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Business-Oriented Trends in IT Outsourcing
Alan McSweeney
January 30, 2012 2
Objectives
• To identify business-oriented trends in Information Technology outsourcing
January 30, 2012 3
Topics
• Outsourcing Trends
• Business-Oriented General IT Trends
• Transition and Transformation Within Outsourcing
• Outsourcing and Innovation
• A (Financial) Tale of Three Outsourcing Vendors
January 30, 2012 4
ITO Trends
January 30, 2012 5
State of Outsourcing in 2011
• Survey conducted by the London School of Economics Outsourcing Unit
• 1,209 Buyers, Providers and Advisors of Outsourcing Services
• Large study across spectrum of outsourcing industry
• Provides insight into market trends and therefore should be part of any organisation’s strategy
January 30, 2012 6
State of Outsourcing in 2011
• 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
January 30, 2012 7
State of Outsourcing in 2011 – Some Results
• 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
• Key reasons for outsourcing are− Cost reduction - 60-76% view as very important, depending on organisation size− More effective operations - 50-64% view as very important, depending on organisation size
• 46% have found outsourcing very effective in reducing costs• 35% have found outsourcing ineffective in innovation• 31% have found outsourcing ineffective in proving access to new technology• 31% have found outsourcing ineffective in proving access to business process knowledge and experience
• 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 8
Study Respondents’ Profile
January 30, 2012 9
Buyers’ Organisation Size by Revenue
January 30, 2012 10
Buyers’ Industries
January 30, 2012 11
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?
January 30, 2012 12
Most Organisations With Shared Services Are Increasing Outsourcing
• 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?
January 30, 2012 13
Business Challenges Driving Outsourcing In 2011
• How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO Decision-Making This Year? − Answer = Very Important
January 30, 2012 14
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
January 30, 2012 15
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?
January 30, 2012 16
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
January 30, 2012 17
Concerns Holding Back Outsourcing In 2011
• How Important Are The Following Factors Preventing Your Organisation From IT Outsourcing Or Business Processes Over The Next 12 Months?
January 30, 2012 18
Providers Oblivious To Buyers’ Perception Of Them
• How Important Are The Following Factors In Preventing Your Clients From Outsourcing IT Or Business Processes Over The Next 12 Months? (Outsourcing Providers)
January 30, 2012 19
Demand For Core General And Administrative Outsourcing Reaches Unprecedented Levels
January 30, 2012 20
First-Time Enterprise Buyers Look To Jump Into BPO
• % Buy-side organizations looking to outsource for the first time over the next 12 months
January 30, 2012 21
Effectiveness Of Current Outsourcing Engagements: Mid-Market Organisations Benefitting The Most
• How Effective Have Your Current Outsourcing Initiatives Been For Achieving The Following Business Benefits To-Date?− Answer = Very Effective
January 30, 2012 22
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
January 30, 2012 23
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?
January 30, 2012 24
Providers Underestimate Importance Buyers Place On Change Management, Governance And Culture
January 30, 2012 25
Advisors Are Buoyant About It When Looking At Future Outsourcing Plans
• Do You Expect Your Clients To Increase Or Reduce Their Activity Across The Following Areas, Over The Next 18 Months? − Outsourcing Advisers And Suppliers
January 30, 2012 26
Management Consultants Increasingly Influencing Outsourcing
• Extent By Which Providers Have Been Seeing The Following Advisors Influence Their Clients' Outsourcing Decision-Making Over The Last Six Months
January 30, 2012 27
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 28
Analysis of Some Information Technology Trends
• 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/RESOURCES/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 29
Gartner – Key IT Trends 2008 - 2011
2011 2010 2009 2008
1 Cloud Computing Cloud Computing Virtualisation Green IT
2 Mobile Applications and Media
Tablets
Advanced Analytics Cloud Computing Unified Communications
3 Social Communications and
Collaboration
Client Computing Servers - Beyond Blades Business Process Modelling
4 Video IT for Green Web-Oriented
Architectures
Metadata Management
5 Next Generation Analytics Reshaping the Data Centre Enterprise Mashups Virtualisation 2.0
6 Social Analytics Social Computing Specialised Systems Mashup and Composite
Applications
7 Context-Aware Computing Security – Activity
Monitoring
Social Software and Social
Networking
Web Platform and Web-
Oriented Architectures
8 Storage Class Memory Flash Memory Unified Communications Computing Fabric
9 Ubiquitous Computing Virtualisation for
Availability
Business Intelligence Real World Web
10 Fabric-Based Infrastructure and
Computers
Mobile Applications Green IT Social Software
• 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?
