access to new technology

• Outsourcing is seen as “your mess for less”

• Buyers neglect the value of transformation and how it can contribute to innovation and generate real business benefits

• Providers do not sell transformation as a pre-requisite for innovation as well as further cost savings

• Companies looking to outsource should look for a transformation and innovation vision from their supplier

January 30, 2012 42

Business Challenges Driving Outsourcing In 2011

• How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important

• Innovation, Change, Access to New Technology, Transformation seen as relatively unimportant

January 30, 2012 43

Europeans Want To Drive Out Cost And Globalise –Without Changing Their Processes

• How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year?− Answer = Very Important

• Innovation, Change, Access to New Technology, Transformation seen as relatively unimportant outside Asia

January 30, 2012 44

Buyers Achieving Modest Business Results Beyond Cost-Reduction With Their Outsourcing Initiatives

• How Effective Have Your Current Outsourcing Initiatives Been At Achieving The Following Business Benefits To-Date?

• Existing outsourcing suppliers not seen as effective in delivering Innovation, Change, Access to New Technology, Transformation

January 30, 2012 45

Effectiveness Of Current Outsourcing Engagements: Mid-Market Organisations Benefitting The Most

• How Effective Have Your Current Outsourcing Initiatives Been For Achieving The Following Business Benefits To-Date?− Answer = Very Effective

• Existing outsourcing initiatives not seen as effective in delivering Innovation, Change, Access to New Technology, Transformation

January 30, 2012 46

After Financial Considerations, Buyers Care (Or Say They Care) About The Governance, Industry Acumen And Cultural Attributes Of Providers

• How Important Are The Following Attributes To Your Clients Today, When Considering A Service Provider Relationship For IT/BPO Services?

• Buyers of outsourcing services do not rate Innovation and Transformation as important supplier attributes

January 30, 2012 47

Providers Underestimate Importance Buyers Place On Change Management, Governance And Culture

• Buyers of outsourcing services do not rate Innovation and Transformation as important supplier attributes but suppliers still underestimate the important of Innovation

January 30, 2012 48

Transformation Process Introduces Standardisation and Enables Innovation

• Takes disparate set of sources and creates standard model

• Effective transformation is an enabler of innovation with IT function

− On-demand self-service

− Elastic

− Measured and metered usage and pricing

− Scale

− Resilience

− Available

− Secure

From … To …

January 30, 2012 49

A (Financial) Tale of Three Outsourcing Vendors

• Sample analysis of three vendors involved in outsourcing

−Dell – small outsourcing practice based on acquisition of Perot Systems and legacy outsourcing business

−HP – large outsourcing vendor with expanded practice since the acquisition of EDS

− IBM – large outsourcing vendor

• By no means exhaustive – there are many outsourcing service providers

January 30, 2012 50

Vendor Comparison Summary

• Outsourcing Revenue for Dell includes all services including outsourcing

• Dell performing poorly relative to its competitors:

− Lower margins

− Lower proportion of service and outsourcing revenues

2010 2009 2008

Dell HP IBM Dell HP IBM Dell HP IBM

Revenue 52,902 126,033 99,870 61,101 114,552 95,758 61,133 118,364 103,630

Gross Margin 9,261 29,996 46,040 10,957 27,034 43,761 11,671 28,644 45,701

Gross Margin % 17.5% 23.8% 46.1% 17.9% 23.6% 45.7% 19.1% 24.2% 44.1%

Net Income 1,433 8,761 14,833 2,478 7,660 13,425 2,947 8,329 12,334

Net Income % 2.7% 7.0% 14.9% 4.1% 6.7% 14.0% 4.8% 7.0% 11.9%

Outsourcing Revenue 5,622 18,835 22,241 5,351 18,692 21,620 4,980 8,211 22,733

Outsourcing Revenue % 10.60% 14.90% 22.30% 8.80% 16.30% 22.60% 8.10% 6.90% 21.90%

January 30, 2012 51

Vendor Comparison

• Compare Dell, HP and IBM

• Comparisons taken from 10-K filings

• Difficult to make exact comparison− Major service-related takeovers

• Dell acquire Perot in Nov 2009

• HP acquire EDS in Aug 2008

• Classification of revenues not consistent between years

• Restatement of revenues− Dell 2010 10 K

• Services revenue for 2009 = 5,351


• Dell 2009 10 K



January 30, 2012 52

Vendor Comparison

• Which vendor can articulate a transformation vision for your organisation?

