Alan McSweeney
Objectives
Topics
Outsourcing Trends Business-Oriented General IT Trends Transition and Transformation Within Outsourcing Outsourcing and Innovation A (Financial) Tale of Three Outsourcing Vendors
ITO Trends
conducted by the London School of Economics Outsourcing Unit Buyers, Providers and Advisors of Outsourcing Services across spectrum of outsourcing industry
1,209
insight into market trends and therefore should be part of any organisations strategy
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
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
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 7
Buyers Industries
10
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?
11
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?
12
How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year?
Answer = Very Important
13
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
14
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?
15
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
16
How Important Are The Following Factors Preventing Your Organisation From IT Outsourcing Or Business Processes Over The Next 12 Months?
17
How Important Are The Following Factors In Preventing Your Clients From Outsourcing IT Or Business Processes Over The Next 12 Months? (Outsourcing Providers)
18
Demand For Core General And Administrative Outsourcing Reaches Unprecedented Levels
19
% Buy-side organizations looking to outsource for the first time over the next 12 months
20
How Effective Have Your Current Outsourcing Initiatives Been For Achieving The Following Business Benefits To-Date?
Answer = Very Effective
21
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
22
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?
23
Providers Underestimate Importance Buyers Place On Change Management, Governance And Culture
24
Do You Expect Your Clients To Increase Or Reduce Their Activity Across The Following Areas, Over The Next 18 Months?
Outsourcing Advisers And Suppliers
25
Extent By Which Providers Have Been Seeing The Following Advisors Influence Their Clients' Outsourcing Decision-Making Over The Last Six Months
26
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 27
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/RESOURC ES/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 28
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?
2011 2010
Cloud Computing Advanced Analytics Client Computing IT for Green
2009
Virtualisation Cloud Computing Servers - Beyond Blades
2008
Green IT Unified Communications Business Process Modelling Metadata Management Virtualisation 2.0
1 2 3 4 5 6 7 8 9 10
Cloud Computing Mobile Applications and Media Tablets Social Communications and Collaboration Video Next Generation Analytics Social Analytics Context-Aware Computing Storage Class Memory Ubiquitous Computing
Web-Oriented Architectures Reshaping the Data Centre Enterprise Mashups Specialised Systems
Mashup and Composite Applications Social Software and Social Web Platform and WebNetworking Oriented Architectures Unified Communications Computing Fabric Business Intelligence Real World Web Social Software
29
Green IT
2008
Information Security Management
2007
Information Security Management
2006
Information Security
2005
Information Security
2004
Information Security
2003
Information Security
2002
2001
2 3 4
Security Of Data, Code Control and Use of & Communications / Mobile Devices Data Security & Document Retention / Security Threats Connectivity / WirelessInformation Access / High Speed Security Internet Connections / Voice And Data Data Retention Backup Solutions/ Policies and Disaster Recovery/ Business Continuity Structure
Privacy Management
IT Governance
Training And Technology Competency Information Security and Controls Quality of Service
E-Business
6 7 8 9 10
Data Integration Disaster And Business Continuity Conforming To Secure Data File Business Continuity Management And Assurance And Storage, Planning Transmission And Disaster Recovery Compliance Standards Planning Exchange Secure Electronic Remote Access Business Process Privacy Privacy IT Governance Spam Technology Improvement, Collaboration With Management Management Work Flow and Clients Client Portals Process Exception Alerts Disaster Recovery Mobile and Remote Business Process Disaster Recovery Privacy Paperless Workflow/ Staff and Management Planning and Computing Improvement, Paperless Technology Management Business Continuity Workflow and Training Process Exception Management Alerts Laptop Security / Process Training and Identity and Access IT Governance Digital Identity and Collaboration and Encryption Documentation andCompetency Management Authentication Messaging improvements Technologies Technologies Wireless Wireless Securing and Small Business Saving and Making Identity and Access Conforming to Technologies Technologies Controlling Software / Office 2010 Money Management Assurance and Information / Windows 7 w/Technology