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Understanding Misunderstanding. Insights from the 2006 Outsourcing Survey John McCord PA Consulting Group. Insight. Clients underestimate the scale of the outsourcing challenge – easy to source, harder to realize value.

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understanding misunderstanding

Understanding Misunderstanding

Insights from the 2006 Outsourcing Survey

John McCord

PA Consulting Group

clients underestimate the scale of the outsourcing challenge easy to source harder to realize value

Insight

Clients underestimate the scale of the outsourcing challenge – easy to source, harder to realize value

Clients’ assessment of the level of difficulty of various stages of the outsourcing lifecycle

Many find the early stages of sourcing the easiest…

…but 50% of clients found Benefits Realization hard

slide3

Insight

Clients and suppliers have divergent views regarding desired outcomes and benefits of outsourcing deals…

Outcomes/benefits identified by clients & suppliers as being required from outsourcing

Suppliers?

slide4

Insight

Clients and suppliers have divergent views regarding desired outcomes and benefits of outsourcing deals…

Outcomes/benefits identified by clients & suppliers as being required from outsourcing

It is critical to ensure alignment with potential outsourcing partners on desired outcomes and benefits prior to signing the deal

and success is rarely judged on just delivering to defined service requirements

Insight

… and success is rarely judged on ‘just delivering to defined service requirements’
  • While 64% of clients’ admit they are happy that their suppliers are meeting SLAs;
    • Less than half (48%) feel they are getting ‘value for money’
    • Only 22% believe their supplier delivered innovation

Client views on outsourcing supplier relationships and value-add

and clients are less interested in cultural fit and strategic alignment

Insight

… and clients are less interested in cultural fit and strategic alignment

Figure 6: Key areas where it was felt more focus should be placed when selecting a supplier

With hindsight, clients place more emphasis on delivery capability and expertise, and less on culture & commercials

so how do these insights impact the sourcing lifecycle

ITO Sourcing

So how do these insights impact the sourcing lifecycle

The Outsourcing Lifecycle

Develop

Deliver

Design

Service Management Organization

Relationship Management

Defining Strategy

Negotiation

Requirements Definition

Business Transformation

Solution Design / Service Model

Innovation

Benefits Delivery

Business Case

Issue RFP

Commercials and Contracts

Transition

expectations are expanding beyond cost
Expectations are expanding beyond cost …
  • Clients still look to outsourcing to reduce costs and enhance shareholder value, but there are many other reasons to outsource:
    • A driver for change and business transformation
    • Enables cost predictability with a high level of credibility
    • Enables focus on Core business
    • Drives consistency in delivery with reliable outcomes
    • Improves the organization’s ability to address to market changes
    • Encourages innovation
    • Drives the development of new processes
    • Enables access to specialist skills
    • Improves quality of service
but emphasis should also be placed on delivery
… but emphasis should also be placed on delivery …
  • The outsourcing process is about communicating needs and capabilities to the market. The process requires speed but the needs are complex and changing. How do CIOs quickly but accurately communicate needs? Through a progression of output based written communications and face-to-face meeting.
  • What this means:
  • 1. Tell the vendor “what” you want, let them say “how” it’s delivered
  • 2. RFIs and RFPs are incremental steps - not definitive statements
  • 3. Face-to-face negotiations are the important third stage
  • 4. Push out only as much detail as necessary to get to next step
  • 5. All communications are controlled through a single point
  • 6. Consistent messaging is crucial
and designing effective governance structures to make it last

Executive /

Executive /

VP

VP

Company to Company

Senior

Senior

Business

Business

Management

Management

Strategy

Escalation Path

BP Management

BP Management

Business Management

Regional /

Regional /

Business

Business

Management

Management

Operations

Operations

Performance / Satisfaction

Managers

Managers

Execution

Service

Service

Account

Account

Senior / VP

Senior / VP

Executive

Executive

/

/

VP

VP

Managers

Managers

Management

Management

Management

Management

Supplier

Supplier

Supplier

Management

Management

Management

… and designing effective governance structures to make it last
  • It is important toinsure that the right people arespeaking to eachother in each organization andthroughout the relationship.
  • This means thatthere must be a goodservice managementstructure on both sidesof the deal
the outsourcing market continues to mature

Conclusion

The outsourcing market continues to mature
  • Highlights of PA’s 2006 Outsourcing Survey
  • The value of the outsourcing marketplace continues to increase
  • A large percentage of company budgets are spent on outsourced services
  • Client – supplier relationships have become increasingly complex
  • Competent delivery of outsourced services is now considered the ‘norm’
  • Client expectations have grown beyond simply reducing costs
  • Boundaries are expanding – suppliers now entice clients with promises of business transformation
who is pa consulting

PA Consulting Group

Who is PA Consulting?
  • PA is a leading, global management and technology consulting firm. Founded in 1943, PA today has nearly 3,000 staff operating worldwide in more than 35 countries.

North AmericaBoulder Cambridge

Chicago

HoustonLos Angeles MadisonNew York

Princeton

Washington DC

Europe

Belgium Irish Republic

Czech Republic Netherlands

Denmark Norway

Finland Russian Federation

France Sweden

Germany United Kingdom

Asia-Pacific

Australia

India

Indonesia

Japan

Malaysia

New Zealand

China (including

Hong Kong) Singapore

South America

ArgentinaBrazilPeru