Outsourcing Opportunity:
“Strategic and Operational Level”
H. Srikrishnan
Executive Director
January 31, 2006
Contents

Outsourcing – “Strategic or Operational”

Outsourcing Drivers

Risk Factors - Inhibitors

Key Considerations for Outsourcing

YES BANK Case Study
Strategic ?
Or Operational ?
Strategic or Operational
Business
Value
Competitive-Advantage- Transformation
Focused
Strategic
Enhancement
Utility
The
Contract
The
Contract
Effectiveness
Focused
The
Contract
Efficiency
Focused
Operational
Relationship Impact
Key:
= Contractual Management
= Relationship Management
Adaptation of Gartner’s Model on Sourcing
= The Partnership
A Transformational relationship
is characterised by a partnership
focused on innovation and new
business, changing the very
nature of the basis on which an
enterprise competes ~ Strategic
The Utility relationship focuses
primarily on cost reduction, with
the goal of maintaining
consistency in the delivery of
services ~ Operational
Opportunity – Both Strategic & Operational
10%
Function Difficult to manage or out of
control
Take Advantage of Offshore
Capabilities
Share Risks
12%
12%
55%
18%
20%
Reduce time to Market
Accelerate reengineering benefits
Resources not available internally
54%
25%
Gain access to w orld-class capabilities
Free Resources for Other Projects
38%
36%
Reduce & Control Operating Costs
Improve Company Focus
Reasons for Outsourcing
Source: Outsourcing Institute
Outsourcing Drivers
Focus attention and efforts on those
activities that will give a distinctive
advantage – Protect your IPR
Take advantage of efficiencies of scale,
procurement leverage and capital appetite
to improve price performance
Manage the risks by employing the
specialist technical skills
Improve the career opportunities, People
Management
Better manage IT investment by moving to
variable operating expense-based structure
Risk Factors - Inhibitors
Risk Spectrum
Outsourcing has the potential to
transfer risk, management and
Strategic
Reputation
Compliance
Operational
Exit
Counterparty
Country
Contractual
Access
Concentration &
Systematic
compliance to third parties who
may not be regulated and who
may operate offshore
BASEL Committee on Banking Supervision
Key Considerations for Outsourcing



Collaboration

Collaborative & Competitive Evaluation

Fair & Just
Contracting

Technology, Business, Regulators, Legal, SoW, Living Agreement

Provide for Business Dynamicity
Communication



Key for successful implementation
Camaraderie

Balance of Relationship & Contractual Management

Partnership Spirit
Continuance

Not a transaction but it’s a lifecycle
Costs Consideration
Consider All Costs When Making Outsourcing Decisions
Real
Value
Savings
Delivered
by the
vendor
Current
internal
cost of
Providing
IT
Services
(annual)
Economies of
Scope
Economies of
Specialization
Other Factors
Source: BCG Analysis
Management
Costs
Penalties
Transition
Costs
Vendor
Margin
Economies of
Scale
Termination
Costs
Perceived
Value
Setup Cost
Annual
Face
Price of
the
deal
Parallel
Operating
Costs
Severance
Costs
Asset writedowns
Governance
Cost
Retained inhouse
capabilities
Innovation &
Evolution
Contract
Negotiation
Vendor
Capital
recovery
costs
Reevaluation,
Selection,
and
negotiation
costs
Annual
Real
Cost of
the
deal
Deal Recognition
Strategic
Alliances

IT
Investment
Portfolio
Strategic
Total
Outsourcing
Technology Framework and
Relationships



Rated among India’s Most Wired 20
Companies (Business Today)
Exclusive Gartner Case-Study
On IBM Infrastructure-on-Demand
Model
Networking Case Study by CISCO
YES BANK – WIPRO CASE STUDY
Defining Sourcing Strategy





Identification of Drivers for
Outsourcing
Core Competence Analysis
Outsourcing Risk Analysis
Scanning the Market
Deal Type Assessment
Evaluation Framework





Managed Services Capabilities
Hardware & Equipments
Strategic Fit Assessment
Financial Decision Making
Soft Factors
Core Competence & Business Drivers Analysis

Competence in Banking, Relationship & Building Human Capital

Retention of Intellectual Property related to Application Development

Technology Decision making driven internally

Caters to Branch Expansion and Growth Plans

Dynamic Business Environment ~ Vendor Commitments
YES BANK – WIPRO CASE STUDY
Deal Uniqueness (USP)






First-of-its Kind in Indian Banking Sector
Unique Pay-per-use pricing model: Branch Expansion based
Complete Asset Based Outsourcing: Conservation of Capital
Access of World-Class Partners: IBM, CISCO, Intel
Stringent but flexible Service Level Agreements
Continuous Improvement on Service Delivery