TechExecs Optimizing Outsourcing Linked In
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Transcript of TechExecs Optimizing Outsourcing Linked In
Management Consulting | Technology Advisory Services
Optimizing OutsourcingDhiren Shethia
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP 2
Agenda
Introduction
What is Outsourcing?
What Do Companies Outsource?
New Generation of Outsourcing
Benefits and Pitfalls
Outsourcing Trends
Role of Advisors
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP 3
What is Outsourcing?
Outsourcing IS: Giving a third-party responsibility for running traditionally internal services
Outsourcing IS NOT: 1. Offshoring 2. Layoffs 3. Immediate cost savings 4. Easily reversible
Outsourcing IS: Giving a third-party responsibility for running traditionally internal services
Outsourcing IS NOT: 1. Offshoring 2. Layoffs 3. Immediate cost savings 4. Easily reversible
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP
What is Outsourcing?
“Third party management providing the best people, process and technology for the execution of non-core business functions.”
--Dermot Murphy, The Millennium Group
“A contractual relationship where an external organization takes responsibility for performing all or part of an agency’s functions. This can involve a partial or complete transfer of staff and/or resources”.
--Geoff Kilby, Uniysis U3 Conference
“Turning over the ownership of a non-core, important business process to a service provider in order to leverage the provider’s expertise, economies of scale and access to resources. The buyer determines the results it wants to buy, but it does not specifically dictate all the nuances of how the provider is to perform the service.”
---- Everest Group White Paper
Outsourcing is the act of giving a third-party the responsibility of running what would otherwise be an
internal system or service
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP
What do Companies Outsource?
Types of Outsourcing
Business Process (BPO)
Human Resources
(HRO)
Information Tech (ITO)
Knowledge Process (KPO)
Other
Accts receivable / payable
Procurement
Travel management
Claims processing
Security
Internet Marketing
Proofreading
Call centers
Payroll
Benefits Administration
Training
Bookkeeping
Financial services
HR services, internet marketing
e-Commerce
Infrastructure
Applications
Telecom
Website development
Website hosting
IT Help Desk
Professional Svcs
Data Centers
Research (equity, market, competitive intelligence)
Analytics
Engineering and design services.
Animation & simulation services
Writing/content development
Legal Process Outsourcing (LPO)
Research Process Outsourcing (RPO)
Medical Business Process Outsourcing (MBPO)
Traditionally, BPO and ITO are most commonly outsourced; Enaxis’ outsourcing practice focuses
mainly on ITO
Forrester estimates that worldwide IT & apps outsourcing market is worth ~ $120B/year
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP
The New Generation of Outsourcing
Outsourcing 1.0 Outsourcing 2.0
The transition of many hundredsof people (and knowledge)
Bring strategic service back in-house
Price tags in the hundreds of millions,if not billions, of dollars
More competition; Web 2.0 – advances in information gathering, evaluation and distribution; selective buying; some services retained in-house
Outsourcing being treated mostly asan event that ended at contract signing
On-going deal management
Typically no one in the company hadany related experience whatsoever
Desire to retain outsourcing knowledge and hire advisors for as-needed skill sets
Procurement Relationship Management
Process People
Low price Best value
Betting Investing
Terms & Conditions, SLAs Advanced governance model to support outside services, define escalation processes, clearly articulate roles/responsibilities and retain key knowledge
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP
Outsourcing Benefits and Pitfalls
Benefits Reduce operating costs by leveraging lower
wages & economies of scale
Focus on core competencies
Standardize and improve business processes by accessing world-class capabilities & receiving services from highly educated/trained staff
Share risks
Decrease capital expenditures
Better utilize internal resources (outsource the routine, in-source the innovative)
Improve flexibility to add/reduce resources
Pitfalls Lack of clear goals for outsourcing
Weak SLAs (lack of accountability)
Culture not ready for outsourcing
Poorly defined SOW leading to “extra costs” for work that is not in scope
Lack of internal controls, management and/or expertise to support the outsourcing arrangement (governance)
Failure to verify provider financial stability
Artificially compressed timeline
Inexperienced acct. manager
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP 8
Outsourcing Trends
More US
Staff
More US
Staff Multi-sourcing
vs Governanc
e
Multi-sourcing
vs Governanc
e
Shift from
Penalty SLAs
Shift from
Penalty SLAs
Evolutionfrom
1.0 to 2.0
Evolutionfrom
1.0 to 2.0
Technology
Advances
Technology
Advances
Provider Landscap
e
Provider Landscap
eSocial
Responsibility
Social Responsibili
ty
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP
Outsourcing Trends
Trends
All providers are increasing US front office staff; cost savings of near-shore and on-shore outsourcing have improved in North America and Europe with increased available labor pools at lower rates as a result of the global recession
More US Staff for front office (w/o increase in cost); near shore investments by providers
Distinct trend in moving towards Performance Metrics and OLAs and away from financial penalty driven SLAs
SLAs are more complicated in the multi-sourcing environment Decreased use of ‘hard’ SLAs inspired by financial penalties Threat of lower Customer Satisfaction results (impacting aggregate
customer sat for provider and future sales) Customers want the contractual ability to effect change in the providers
operations, processes and personnel assignments
SLAs to Performance Metrics
Observations
Even though multi-sourcing is on the rise, the financial and strategic benefits of multi-sourcing are being weighed against governance and integration challenges; as a result there is a significant focus on governance models in the buying process
Multi-sourcing Benefits vs. Governance Challenges
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP 10
Outsourcing Trends
Trends
Evolving Provider Landscape
Observations
Outsourcing in Oil and Gas Companies
Due to their global footprints big O&G companies continue to focus on outsourcing Most are in the 2nd wave of outsourcing (10+years) Significant number of Oil and Gas Companies are adopting a captive or
customer owned offshore facilities model Taking a hard look at Tier 2 providers (see above) Looking to outsource more complex core business processes and
systems
The global IT services outsourcing provider landscape is evolving Consolidations (vertical, size based, footprint etc.) Providers looking more like each other as the market evolves (offshore
providers investing in customer geographies and western providers continuing to invest in delivery centers)
Universal standards for provider performance decreasing contract ambiguity
Rise of the Tier 2 providers (brand less important then the team, industry expertise)
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP 11
Role of Outsourcing Advisors?
Avoid the “pitfalls”
Market data to Benchmark
Knowledge of providers
Structured process and “Audit-ability”
Tools and templates
Technical expertise
Program Management
Change Management
Governance and Communication
www.enaxisconsulting.comConfidential – Not to be distributed or used without explicit written consent from Enaxis Consulting LP 12
Brooks [email protected]
713.808.1396 (o) / 832-724-9900 (c)
For More Information on Outsourcing…
White Papers and additional research: http://www.enaxisconsulting.com/research_ma
in.asp
Large Scale IT Outsourcing
– Do’s and Don’ts