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IT Outsourcing - Tema: Sådan holder vi relationen på sporet
Outsourcing i dag og i fremtidenOle Horsfeldt, partner Gorrissen Federspiel
February 2015
Outsourcing, the past, the present, and the futureDansk - it| 10 February 2015
February 2015
From old school to present day
Traditional tower-based outsourcing
• Driven by IT/procurement strategy
• Efficiency and savings
• Availability of infrastructure components and applications
• Output based
• Incident and problem management
• Black box or capacity based pricing
• Relatively simple contracts
• Small deals – 3-5 years
Managed service outsourcing (end-to-end)
• Driven by IT/procurement strategy
• Improvement of operations and savings
• Availability of transaction and process capabilities
• Output based
• Incident and problem management
• Consumption based pricing
• Complex US style contracts
• Mega deals 5-10 years and today shorter deals
Outcome based outsourcing
• Driven by business strategy
• Business transformation
• Achievement of business objectives
• Revenue
• Retention and/or growth of business
• OPEX/CAPEX reduction
• Variable/fixed costs ratio
• ITO, AD/AM, and BPO blended
• Very complex contracts
Prime drivers:ITIL methodology and offshoring
Fragmentation of the stack
• Driven by business opportunity
• DC infrastructure, infrastructure operation, application operation, EUC and AD/AM in separate contracts
• More commoditised services
• More in-sourcing and in-house capability
• More vendors and SIAM and multivendor management capability required
• More contracts
Prime drivers:Cloud services and robotic process automation
February 2015
Moving towards outcome based outsourcing
Traditional tower-based outsourcing•Driven by IT/procurement strategy•Efficiency•Availability of infrastructure components and applications
•Incident and problem management•Capacity based pricing
Managed service outsourcing (end-to-end)•Driven by IT/procurement strategy•Improvement of operations•Availability of transaction and process capabilities
•Incident and problem management•Consumption based pricing
Vendor will focus on and take home its own efficiency gains and not share those with the customer
Incentive to focus on status quo and maintain same level of consumption of services
Vendors efficiency gains will unlikely equal benefits to customer
Vendor will earn its charges irrespective of the business benefits delivered to the customer
And customer will not share its business benefits with the vendor
Outcome based outsourcing•Driven by business strategy•Business transformation•Achievement of business objectives•Revenue•Retention and/or growth of business•OPEX/CAPEX reduction•Variable/fixed costs ratio•Distribution cost as percent of sales•Cash to cash cycle
Incentive to focus on change
Vendor will make money only if it delivers efficiency and business benefits to the customer
Customer will share benefits with vendor
February 2015
Service level compliance
• SLA performance not a problem any more• But selecting the right SLAs to reflect business
needs remains difficult• And achieving customer satisfaction through SLAs
is near to impossible
Transition
• Used to be a major problem, still a problem but less so today
Pricing and budget• Used to be black box pricing, not anymore• Consumption based• Fully transparent• Flexible asset ownership models• But the remaining problem is making the
business case stick as• No vendor liability• No vendor incentive to conduct proper
demand and capacity management• Cost overrun invariably occur
• Why will suppliers not act as partners?
Customer satisfaction
• Complete discrepancy in customer and supplier understanding of customer satisfaction and customer perception
• Supplier will fulfil contract but not satisfy customers
• Suppliers make no real effort to align with long term customer satisfaction, such as
• Don’t argue with obvious failings• Resolve incident first and discuss later• Avoid hostage taking• Decrease prices• Offer automation• Reduce time to market• Resolve disputes quickly and fairly
Flexibility
• Flexibility used to be scarce• Today, plenty of flexibility:• Termination for convenience per tower,
per site, per country etc at low fees• Risk pool allocation• Consumption based pricing• But time to market remains
unresolved
Complexity
• Contracts are too complex• Knowledge retention with customer is poor• Contract management skills and lack of
investment in CM is a real problem
Vendor lock in
• Not a problem from a software and documentation perspective anymore
• But huge problem from a collaboration perspective
Challenges in the past (but some are still
current)
February 2015
Our way of contracting leads to economic inefficiencies
• Fast track procurement process
• Joint advisor responsibility matrix
• Project governance model
• Work stream and deliverables
• Deal documentation and issue trackers
Value leakage• Non-performed business objectives • Over charging• Payment for non-performed services • Lack of innovation• Uncompetitive prices
Procurement costs• Client internal investment• Consultant and legal fees
New services• The unnecessary costs associated with services not included in the initial scope and therefore not priced under competition
Contract Management
On going charges• The unit based and fixed cost elements
Lost savings due to delayedProcurement• The savings associated with transition/ transformation
Transition costs• Fixed price or• Time and material based
Risk premiums• Risk premium added to vendor’s fee for undertaking onerous terms
• Proactive remedies
• Compliance
• Contract guides and joint training
• Governance and processes supporting CM
• Requirement management
• Transparency and pricing principles
• Flexibility modelling
• Transparency and pricing principles
• Transparency and pricing principles
• Risk premium assessment
• Objective reporting
• Service level and credit methodology
• Proactive risk management
• Fast track benchmarking
• Transparency and pricing principles
• In-scope protection methodology
• New services definition
• Standard change methodology
Exit costs• Assistance to new vendor• HW residuals• Transfer of licenses
Contract Tools and MethodologiesCost ElementsCost of Outsourcing
February 2015
Resolve or die!