January 30, 2012 30
AICPA Top 10 IT Initiatives 2001-20112011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
1 Security Of Data, Code
& Communications /
Data Security &
Document Retention /
Security Threats
Control and Use of
Mobile Devices
Information
Security
Management
Information
Security
Management
Information
Security
Management
Information
Security
Information
Security
Information
Security
Information
Security
Business And
Financial Reporting
Applications
Information
Security And
Controls
2 Connectivity / Wireless
Access / High Speed
Internet Connections /
Voice And Data
Information
Security
Privacy
Management
IT Governance Identity And Access
Management
Assurance And
Compliance
Applications
Electronic
Document
Management
Spam Technology Business
Information
Management
Training And
Technology
Competency
E-Business
3 Backup Solutions/
Disaster Recovery/
Business Continuity
Data Retention
Policies and
Structure
Secure Data File
Storage,
Transmission And
Exchange
Business Continuity
Management And
Disaster Recovery
Planning
Conforming To
Assurance And
Compliance
Standards
Disaster And
Business Continuity
Planning
Data Integration Digital OptimisationApplication
Integration
Information
Security and
Controls
Electronically-
based Business and
Financial Reporting
4 Secure Electronic
Collaboration With
Clients – Client Portals
Remote Access Business Process
Improvement,
Work Flow and
Process Exception
Alerts
Privacy
Management
Privacy
Management
IT Governance Spam Technology Database and
Application
Integration
Web Services Quality of Service Privacy
5 Paperless Workflow/
Paperless Technology
Staff and
Management
Training
Mobile and Remote
Computing
Business Process
Improvement,
Workflow and
Process Exception
Alerts
Disaster Recovery
Planning and
Business Continuity
Management
Privacy
Management
Disaster Recovery Wireless
Technologies
Disaster Recovery Disaster Recovery
Planning and
Business Continuity
Management
Training and
Technology
competency
6 Laptop Security /
Encryption
Process
Documentation and
improvements
Training and
Competency
Identity and Access
Management
IT Governance Digital Identity and
Authentication
Technologies
Collaboration and
Messaging
Technologies
Disaster Recovery Wireless
Technologies
Communication
Technologies
Bandwidth
Disaster Recovery
7 Small Business
Software / Office 2010
/ Windows 7
Saving and Making
Money
w/Technology
Identity and Access
Management
Conforming to
Assurance and
Compliance
Standards
Securing and
Controlling
Information
Distribution
Wireless
Technologies
Wireless
Technologies
Data Mining Intrusion Detection Remote
Connectivity Tools
Qualified IT
Personnel
8 User Mobility/ Mobile
Computing/ Mobile
Devices
Technology Cost
Controls
Improved
Application and
Data Integration
Business
Intelligence
Mobile and Remote
Computing
Application and
Data Integration
Authentication
Technologies
Virtual Office Intrusion Detection Web-Based and
Web-Enabled
Applications
Quality of Service
9 Tax Software/
Electronic Transmittals
Of Tax Forms
Budget Processes Document, Forms,
Content and
Knowledge
Management
Mobile and Remote
Computing
Electronic Archiving
and Data Retention
Paperless Digital
Technologies
Storage
Technologies
Business Exchange
Technology
Customer
Relationship
Management
Qualified IT
personnel
Electronic Audit
Trail
10Server Virtualization
And Consolidation
Project
Management &
Deployment of
New Systems
Electronic Data
Retention Strategy
Document, Forms,
Content and
Knowledge
Management
Document, Content
and Knowledge
Management
Spyware Detection
and Removal
Learning and
Training
Competency
Messaging
Applications
Privacy Messaging
Applications (e-
mail, faxing,
voicemail, instant
messaging)
Application Service
Provider
January 30, 2012 31
AICPA Top 10 IT Initiatives 2005-20112011 2010 2009 2008 2007 2006 2005
1 Security Of Data, Code &
Communications / Data
Security & Document
Retention / Security Threats
Control and Use of
Mobile Devices
Information Security
Management
Information Security
Management
Information Security
Management
Information Security Information Security
2 Connectivity / Wireless
Access / High Speed
Internet Connections /
Voice And Data
Information Security Privacy Management IT Governance Identity And Access
Management
Assurance And