Compliance Distribution Standards User Mobility/ Mobile Technology Cost Improved Business Mobile and RemoteApplication and Authentication Computing/ Mobile Controls Application and Intelligence Computing Data Integration Technologies Devices Data Integration Tax Software/ Budget Processes Document, Forms, Mobile and Remote Electronic Archiving Paperless Digital Storage Computing and Data Retention Technologies Technologies Electronic Transmittals Content and Of Tax Forms Knowledge Management Electronic Data Document, Forms, Document, Content Spyware Detection Learning and Server Virtualization Project and Knowledge and Removal Training Retention Strategy Content and And Consolidation Management & Management Competency Knowledge Deployment of Management New Systems
Web Services
Wireless Technologies
Disaster Recovery Disaster Recovery Training and Technology Planning and Business Continuity competency Management Communication Disaster Recovery Technologies Bandwidth Intrusion Detection Remote Qualified IT Connectivity Tools Personnel
Virtual Office
Intrusion Detection Web-Based and Web-Enabled Applications Business Exchange Customer Qualified IT Technology Relationship personnel Management Messaging Applications Privacy
Quality of Service
Application Service Messaging Provider Applications (email, faxing, voicemail, instant messaging)
30
2008
Information Security Management
2007
Information Security Management
2006
Information Security
2005
Information Security
Security Of Data, Code & Control and Use of Communications / Data Mobile Devices Security & Document Retention / Security Threats Connectivity / Wireless Information Security Access / High Speed Internet Connections / Voice And Data Backup Solutions/ Disaster Data Retention Policies Recovery/ Business and Structure Continuity Secure Electronic Remote Access Collaboration With Clients Client Portals Paperless Workflow/ Paperless Technology
Privacy Management
IT Governance
Business Process Improvement, Work Flow and Process Exception Alerts Staff and Management Mobile and Remote Training Computing
Business Continuity Conforming To AssuranceDisaster And Business Management And And Compliance Continuity Planning Disaster Recovery Standards Planning Privacy Management Privacy Management IT Governance
Data Integration
Spam Technology
6 7 8 9 10
Laptop Security / Encryption Process Documentation Training and and improvements Competency Small Business Software / Office 2010 / Windows 7 Saving and Making Money w/Technology Identity and Access Management
Business Process Improvement, Workflow and Process Exception Alerts Identity and Access Management
Disaster Recovery Privacy Management Planning and Business Continuity Management IT Governance
Disaster Recovery
Conforming to Assurance and Compliance Standards User Mobility/ Mobile Technology Cost Improved Application Business Intelligence Mobile and Remote Application and Data Computing/ Mobile Devices Controls and Data Integration Computing Integration Tax Software/ Electronic Budget Processes Document, Forms, Mobile and Remote Electronic Archiving and Paperless Digital Transmittals Of Tax Forms Content and Knowledge Computing Data Retention Technologies Management Server Virtualization And Project Management & Electronic Data Document, Forms, Document, Content and Spyware Detection and Consolidation Deployment of New Retention Strategy Content and Knowledge Management Removal Systems Knowledge Management
January 30, 2012
Digital Identity and Collaboration and Authentication Messaging Technologies Technologies Securing and Controlling Wireless Technologies Wireless Technologies Information Distribution Authentication Technologies Storage Technologies
31
2008
Information Security Management
2007
Information Security Management
2006
Information Security
2005
Information Security
2 3
Security Of Data, Code & Control and Use of Communications / Data Mobile Devices Security & Document Retention / Security Threats Connectivity / Wireless Information Security Access / High Speed Internet Connections / Voice And Data Backup Solutions/ Disaster Data Retention Recovery/ Business Policies and Structure Continuity
Privacy Management
IT Governance
6 7 8 9 10
Secure Data File Business Continuity Storage, Transmission Management And And Exchange Disaster Recovery Planning Secure Electronic Privacy Management Remote Access Business Process Collaboration With Clients Improvement, Work Client Portals Flow and Process Exception Alerts Paperless Workflow/ Staff and Management Mobile and Remote Business Process Paperless Technology Training Computing Improvement, Workflow and Process Exception Alerts Laptop Security / Encryption Process Training and Identity and Access Documentation and Competency Management improvements Small Business Software / Saving and Making Identity and Access Conforming to Office 2010 / Windows 7 Money w/Technology Management Assurance and Compliance Standards User Mobility/ Mobile Technology Cost Improved Application Business Intelligence Computing/ Mobile Devices Controls and Data Integration Tax Software/ Electronic Budget Processes Document, Forms, Mobile and Remote Transmittals Of Tax Forms Content and Knowledge Computing Management Server Virtualization And Project Management Electronic Data Document, Forms, Consolidation & Deployment of New Retention Strategy Content and Systems Knowledge Management