Cannibalise through
extreme automation
Develop feasible
outcomebased models
Create partnership
spirited relationship
with customers
The suppliers’ future challenges Perceive past investments as
sunken costs in order to offer same agility
as cloud providers and in-house organisations
Continuously decrease
prices
February 2015
The customer angle – understand who you are: The outsourced company
A clear vision and strategy on what it takes
to be an outsourcedcompany
A knowledge retention system and an appropriateHR strategy covering skills
and incentives
A formal ITSM implementation with clear roles and task descriptions
Service management toolsimplementation
Ability and processes thatlink business technology with
business strategy in an proactive manner
A formal contract management implementation
with clear roles and taskdescriptions integrated with contract manuals/playbooks
Implementation of a service agnostic outsourcing risk management system
February 2015
Become the outsourced company!
Automate to the extreme
Be consistent –don’t be
Hamlet and remain
indecisive about whether to outsource or
insource
Embrace outcome
based outsourcing
The customers’ future challengesEmbrace
commoditised services and
understand to bundlewith complex services
Understand contract
management as one of your
core competencies
February 2015
Commodity sourcing -apply traditional margin squeezing
approach
Potentially partnership/outcome
based projects
Potentially partnership/outcome
based projects
When is the outcome based contract relevant?
High element of changeas in transformation
andre-engineering
ORhigh element of
natural incentivealignment
Degree of blend ofdifferent ServicesORnon-commodity serviceORevolving business modelORbenefits are unknown
• BPO• IT• Application Development
and Maintenance
Ideal for partnership/outcome
based projects
February 2015
Getting robotic process automation
Existing contracts
Renegotiation of prices in general
Exercise evergreen provisions
Visit the standard re-negotiation levers:
benchmarking, evergreen clauses, breach of agreement,
extension of contract etc.
Review provisions on: evolution of services,
innovation, and change management
(1) Do existing/potential vendors have RBA
offerings? (2) Will RBA plug into your
applications, or the service provider’s processes?
(3) Will you procure through your service provider or
direct with the RBA vendors?
Initiate vendor discussion and get contractual provision
in place
New contracts or new
competitive procurement
Determine: (1) Expected post RBA
implementation financial baseline
(2) Set relevant contractual obligations at the point
of RFP
(1) Do existing/potential vendors have RBA
offerings? (2) Will RBA plug into your
applications, or the service provider’s processes?
(3) Will you procure through your service provider or
direct with the RBA vendors?
February 2015
Insourced RPA Outsourced RPA
Implementation of robotic process automation
Implementation
Cloudbased RPA
Buy RPA as part of
relationship with existing outsourcing
provider
Buy RPA as a service with
new (and dedicated)
outsourcing provider
Buy RPA as a service from cloud based
provider (emerging
model)
Yourself through
CoE
Model
RPA vendor
Third party
integrator/reseller
Your existing AD/AM
outsourcing provider
Control of technologyAbility to change ITO or BPO vendor without
effecting the RPA implementation
No end to end responsibility for vendors
Pay as you go and no infrastructure investmentsEnd to end responsibility for vendors
Insecure emerging modelNo control of RPA technology
Post term licensing arrangement needs to be in place
February 2015
Contract management – where are we currently?
• Widespread mindset that the contract is only used for conflicts and not as a tool –therefore disconnect between contract management conducted and the contract –generally leading to inefficient contract management
• Confusion as to the meaning of vendor management versus contract management• Belief that contract management can be done by one or a few contract managers• No real understanding of the contents of contract management• No real understanding of the resources and costs required• No structured and consistent approach to contract management• Insufficient fundamental and specific training conducted• No integration between operational processes (such as ITIL) and contract
management processes• No real grasp of contracts and therefore no appropriate use of contracts as a tool• Contract management based on inconsistent and insufficient fact collection and
therefore rarely any fact based contract management
Contract and vendor management is on the agenda and the needs are understood
February 2015
Understand the contract management system and methodology landscape
Contract management
software /SaaS
ITSM process implementation
Services and products
Outsourced contract management services
GF’s Contract management methodology
Service management software / SaaS
solutions
• More or less elaborate. Can include role and task descriptions and work flows. Often bespoke work per client.
• Implementation often through commercial consultants who reuse prior work but don’t have an off the shelve methodology
• Mainly offered by ISG. Can include invoice control, consumption management, service level management.
• Sirion Labs, Apptio, ServiceNow, ISG, Enlighta, various versions of D&O trackers as a standalone product or a service etc
• Systems that allows you to set alarms for specific date such as renewals and gives you notifications per email
• Ariba, SAP etc, etc
• A knowhow based methodology –not a system –that is directed to people using the knowhow in a structured manner to do contract management
• Includes roles, task descriptions per role, work flows, process descriptions
• Integrated with event based playbooks and contract manuals
Contract manuals/guides
• Booklets with summaries of contracts.• Mostly made by law firms or consultancies
Has integrated manuals
Time management is integrated in a process
Work flow alignment and descriptions between ITSM roles and CM roles
Work flow integration where the CM process uses data contained in tools
February 2015
The holistic approach to contract management
Dispute management
Compliancemanagement
Process, roles and tasks descriptions, work flows, event based manuals, and training materials
Contract Information ManagementStructured approach to collecting and storing contract management data
Customer organisation capable of managing all operational processes, such as ITIL processes, in the service life cycle model through roles and work flow descriptions
Performance management
Financial management
Optimisation
management
Timemanagement
GF contract management processes
Operational processes (e.g. ITIL) based interface with vendor in relation to services
The foundation for efficient contract management
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