Compliance Applications
Electronic Document
Management
3 Backup Solutions/ Disaster
Recovery/ Business
Continuity
Data Retention Policies
and Structure
Secure Data File
Storage, Transmission
And Exchange
Business Continuity
Management And
Disaster Recovery
Planning
Conforming To Assurance
And Compliance
Standards
Disaster And Business
Continuity Planning
Data Integration
4 Secure Electronic
Collaboration With Clients –
Client Portals
Remote Access Business Process
Improvement, Work
Flow and Process
Exception Alerts
Privacy Management Privacy Management IT Governance Spam Technology
5 Paperless Workflow/
Paperless Technology
Staff and Management
Training
Mobile and Remote
Computing
Business Process
Improvement,
Workflow and Process
Exception Alerts
Disaster Recovery
Planning and Business
Continuity Management
Privacy Management Disaster Recovery
6 Laptop Security / EncryptionProcess Documentation
and improvements
Training and
Competency
Identity and Access
Management
IT Governance Digital Identity and
Authentication
Technologies
Collaboration and
Messaging Technologies
7 Small Business Software /
Office 2010 / Windows 7
Saving and Making
Money w/Technology
Identity and Access
Management
Conforming to
Assurance and
Compliance Standards
Securing and Controlling
Information Distribution
Wireless Technologies Wireless Technologies
8 User Mobility/ Mobile
Computing/ Mobile Devices
Technology Cost
Controls
Improved Application
and Data Integration
Business Intelligence Mobile and Remote
Computing
Application and Data
Integration
Authentication
Technologies
9 Tax Software/ Electronic
Transmittals Of Tax Forms
Budget Processes Document, Forms,
Content and Knowledge
Management
Mobile and Remote
Computing
Electronic Archiving and
Data Retention
Paperless Digital
Technologies
Storage Technologies
10 Server Virtualization And
Consolidation
Project Management &
Deployment of New
Systems
Electronic Data
Retention Strategy
Document, Forms,
Content and
Knowledge
Management
Document, Content and
Knowledge Management
Spyware Detection and
Removal
Learning and Training
Competency
January 30, 2012 32
Security, Privacy, Governance, Disaster Recovery2011 2010 2009 2008 2007 2006 2005
1 Security Of Data, Code &
Communications / Data
Security & Document
Retention / Security Threats
Control and Use of
Mobile Devices
Information Security
Management
Information Security
Management
Information Security
Management
Information Security Information Security
2 Connectivity / Wireless
Access / High Speed Internet
Connections / Voice And Data
Information Security Privacy Management IT Governance Identity And Access
Management
Assurance And
Compliance Applications
Electronic Document
Management
3 Backup Solutions/ Disaster
Recovery/ Business
Continuity
Data Retention
Policies and Structure
Secure Data File
Storage, Transmission
And Exchange
Business Continuity
Management And
Disaster Recovery
Planning
Conforming To Assurance
And Compliance
Standards
Disaster And Business
Continuity Planning
Data Integration
4 Secure Electronic
Collaboration With Clients –
Client Portals
Remote Access Business Process
Improvement, Work
Flow and Process
Exception Alerts
Privacy Management Privacy Management IT Governance Spam Technology
5 Paperless Workflow/
Paperless Technology
Staff and Management
Training
Mobile and Remote
Computing
Business Process
Improvement,
Workflow and Process
Exception Alerts
Disaster Recovery
Planning and Business
Continuity Management
Privacy Management Disaster Recovery
6 Laptop Security / Encryption Process
Documentation and
improvements
Training and
Competency
Identity and Access
Management
IT Governance Digital Identity and
Authentication
Technologies
Collaboration and
Messaging Technologies
7 Small Business Software /
Office 2010 / Windows 7
Saving and Making
Money w/Technology
Identity and Access
Management
Conforming to
Assurance and
Compliance Standards
Securing and Controlling
Information Distribution
Wireless Technologies Wireless Technologies
8 User Mobility/ Mobile
Computing/ Mobile Devices
Technology Cost
Controls
Improved Application
and Data Integration
Business Intelligence Mobile and Remote
Computing
Application and Data
Integration
Authentication
Technologies
9 Tax Software/ Electronic
Transmittals Of Tax Forms
