BARRON W. GREEN
June 12, 2014
I.
Who Are You? Who Am I?
II.
What is IT Outsourcing?
III. Is Outsourcing Important?
IV. Why Outsource?
V.
Does Outsourcing Work?
VI. What Are the Management Challenges?
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® and A&M® are trademarks of Alvarez & Marsal Holdings, LLC.
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WHO ARE YOU?
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WHO AM I?
1983 BA Biology, Double Minor Chemistry & Political Science
1987 MBA - Finance
2 yrs 2 yrs 14 yrs 7 yrs
WHY IS THIS DISCUSSION PERSONALLY IMPORTANT (TO YOU)?
Outsourcing is pervasive and growing and can impact you in many different ways
You may work for an outsourcer
You may join a firm that works with outsourcers
– You may partner with outsourcers
– You may manage outsourcers
You may join a firm that later commits to outsourcing
– You may evaluate outsourcers
– You may suddenly find yourself working for an outsourcer
– You may be displaced by an outsourcer
Even if you’re not in IT, outsourcing will likely impact you
5 yrs
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DEFINITIONS
Source: dictionary.com
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DEFINITIONS
Source: dictionary.com
POLITICAL STATEMENT
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SCOPE OF OUTSOURCING
Any of the listed services (and more) can be outsourced
Governance | Stewardship | Demand Management
PM | Architecture | Vendor Management
AMO
(aka applications mgt, SaaS)
BPO
(aka business process)
ITO
(aka hosting, co-lo, PaaS, IaaS)
• Facilities
• Servers
• Storage
• Network
• Web Hosting
• E-Mail
• Security
• Disaster Recovery
• Desktop Support
• Other
• Package
Customization
• Package Upgrades
• Custom Development
• Applications Support
• Data Management
• Other
• Call Center
• Fulfillment
• Procurement
• Accounting
• Payroll
• Human Resources
• Other
Help Desk
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OUTSOURCING OVERVIEW
Which functions are most likely to be outsourced?
Source: Horses for Sources and London School of Economics
Survey of 347 Buy-side Organizations
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WHAT IS OUTSOURCING?
Any portion of a business process may be outsourced.
For example, AMO may include ANY or ALL parts of the SDLC
Requirements
Maintenance Design
Testing & QA Coding
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GLOBAL OUTSOURCING LEADERS
The market is both huge and extremely fragmented,
IBM
HP
ITO Revenue Leaders
Name
Fujitsu
CSC
Accenture
Others
Total
2011
Revenues
$26.9
$15.1
$11.0
$10.4
$6.5
$176.6
$246.6
Source: Gartner Group (May 2012)
Market
Share
10.9%
6.1%
4.5%
4.2%
2.6%
71.7%
100.0%
AbsolutData | Accenture | Aditya Birla Minacs | ADP | Advanced
Technology Services | Aegis | Altisource | Amdocs | Aon Hewitt |
AppLabs | Artezio | Auriga | Birlasoft | Bleum | Capgemini | Cassidy
Turley | CBRE | Ceridian | CGI Group | ChinaSoft International | Ci&T |
CIeNET International | Colliers Global Corporate Solutions | Compass
Group | Concentrix | Convergys | Cross-Tab Marketing Services |
CrysTelCall | CSC | DATROSE | Diebold Integrated Services | Donlen |
Donnelley Global Outsourcing | EMCOR Group | Emerio GlobeSoft | emids Technologies | Endava | EPAM Systems | First Line Software |
Firstsource | Freeborders | Genpact | Getronics Workspace Alliance |
Grupo Prominente | Harbinger Systems | HCL Technologies |
Hexaware Technologies | HGS | hiSoft Technology International | HP
Enterprise Services | iGATE Patni | Indecomm Global Services |
Infosys | Infotech Enterprises | Insigma | Inspur | Intetics | ISS | ITC
Infotech | Itransition | Johnson Controls | Jones Lang LaSalle | Kelly
Outsourcing and Consulting Group | LeasePlan USA | LegalBase |
Lionbridge | Long View Systems | Luxoft | Nagarro | National Medical
Billing Services | NCR | Neoris | Neusoft | Newmark Knight Frank |
NIIT Technologies | Océ Business Services | PCCW Solutions | Pitney
Bowes Management Services | ReSource Pro | Scicom | Sodexo |
SoftServe | Softtek | SPi Global | Sutherland Global Services | Syntel |
Synygy | TEAM International | TeleTech | TIVIT | Towers Watson | transcosmos | Unisys | VanceInfo | Williams Lea | Wipro
Technologies | WNS Global Services | Xceed | Xchanging | Zensar
Technologies
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CONTEXT: OVERSIMPLIFIED HISTORY OF I.T. DELIVERY
Self Managed
Custom
• Own HW
• Build SW
Self Managed
Packages
• Own HW
• Lease, customize
SW • Hosting
HW
• Configure
SW
Who develops, owns operates, and updates the technology?
