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Outsourcing

Outsourcing Overview

Overview – Transfer Management /Execution of a business function to an external Vendor

Drivers – Cost Savings (Labor Arbitrage)– Focus on Core Business– Cost Restructuring (Fixed to Variable)– Better Access and Utilization of Knowledge/Experience/Talent– Access to Operational Best Practices– Transfer risk of excess capacity to Vendor– Use external knowledge to enhance in-house innovation– Reduce Time-to-Market– Risk Management (Mitigate risks with outsourcing partner)

Process – Strategic Decision to Outsource– Select Vendor (RFP, Negotiation, Contract)– Transition (Staff Transfer, Service Take-on)– Transform (Execute Projects, Implement SLA, Reduce Total Cost of Ownership)– Ongoing Service Delivery– Periodic Benchmarking

Outsourcing – IT (Rationale)

ReasonsIT is a Strategic AssetIT is a Key Driver of High Performance

BenefitsReduce CostsReduce Total cost of OwnershipTransforms organization’s IT capabilityImprove Service, Quality, Delivery CapabilityEnables a broader strategic agenda

Outsourcing – IT (Profile)

Application OutsourcingApplication DevelopmentApplication TestingProduction SupportApplication MaintenanceEnhancements / UpgradesLegacy Modernization

Infrastructure Outsourcing IT Spend Management (Assets, Procurement)Data Center ServicesService DeskSecurity ServicesNetwork ServicesWorkplace Services

The Maturing of Outsourcing1st Generation – Select a Single Large Vendor and contract large-sized ‘take-all’ deals:

Gain competitive advantageReap quick benefitsSave timeEasier management overheadLeading to risks and challengesCost and SLA Targets not met

“The prevalence of IT outsourcing megadeals valued at $1 billion or more dropped 67% …” according to Gartner Inc.

Multi-Sourcing – Allocate separate IT functions to different vendors:Leverage the skills and value propositions of each vendorEnhance efficiencyReduce riskOperational Level Agreements provide service governanceNo loss of control owing to monopoly by vendorPick ‘best-of-breed’ solution providers for specialization and domain knowledge

Outsourcing and Off-Shoring

Outsourcing and Off-Shoring had distinct identities:Outsourcing = Work done by a vendor within the ‘industrialized world’Off-Shoring = ‘Third World Country’ did mundane tasks at a much lower cost

Offshoring to...America? "With the continued decline in value of the dollar and sluggish employment, I would expect to see more U.S.-based sourcing solutions evaluated by private and public sector clients across the globe," says Peter Iannone, EquaTerra's executive director for the Americas. CIO, December 2009

Global Sourcing has Matured

Decision Makers make Strategic choices of Where, What, How and Whom based on:Cost ManagementSkillsExperienceValue Proposition to enhance efficiency and reduce risk

The Global Marketplace (Characteristic)

Information

New Ideas Expertise

“Outsourcing is less about labor arbitrage and more about access to Global Talent that is available”

Globalization “CONNECTS” Companies

The Global Marketplace (Leverage)

Globalization “AFFORDS” Leverage

Choose the work they want to do

Where they want to do it

Drive the greatest profit

Outsourcing & Employment

FACTUS & EU have witnessed high rates of un-employmentOutsourcing has caused job transfers to locations overseas

Location is insignificant in the maturing Outsourcing ModelAdvances in communicationsImproved computational technologiesAvailability of large pools of capable workers in the world

Outsourcing & Employment

Biggest Players:India, China, Ireland, Israel, Former Soviet Block.

New Players :Pakistan, Brazil, Chile and Ghana are some of those that are becoming players in the market.

Reverse off-shoring

Outsourcing Today

FACTInitially simple APP-DEV & MAINT. were given to emerging economies

Drive down IT CostImprove Efficiencies within IT

EMERGENCENow, outsourcing has matured and enables Companies to :

• Enhance their Competitiveness• Drive Transformational Change (handle more critical business functions

and processes)

More and more jobs such as financial industry equity research, actuarial analysis and data modeling are moving to India with very encouraging results. Additionally medical research and engineering services in industries like aerospace and civil aviation are going to India.

Mature Vendors now have operations in many new markets (S America, E Europe, China)

Outsourcing is here to stay. It helps companies remain focused on their core business and leaves the back-room, non-core business to the experts without losing control.

“Don’t just stretch the dollar, but create new dollars by unlocking value and revenue”

Conclusion