Budget Processes Document, Forms,
Content and Knowledge
Management
Mobile and Remote
Computing
Electronic Archiving and
Data Retention
Paperless Digital
Technologies
Storage Technologies
10 Server Virtualization And
Consolidation
Project Management
& Deployment of New
Systems
Electronic Data
Retention Strategy
Document, Forms,
Content and
Knowledge
Management
Document, Content and
Knowledge Management
Spyware Detection and
Removal
Learning and Training
Competency
January 30, 2012 33
Data, Information and Document Management/ Integration and Analysis and Related Initiatives
2011 2010 2009 2008 2007 2006 2005
1 Security Of Data, Code &
Communications / Data
Security & Document
Retention / Security Threats
Control and Use of
Mobile Devices
Information Security
Management
Information Security
Management
Information Security
Management
Information Security Information Security
2 Connectivity / Wireless
Access / High Speed Internet
Connections / Voice And Data
Information Security Privacy Management IT Governance Identity And Access
Management
Assurance And
Compliance Applications
Electronic Document
Management
3 Backup Solutions/ Disaster
Recovery/ Business
Continuity
Data Retention Policies
and Structure
Secure Data File
Storage, Transmission
And Exchange
Business Continuity
Management And
Disaster Recovery
Planning
Conforming To Assurance
And Compliance
Standards
Disaster And Business
Continuity Planning
Data Integration
4 Secure Electronic
Collaboration With Clients –
Client Portals
Remote Access Business Process
Improvement, Work
Flow and Process
Exception Alerts
Privacy Management Privacy Management IT Governance Spam Technology
5 Paperless Workflow/
Paperless Technology
Staff and Management
Training
Mobile and Remote
Computing
Business Process
Improvement,
Workflow and Process
Exception Alerts
Disaster Recovery
Planning and Business
Continuity Management
Privacy Management Disaster Recovery
6 Laptop Security / Encryption Process
Documentation and
improvements
Training and
Competency
Identity and Access
Management
IT Governance Digital Identity and
Authentication
Technologies
Collaboration and
Messaging Technologies
7 Small Business Software /
Office 2010 / Windows 7
Saving and Making
Money w/Technology
Identity and Access
Management
Conforming to
Assurance and
Compliance Standards
Securing and Controlling
Information Distribution
Wireless Technologies Wireless Technologies
8 User Mobility/ Mobile
Computing/ Mobile Devices
Technology Cost
Controls
Improved Application
and Data Integration
Business Intelligence Mobile and Remote
Computing
Application and Data
Integration
Authentication
Technologies
9 Tax Software/ Electronic
Transmittals Of Tax Forms
Budget Processes Document, Forms,
Content and
Knowledge
Management
Mobile and Remote
Computing
Electronic Archiving and
Data Retention
Paperless Digital
Technologies
Storage Technologies
10 Server Virtualization And
Consolidation
Project Management
& Deployment of New
Systems
Electronic Data
Retention Strategy
Document, Forms,
Content and
Knowledge
Management
Document, Content and
Knowledge
Management
Spyware Detection and
Removal
Learning and Training
Competency
January 30, 2012 34
AICPA Top IT Initiatives
• Notice any differences?
• Business-oriented focus of IT initiatives−Not concerned with IT plumbing and infrastructure (such as cloud)
but on business concerns - running the business - and business-related 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
January 30, 2012 35
Transition and Transformation Within Outsourcing
• 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 36
Transition and Transformation
Transition TransformationSteady State
Operation
Customer
Infrastructure
and
Applications,
Staff, Support
Processes and
Tools
Customer
Infrastructure
and
Applications,
Transferred
and Being
Supported by
Supplier
Standardised
Infrastructure
Through
Refresh,
Customer
Support
Processes and
Tools
Replaced by
Supplier
Standards
Primary
Support
Transferred to
Appropriate
Cost Location
• 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 supplier’s costs
January 30, 2012 37
Evaluation and
Decision
Negotiation and
Contract Signing
Pre-Operation and
Pre-Integration
Start
Transition Transformation
Steady State
Operation of
Integrated Entity
