IT Outsourcing. Chad Doiron / Michael Saunders April, 2007. Today’s Presentation. Why are companies outsourcing? What is being outsourced? How are companies outsourcing? Challenges Benefits. Why are companies outsourcing?. Percent of companies indicating key drivers of IT Outsourcing.
IT Outsourcing Chad Doiron / Michael SaundersApril, 2007
Today’s Presentation • Why are companies outsourcing? • What is being outsourced? • How are companies outsourcing? • Challenges • Benefits
Why are companies outsourcing? Percent of companies indicating key drivers of IT Outsourcing Source: Aberdeen Group “The Business Value of IT Outsourcing Benchmark Report”, 2006
Why are we outsourcing? Most AAFA members who are outsourcing are motivated by the goal of cost reductions.
The future… Why will companies outsource: • Focus On Internal Core Competencies • Labor Arbitrage • Improve (Predict) Service Levels • Enterprise Transformation
What is being Outsourced? Percent of companies indicating some degree of IT Outsourcing Only 30% of AAFA members indicated that they are doing any kind of outsourcing. Source: Aberdeen Group “Outsourcing Application Development and Maintenance”, 2006
What is being Outsourced? $203 Billion Dollars in 2005 (7.4% Growth Rate) Data Center Outsourcing Network Outsourcing Enterprise Application Outsourcing Desktop Outsourcing Source: Gartner 2007 Key Issues for Outsourcing, Infrastructure and Applications
What do we Outsource? All AAFA members who are outsourcing are doing so in the area of application development and maintenance.
The future… What will be outsourced: • Increased mix of off-shore/on-shore resources • Additional business processes(A/P, customer service, human resources, etc.) • Enterprise Architecture • Research & Development
How are companies outsourcing? Projects Functions Categories
Example of Third Generation Organization Company retain ownership of applications, finance, security, infrastructure, technology, etc. by maintaining key management resources in place.
Additional Contract Considerations Outsource Services Contract: • Base services include service level agreements, scope and support requirements • Metrics used to establish minimum requirements • Monetary penalties if metrics not achieved • Costs tied to benchmarks • New projects structured under change controls that describe the scope, cost, and deliverables • All projects managed according to single overall governance model
The future… How will companies outsource: • Greater Focus on Partnership(Less Focus On The Company / Vendor Relationship) • Greater Focus On Innovation • Use multiple vendors • Shift in Budget Spend(From Operational “Keeping The Lights On” To Strategic) • Shorter Contracts With More Flexibility
Challenges Satisfaction Levels with Outsourcing Activities Source: Aberdeen Group “The Business Value of IT Outsourcing Benchmark Report”, 2006
Challenges Top Challenges with Current Outsourcing Source: Aberdeen Group “The Business Value of IT Outsourcing Benchmark Report”, 2006
Challenges The Outsourcing Paradox: • “A successful outsourcing requires trust, understanding and alignment, yet, the interests of the customer and the service provider are not naturally aligned… • A successful outsourcing must strive to be a partnership, yet the nature of the transaction can produce complex agreements, lengthy deal cycles and adversarial negotiations.” Source: Edward J. Hansen Morgan Lewis & Bockius, LLP
Benefits Transformation Innovation Quality Administration Cost Value Drivers