Master Outsourcing

(Or Else!)

By Beth Perdue

Argosy, Inc.•293 K Street•Boston, MA 02127Tel. 617-269-1677•beth@argosy-inc.com

www.argosy-inc.com

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Topics

1. Trends and facts

2. Top 10 risks

3. Outsourcing contracts

4. Relationships

5. In closing…

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Trends and Facts

• 80% of U.S. Companies discuss • 40% complete pilot program or more• Offshore dominant – grows 20%+ annually

Source: Computerworld, Gartner Group

Topic 1

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Hidden Costs

• Supplier searching

• Contracting

• Contract management

• Post-outsourcing reintegration

• Who tracks them?

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Thinking of Outsourcing?

• Not necessarily cheaper

• At least, not right away

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Downside

• Big- name companies bringing it back – Dell, Lehman Brothers, Conseco

• Still have offshore operations

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Have You Ever Seen a Grown Man Cry?

Top 10 Risks

Topic 2

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1. Cost-reduction Expectations

Top 10 Risks

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Top 10 Risks

2. Data Security/ Protection

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How Patient Files Got to Pakistan

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Personal Info Outsourced Abroad

Medical records

Bank records Debt records

Credit histories Brokerage records

Social Security numbers

Tax documents

Insurance records

Credit card numbers

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Where It Goes

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Meet Ankit

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Why More Risk Overseas?

• Security not priority

• Using small/mid-sized firms• Software piracy means few patches • Lack tough laws and legal tools

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Take Nothing For Granted

• Penetration testing

• Background checks

• Device restrictions

• Visit, manage, audit

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3. Process Discipline

Top 10 Risks

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You can learn a lot from fast food

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Start With Out-tasking

• Keep command, control, coordination

• Assign well-defined tasks

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4. Intellectual Property Drain

Top 10 Risks

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5. Supplier Failure to Deliver

Top 10 Risks

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6. Scope Creep

Top 10 Risks

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Top 10 Risks

7. Government Oversight/ Regulation

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Top 10 Risks

8. Border Concerns

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Top 10 Risks

9. Turnover of Key Personnel

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Top 10 Risks

10. Knowledge Transfer

Outsourcing Contracts

Topic 3

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When the only tool you own is a hammer, every

problem begins to resemble a nail.

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Incomplete by Nature

• Assets

• Uncertainty & measurement

• Frequency

• Time & costs

Outsourcing Contracts

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Prices and Adjustments

• Contract length

• Cost-savings program or index

Outsourcing Contracts

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Prices and Adjustments

• Benchmarking

• Baselining

• Multiple suppliers

Outsourcing Contracts

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This here's Miss Bonnie Parker. I'm Clyde Barrow...We rob banks.

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Intellectual Property Rights

• Transferred licenses– Software developed by supplier– Processes developed by supplier

• Transfer to another supplier

Outsourcing Contracts

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Licenses Don’t Travel Well

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Is It Your Software or the Outsourcer’s?

• Either way can work

• Flexible licenses

Outsourcing Contracts

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Get Better Licenses

• Asset management

• Know your opponent

• Timing

Outsourcing Contracts

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Contract Structure

1. Framework contract

2. SLAs– By geography and business unit, then service

– By service

– Degree of completion

Outsourcing Contracts

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Contract Structure

1. Degree of exclusivitySole supplier

Preferred supplier

2. Liability

3. TerminationBankruptcy,force majeure, default

Change in ownership

Business needs

Outsourcing Contracts

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Metrics

• Keep an eye on offshore practices

• Service (customer)

• Process (supplier)

Outsourcing Contracts

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Minimize Risk

• Objectives

• Meeting structures – Keep minutes

• Disputes

Outsourcing Contracts

Relationships

Topic 4

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Let’s Call the Whole Thing Off

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Bringing It Back

• Provider – – Had financial difficulties– Failed to deliver on commitments

• Buyer consolidated vendors

Relationships

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Change Suppliers

• Knowledge

• Documentation

• Transfer process

Relationships

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Business Continuation

• Preserve price & service

• Unilateral right

Relationships

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Transition Cooperation

• Efforts

• Disclosure

• Licenses & agreements

Relationships

In Closing…

Topic 5

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Selective Outsourcing

• Big risks– Requirements– Specifications– Business smarts

• Make outsourcing a core competency

In Closing…

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Satisfaction Isn’t Guaranteed

• Inflated expectations– Cost savings– Productivity

• You don’t get what you expect, you get what you inspect

In Closing…

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“I haven’t failed. I’ve found ten thousand ways that don’t work.”