Preliminary
Transition Plan
Due Diligence
Final Transition Plan
Integration
Preparation
Transition Initiation
Finalise Integration
Solution
Architecture
Due Diligence
Review and
Confirmation
Transformation
Planning
Contract
Effective Date
Service
Commencement Date
Outsourcing Process
Contract ReviewTransformation
Delivery
Transition
Completed
Transformation
Completed
January 30, 2012 38
Propose, Negotiate and Close
Planning
Research, Analysis, Identification
Preliminary Transition and
Transformation Plans
Due Diligence
Final Integrated Transition Plan
Transition TransformationOngoing
Operation
Transition Initiation/Kick-off
Post Contract Verification
Solution Handoff
Acquisition Management Office
Transfer
Operation Commencement
Preparation
Final Integrated Transition Plan
Transformation Initiation/Kick-off
Stabilisation
Standardisation
Transformation Close
Signed ContractIntegration Start
Review
Transition
Criteria Achieved
Terms and
Conditions
Transition to
Delivery Handoff
Transformation
Review
Transformation
Criteria Achieved
Transformation
to Delivery
Handoff
Delivery
Quality Review
Milestone
Handoff Events
Key Reporting
Events
Acquisition
Engagement Stage
Transition and
Transformation Phase
Activity
Transition and Transformation Management
January 30, 2012 39
Types of Outsourcing Arrangement
• 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 organisation’s 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 40
Problems With Outsourcing
• 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
January 30, 2012 41
Outsourcing and Innovation
• Outsourcing is not viewed by buyers or suppliers as a source of innovation−Not seen as an agent of change, innovation, transformation,
access to new technology
• 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
January 30, 2012 42
Business Challenges Driving Outsourcing In 2011
• 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
January 30, 2012 43
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
January 30, 2012 44
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
January 30, 2012 45
Effectiveness Of Current Outsourcing Engagements: Mid-Market Organisations Benefitting The Most
• 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
January 30, 2012 46
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
January 30, 2012 47
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
January 30, 2012 48
Transformation Process Introduces Standardisation and Enables Innovation
• Takes disparate set of sources and creates standard model
• Effective transformation is an enabler of innovation with IT function
− On-demand self-service
− Elastic
− Measured and metered usage and pricing
− Scale
− Resilience
− Available
− Secure
From … To …
January 30, 2012 49
A (Financial) Tale of Three Outsourcing Vendors
• Sample analysis of three vendors involved in outsourcing
−Dell – small outsourcing practice based on acquisition of Perot Systems and legacy outsourcing business
−HP – large outsourcing vendor with expanded practice since the acquisition of EDS
− IBM – large outsourcing vendor
• By no means exhaustive – there are many outsourcing service providers
January 30, 2012 50
Vendor Comparison Summary
• 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
2010 2009 2008
Dell HP IBM Dell HP IBM Dell HP IBM
Revenue 52,902 126,033 99,870 61,101 114,552 95,758 61,133 118,364 103,630
Gross Margin 9,261 29,996 46,040 10,957 27,034 43,761 11,671 28,644 45,701
Gross Margin % 17.5% 23.8% 46.1% 17.9% 23.6% 45.7% 19.1% 24.2% 44.1%
Net Income 1,433 8,761 14,833 2,478 7,660 13,425 2,947 8,329 12,334
Net Income % 2.7% 7.0% 14.9% 4.1% 6.7% 14.0% 4.8% 7.0% 11.9%
Outsourcing Revenue 5,622 18,835 22,241 5,351 18,692 21,620 4,980 8,211 22,733
Outsourcing Revenue % 10.60% 14.90% 22.30% 8.80% 16.30% 22.60% 8.10% 6.90% 21.90%
January 30, 2012 51
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
• Classification of revenues not consistent between years
• Restatement of revenues− Dell 2010 10 K
• Services revenue for 2009 = 5,351
• Services revenue for 2008 = 4,980
• Dell 2009 10 K
• Services revenue for 2009 = 5,715
• Services revenue for 2008 = 5,320
January 30, 2012 52
Vendor Comparison
• Which vendor can articulate a transformation vision for your organisation?