January 30, 2012
Conforming To AssuranceDisaster And Business And Compliance Continuity Planning Standards Privacy Management IT Governance
Spam Technology
Disaster Recovery Privacy Management Planning and Business Continuity Management IT Governance
Disaster Recovery
Digital Identity and Collaboration and Authentication Messaging Technologies Technologies Securing and Controlling Wireless Technologies Wireless Technologies Information Distribution Mobile and Remote Computing Electronic Archiving and Data Retention Application and Data Integration Paperless Digital Technologies Authentication Technologies Storage Technologies
Document, Content and Spyware Detection and Learning and Training Knowledge Management Removal Competency
32
Data, Information and Document Management/ Integration and Analysis and Related Initiatives
2011 1 2010 2009 2008
Information Security Management
2007
Information Security Management
2006
Information Security
2005
Information Security
2 3
Control and Use of Information Security Security Of Data, Code & Mobile Devices Management Communications / Data Security & Document Retention / Security Threats Information Security Privacy Management Connectivity / Wireless Access / High Speed Internet Connections / Voice And Data Backup Solutions/ Disaster Data Retention Policies Secure Data File Recovery/ Business Storage, Transmission and Structure Continuity And Exchange Remote Access Secure Electronic Collaboration With Clients Client Portals Paperless Workflow/ Paperless Technology Business Process Improvement, Work Flow and Process Exception Alerts Staff and Management Mobile and Remote Computing Training
IT Governance
Business Continuity Conforming To AssuranceDisaster And Business Management And And Compliance Continuity Planning Disaster Recovery Standards Planning Privacy Management Privacy Management IT Governance
Spam Technology
6 7 8 9
Laptop Security / Encryption Process Documentation and improvements Small Business Software / Saving and Making Office 2010 / Windows 7 Money w/Technology
Business Process Improvement, Workflow and Process Exception Alerts Identity and Access Management
Privacy Management Disaster Recovery Planning and Business Continuity Management IT Governance
Disaster Recovery
10
Conforming to Assurance and Compliance Standards User Mobility/ Mobile Technology Cost Improved Application Business Intelligence Mobile and Remote Computing/ Mobile Devices Controls and Data Integration Computing Tax Software/ Electronic Budget Processes Document, Forms, Electronic Archiving and Mobile and Remote Transmittals Of Tax Forms Content and Data Retention Computing Knowledge Management Server Virtualization And Project Management Electronic Data Document, Forms, Document, Content and Consolidation & Deployment of New Retention Strategy Content and Knowledge Systems Knowledge Management Management
January 30, 2012
Digital Identity and Collaboration and Authentication Messaging Technologies Technologies Securing and Controlling Wireless Technologies Wireless Technologies Information Distribution Application and Data Integration Paperless Digital Technologies Authentication Technologies Storage Technologies
Not concerned with IT plumbing and infrastructure (such as cloud) but on business concerns - running the business - and businessrelated 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
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 35
Standardised Infrastructure Through Refresh, Customer Support Processes and Tools Replaced by Supplier Standards
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 suppliers costs
January 30, 2012 36
Outsourcing Process
Contract Effective Date Service Commencement Date
Transition
Transformation
Transformation Planning
Due Diligence
Integration Preparation
Contract Review
Transformation Delivery
Transition Initiation
Transition Completed
Transformation Completed
Propose, Negotiate and Close Planning Research, Analysis, Identification Preliminary Transition and Transformation Plans Due Diligence Final Integrated Transition Plan Transition Transition Initiation/Kick-off Post Contract Verification Solution Handoff Acquisition Management Office Transfer Operation Commencement Preparation Final Integrated Transition Plan
38
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 organisations 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 39
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
40
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
How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year?