January 30, 2012 53

IBM

• Revenue from−Hardware – classified as Systems and Technology

− Software

− Services – divided into:• Global Technology Services - provides IT infrastructure services and

business process services, including outsourcing and other services

• Global Business Services - provides professional services and application management services

−Outsourcing classified as:• Strategic Outsourcing Services - existing infrastructure

• Global Process Services - standardised processing platforms and business process outsourcing

• Gross margins not reported down to outsourcing business area

January 30, 2012 54

IBM – Financial Summary

2010 2009 2008 2007 2006

Revenue 99,870 95,758 103,630 98,786 91,424

Gross Margin 46,040 43,761 45,701 41,688 38,307

Gross Margin % 46.1% 45.7% 44.1% 42.2% 41.9%

Net Income 14,833 13,425 12,334 10,418 9,492

Net Income % 14.9% 14.0% 11.9% 10.5% 10.4%

Global Technology Services Revenue Total 38,201 37,347 39,264 36,103 32,322

Global Technology Services Total Gross Margin 34.7% 35.0% 32.60% 29.90% 29.80%

Global Technology Services Revenue (Excluding Outsourcing) 15,960 15,727 16,531 15,108 13,433

Outsourcing Revenue 22,241 21,620 22,733 20,995 18,889

Outsourcing Revenue % 22.3% 22.6% 21.9% 21.3% 20.7%

Global Business Services 18,223 17,653 19,628 18,041 15,969

Global Business Services Gross Margin % 46.1% 45.7% 26.70% 23.50% 23.10%

Software 22,485 21,396 22,089 19,982 18,161

Software Gross Margin % 86.9% 86.0% 85.40% 85.20% 85.20%

Systems and Technology 17,973 16,190 19,287 21,317 21,970

Systems and Technology Gross Margin % 46.1% 45.7% 38.10% 39.70% 37.70%

Global Financing 2,238 2,302 2,559 2,502 2,365

Global Financing Gross Margin % 51.3% 47.5% 51.30% 46.70% 50.30%

January 30, 2012 55


January 30, 2012 56


January 30, 2012 57


• Consistent performance

• Balanced across product and service areas

• C. 22% revenue from outsourcing

January 30, 2012 58

HP

• Revenue from− Services – classified under:

• Infrastructure Technology Outsourcing

• Business Process Outsourcing

• Technology Services

• Application Services

− ESS – Enterprise Systems, Storage and Networking

− Software

− Personal Systems

− Imaging and Printing

− Financing

• Does not report Net Income for individual business lines− Earning from Operations rather than Net Income – includes acquired intangible

assets, pension settlements, etc.

− Earning from Operations greater than Net Income by c 30%

January 30, 2012 59

HP – Financial Summary2010 2009 2008

Revenue 126,033 114,552 118,364

Gross Margin 29,996 27,034 28,644

Gross Margin % 23.8% 23.6% 24.2%

Earnings from Operations 11,479 10,136 10,473

Earnings from Operations % 9.1% 8.8% 8.8%

Net Income 8,761 7,660 8,329

Net Income % 7.0% 6.7% 7.0%

Total Services (Including Outsourcing) Revenue 34,935 34,693 20,977

Total Services (Including Outsourcing) Earning from Operations 5,609 5,044 2,518

Total Services (Including Outsourcing) Earning from Operations % 16.1% 14.5% 12.0%

Infrastructure Technology Outsourcing 15,963 15,751 7,488

Business Process Outsourcing 2,872 2,941 723

Total Outsourcing 18,835 18,692 8,211

Total Outsourcing % 14.9% 16.3% 6.9%

ESS Revenue 18,651 15,359 19,400

ESS Earnings from Operations 2,402 1,518 2,577

ESS Earnings from Operations % 12.9% 9.9% 13.3%

Software Revenue 3,586 3,572 4,220

Software Earnings from Operations 759 684 499

Software Earnings from Operations % 21.2% 19.1% 11.8%

Personal Systems Revenue 40,741 35,305 42,295

Personal Systems Earnings from Operations 2,032 1,661 2,375

Personal Systems Earnings from Operations % 5.0% 4.7% 5.6%

Imaging and Printing Revenue 25,764 24,011 29,614

Imaging and Printing Earnings from Operations 4,412 4,310 4,559

Imaging and Printing Earnings from Operations % 17.1% 18.0% 15.4%

Financing Revenue 3,047 2,673 2,698

Financing Earnings from Operations 281 206 192

Financing Earnings from Operations % 9.2% 7.7% 7.1%

January 30, 2012 60

HP – Financial Summary

January 30, 2012 61


January 30, 2012 62


• Substantial increase in outsourcing revenue after EDS acquisition

• Services Earning from Operations % substantially greater than average Earning from Operations % across all business areas

− Services including outsourcing more profitable

January 30, 2012 63

Dell – Financial Summary

2010 2009 2008

Revenue 52,902 61,101 61,133

Gross Margin 9,261 10,957 11,671

Gross Margin % 17.5% 17.9% 19.1%

Net Income 1,433 2,478 2,947

Net Income % 2.7% 4.1% 4.8%

Product Revenue 43,697 52,337 53,728

Product Revenue % 82.6% 85.7% 87.9%

Product Revenue Gross Margin 6,163 7,667 8,579

Product Revenue Gross Margin % 14.1% 14.6% 16.0%

Service Revenue Including Software 9,205 8,764 7,405

Service Revenue Including Software % 17.4% 14.3% 12.1%

Service Revenue Gross Margin 3,098 3,290 3,290

Service Revenue Gross Margin % 33.7% 37.5% 44.4%

Service Revenue Excluding Software 5,622 5,351 4,980

Service Revenue Excluding Software % 10.6% 8.8% 8.1%

January 30, 2012 64

Dell – Product/Software/Services Breakdown

January 30, 2012 65

Dell – Product/Software/Services Breakdown