January 30, 2012 53
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
−Outsourcing classified as:• Strategic Outsourcing Services - existing infrastructure
• Global Process Services - standardised processing platforms and business process outsourcing
• Gross margins not reported down to outsourcing business area
January 30, 2012 54
IBM – Financial Summary
2010 2009 2008 2007 2006
Revenue 99,870 95,758 103,630 98,786 91,424
Gross Margin 46,040 43,761 45,701 41,688 38,307
Gross Margin % 46.1% 45.7% 44.1% 42.2% 41.9%
Net Income 14,833 13,425 12,334 10,418 9,492
Net Income % 14.9% 14.0% 11.9% 10.5% 10.4%
Global Technology Services Revenue Total 38,201 37,347 39,264 36,103 32,322
Global Technology Services Total Gross Margin 34.7% 35.0% 32.60% 29.90% 29.80%
Global Technology Services Revenue (Excluding Outsourcing) 15,960 15,727 16,531 15,108 13,433
Outsourcing Revenue 22,241 21,620 22,733 20,995 18,889
Outsourcing Revenue % 22.3% 22.6% 21.9% 21.3% 20.7%
Global Business Services 18,223 17,653 19,628 18,041 15,969
Global Business Services Gross Margin % 46.1% 45.7% 26.70% 23.50% 23.10%
Software 22,485 21,396 22,089 19,982 18,161
Software Gross Margin % 86.9% 86.0% 85.40% 85.20% 85.20%
Systems and Technology 17,973 16,190 19,287 21,317 21,970
Systems and Technology Gross Margin % 46.1% 45.7% 38.10% 39.70% 37.70%
Global Financing 2,238 2,302 2,559 2,502 2,365
Global Financing Gross Margin % 51.3% 47.5% 51.30% 46.70% 50.30%
January 30, 2012 55
IBM – Financial Summary
January 30, 2012 56
IBM – Financial Summary
January 30, 2012 57
IBM – Financial Summary
• Consistent performance
• Balanced across product and service areas
• C. 22% revenue from outsourcing
January 30, 2012 58
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
• Does not report Net Income for individual business lines− Earning from Operations rather than Net Income – includes acquired intangible
assets, pension settlements, etc.
− Earning from Operations greater than Net Income by c 30%
January 30, 2012 59
HP – Financial Summary2010 2009 2008
Revenue 126,033 114,552 118,364
Gross Margin 29,996 27,034 28,644
Gross Margin % 23.8% 23.6% 24.2%
Earnings from Operations 11,479 10,136 10,473
Earnings from Operations % 9.1% 8.8% 8.8%
Net Income 8,761 7,660 8,329
Net Income % 7.0% 6.7% 7.0%
Total Services (Including Outsourcing) Revenue 34,935 34,693 20,977
Total Services (Including Outsourcing) Earning from Operations 5,609 5,044 2,518
Total Services (Including Outsourcing) Earning from Operations % 16.1% 14.5% 12.0%
Infrastructure Technology Outsourcing 15,963 15,751 7,488
Business Process Outsourcing 2,872 2,941 723
Total Outsourcing 18,835 18,692 8,211
Total Outsourcing % 14.9% 16.3% 6.9%
ESS Revenue 18,651 15,359 19,400
ESS Earnings from Operations 2,402 1,518 2,577
ESS Earnings from Operations % 12.9% 9.9% 13.3%
Software Revenue 3,586 3,572 4,220
Software Earnings from Operations 759 684 499
Software Earnings from Operations % 21.2% 19.1% 11.8%
Personal Systems Revenue 40,741 35,305 42,295
Personal Systems Earnings from Operations 2,032 1,661 2,375
Personal Systems Earnings from Operations % 5.0% 4.7% 5.6%
Imaging and Printing Revenue 25,764 24,011 29,614
Imaging and Printing Earnings from Operations 4,412 4,310 4,559
Imaging and Printing Earnings from Operations % 17.1% 18.0% 15.4%
Financing Revenue 3,047 2,673 2,698
Financing Earnings from Operations 281 206 192
Financing Earnings from Operations % 9.2% 7.7% 7.1%
January 30, 2012 60
HP – Financial Summary
January 30, 2012 61
HP – Financial Summary
January 30, 2012 62
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
January 30, 2012 63
Dell – Financial Summary
2010 2009 2008
Revenue 52,902 61,101 61,133
Gross Margin 9,261 10,957 11,671
Gross Margin % 17.5% 17.9% 19.1%
Net Income 1,433 2,478 2,947
Net Income % 2.7% 4.1% 4.8%
Product Revenue 43,697 52,337 53,728
Product Revenue % 82.6% 85.7% 87.9%
Product Revenue Gross Margin 6,163 7,667 8,579
Product Revenue Gross Margin % 14.1% 14.6% 16.0%
Service Revenue Including Software 9,205 8,764 7,405
Service Revenue Including Software % 17.4% 14.3% 12.1%
Service Revenue Gross Margin 3,098 3,290 3,290
Service Revenue Gross Margin % 33.7% 37.5% 44.4%
Service Revenue Excluding Software 5,622 5,351 4,980
Service Revenue Excluding Software % 10.6% 8.8% 8.1%
January 30, 2012 64
Dell – Product/Software/Services Breakdown
January 30, 2012 65
Dell – Product/Software/Services Breakdown