Answer = Very Important
42
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
43
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
44
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
45
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
46
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
47
Takes disparate set of sources and creates standard model Effective transformation is an enabler of innovation with IT function
On-demand selfservice Elastic Measured and metered usage and pricing Scale Resilience Available Secure
48
49
14.90% 22.30%
6.90% 21.90%
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
January 30, 2012 50
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
51
Vendor Comparison
52
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
2010 99,870 46,040 46.1% 14,833 14.9% 38,201 34.7% 15,960 22,241 22.3% 18,223 46.1% 22,485 86.9% 17,973 46.1% 2,238 51.3%
2009 2008 95,758 103,630 43,761 45,701 45.7% 44.1% 13,425 12,334 14.0% 37,347 35.0% 15,727 21,620 22.6% 17,653 45.7% 21,396 86.0% 16,190 45.7% 2,302 47.5% 11.9% 39,264 32.60% 16,531 22,733 21.9% 19,628 26.70% 22,089 85.40% 19,287 38.10% 2,559 51.30%
2007 98,786 41,688 42.2% 10,418 10.5% 36,103 29.90% 15,108 20,995 21.3% 18,041 23.50% 19,982 85.20% 21,317 39.70% 2,502 46.70%
2006 91,424 38,307 41.9% 9,492 10.4% 32,322 29.80% 13,433 18,889 20.7% 15,969 23.10% 18,161 85.20% 21,970 37.70% 2,365 50.30%
54
55
56
Consistent performance Balanced across product and service areas C. 22% revenue from outsourcing
57
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
58
HP Financial Summary
Revenue Gross Margin Gross Margin % Earnings from Operations Earnings from Operations % Net Income Net Income % Total Services (Including Outsourcing) Revenue Total Services (Including Outsourcing) Earning from Operations Total Services (Including Outsourcing) Earning from Operations % Infrastructure Technology Outsourcing Business Process Outsourcing Total Outsourcing Total Outsourcing % ESS Revenue ESS Earnings from Operations ESS Earnings from Operations % Software Revenue Software Earnings from Operations Software Earnings from Operations % Personal Systems Revenue Personal Systems Earnings from Operations Personal Systems Earnings from Operations % Imaging and Printing Revenue Imaging and Printing Earnings from Operations Imaging and Printing Earnings from Operations % Financing Revenue Financing Earnings from Operations Financing Earnings from Operations %
January 30, 2012
2010 126,033 29,996 23.8% 11,479 9.1% 8,761 7.0% 34,935 5,609 16.1% 15,963 2,872 18,835 14.9% 18,651 2,402 12.9% 3,586 759 21.2% 40,741 2,032 5.0% 25,764 4,412 17.1% 3,047 281 9.2%
2009 114,552 27,034 23.6% 10,136 8.8% 7,660 6.7% 34,693 5,044 14.5% 15,751 2,941 18,692 16.3% 15,359 1,518 9.9% 3,572 684 19.1% 35,305 1,661 4.7% 24,011 4,310 18.0% 2,673 206 7.7%
2008 118,364 28,644 24.2% 10,473 8.8% 8,329 7.0% 20,977 2,518 12.0% 7,488 723 8,211 6.9% 19,400 2,577 13.3% 4,220 499 11.8% 42,295 2,375 5.6% 29,614 4,559 15.4% 2,698 192 7.1%
59
HP Financial Summary
60
HP Financial Summary
61
HP Financial Summary
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
62
2009 61,101 10,957 17.9% 2,478 4.1% 52,337 85.7% 7,667 14.6% 8,764 14.3% 3,290 37.5% 5,351 8.8%
2008 61,133 11,671 19.1% 2,947 4.8% 53,728 87.9% 8,579 16.0% 7,405 12.1% 3,290 44.4% 4,980 8.1%
63
52,902 9,261 17.5% 1,433 2.7% 43,697 82.6% 6,163 14.1% 9,205 17.4% 3,098 33.7% 5,622 10.6%
64
65