Which party has which risks?
Enterprise
Solutions
1970s 1980s 1990s
Multi-Sourcing
• Multivendor products & services
2000s
Cloud
• Own nothing
2010s
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CONTEXT: OPERATIONS VS. PROJECTS
Depending on role, markedly differing agendas regarding stability, control and change
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GLOBAL OUTSOURCING MARKET
Strong growth rate projected to resume through 2015
Source: Gartner Group
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OUTSOURCING MATURITY CURVE
Industry-specific and function-specific BPO models are following the trail pioneered by Call Centers,
ITO and ADM
Source: Horses for Sources, State of Outsourcing
IT OUTSOURCING HAS “STAYING POWER”
Percentage Decreasing, Maintaining, or Increasing Amount of Work Outsourced
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Source: Computer Economics
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IN THE PAST, NORTH TEXAS HAS BEEN “HOME TO THE HUNTED"
SAMPLE OF NORTH TEXAS HEADLINES
IT Outsourcing is pervasive with North Texas companies
Cogizant
TCS
Infosys
BearingPoint > Dell
OSI > EFX
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WHY OUTSOURCE?
Listed below are typical rationale for IT outsourcing.
Source: Info-Tech Survey (264 organizations)
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DOES OUTSOURCING PROVIDE GOOD SERVICE?
Percentage Finding Service Better, Same or Worse with Outsourcing
Source: Computer Economics
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HOW WELL HAVE OTHERS REALIZED OUTSOURCING BENEFITS?
Returns on AMO have been mixed with a few big winners and big losers and many stuck in the middle.
Resource Availability
Faster Delivery
Increasing End User Satisfaction
Knowledge Transfer to IT Staff
Meeting Project Budget
Meeting Project Timelines
Improving Deliverable Quality
Reducing Costs
Application Outsourcing Project Success*
16%
16%
14%
15%
17%
13%
15%
17%
47%
47%
45%
44%
41%
31%
55%
46%
35%
34%
32%
36%
35%
42%
32%
27%
6%
5%
7%
8%
9%
10%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very Successful Somewhat Successful Somewhat Unsuccessful Very Unsuccessful
Source: Info-Tech Survey
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OUTSOURCING - GOOD OR BAD?
A
DVANTAGES
• Vendor economies of scale
• Fixed-price and agreed service levels can considerably reinforce predictability
• Efficient business “best practices” and service levels
• Access to leading-edge technology
• Specialized functional expertise
• Vendor may have deeper technical expertise
• Company can refocus internal experts on core business and most important demands
• Variable capacity
• Rapid, round-the-clock development
Costs
Fit /
Benefits
Expertise
/ Fit
D
ISADVANTAGES
• Unplanned costs – unidentified needs, loose contracts, cost of managing vendor, vendor opportunism
• Standard environment may not fit
• Service levels Financial benefits may not be realized as assumptions become invalid over time
• Vendor may not have knowledge of company details
• Outsourcer may not be able to retain former critical employees
• Inability to select / control individuals assigned to the company
• Loss of internal technical knowledge
• Vendor may have tighter methods and controls
• Free up capital for other purposes
Capacity • May pay for unused capacity in vendor shop
Control
Remedies
• Possible loss of control; especially with total outsourcing
• Confidential issues
• Performance penalties small relative to business impact
• Enormous Exit-Barriers
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THE CONTRACT LIFECYCLE – ACCORDING TO VENDORS
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THE CONTRACT LIFECYCLE – ACCORDING TO CLIENTS
End-of-contract is a critical period in an outsourcing agreement
YOU ARE STILL ON THE HOOK FOR THE OUTCOME…
Client organization MUST retain key skills after outsourcing relationship initiated
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NOT A SILVER BULLET
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THE TELEPHONE GAME
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ADDITIONAL OFFSHORING CONSIDERATIONS
Challenges
Language / Colloquialisms
Time Zones
Familiarity with the Business
Enablers of Offshoring
Labor Rates
Telecom
Collaboration Technologies
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OFFSHORING DISTRIBUTION
Applications Development and Maintenance are sent offshore more often than other IT services
% of Orgs Offshoring
Apps Dev
Apps Maint
Database Admin
DC Ops
Web
Help Desk
NW Ops
Apps hosting
Desktop Support
DR
Security
4%
3%
3%
2%
1%
8%
5%
5%
4%
16%
27%
% of Work Sent Offshore
Apps Dev
Apps Maint
Database Admin
DC Ops
Web
Help Desk
NW Ops
Apps hosting
Desktop Support
DR
Security
20%
16%
12%
14%
5%
1%
3%
3%
7%
14%
11%
Source: Computer Economics
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BACK COVER
Barron W. Green
Alvarez & Marsal Business Consulting
2100 Ross Avenue, 21 st Floor | Dallas, TX 75201 bgreen@alvarezandmarsal.com
469.964.7662
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