IT Outsourcing

Todays 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?

AAFA Members

44% (4 out of 9)

Expertise & Domain Knowledge

Industry Best Practices
Offshore Opportunities
Easily Augment Staff
Drive Down Costs

Most AAFA members who are

outsourcing are motivated by
the goal of cost reductions.

Leverage Buying Power

Rapid Growth Through Acquisitions
Build Competencies Quickly

33% (3 out of 9)
67% (6 out of 9)
78% (7 out of 9)
11% (1 out of 9)
44% (4 out of 9)
67% (6 out of 9)

Other: Company Growth; Process Transformation; Near to Customers; Data Security

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?
AAFA Members
Application Development
& Maintenance
End User Computing

All AAFA members who are

outsourcing are doing so in
the area of application
development and
maintenance.

100% (9 out of 9)

(Pcs And Helpdesk)

22% (2 out of 9)

Data Center

44% (4 out of 9)

Data Network Management

22% (2 out of 9)

Disaster Recovery

22% (2 out of 9)

IT Security

11% (1 out of 9)

Business Continuity

11% (1 out of 9)

Voice Network Management

11% (1 out of 9)
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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

10

How are companies outsourcing?

Scope
Of Role

First
Generation

Second
Generation

Projects

Functions

Third
Generation

Generation
X

Categories

Primary
Objectives

Resource

Expertise

Competency

Innovation

View Of
Relationship

Vendor

3rd Party

Extended
Employees

Partner

Organizational
Implications

Limited
Organizational
Impact

Senior
Involvement

11

Integrated
Organizational
Roles

Example of Third Generation Organization

CIO

Company retain ownership of

applications, finance, security,
infrastructure, technology, etc. by
maintaining key management
resources in place.

Company ITS Directors

Outsource Manager

Flexible pool of
Outsource Business Consultants

Outsource
Applications Manager

Company Business Analysts

Outsource
Development Resources

Companies avoid
outsourcing
business process
knowledge.

Outsource
Infrastructure Manager

Outsource
Infrastructure Support

Outsource
Helpdesk

12

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
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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

14

Challenges
Satisfaction Levels with Outsourcing Activities

Source: Aberdeen Group The Business Value of IT Outsourcing Benchmark Report, 2006

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Challenges
Top Challenges with Current Outsourcing

Source: Aberdeen Group The Business Value of IT Outsourcing Benchmark Report, 2006

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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

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Benefits
Transformation

Innovation

Quality

Value

Administration

Internal Staff
Focus on
Strategic Issues

Faster Turnaround for

Greater Solution

Cost

Reduced
Operating Cost

Improved Version
Control and
Lifecycle
Management

Improved
Documentation
of Procedures
and Best
Practices

Improved
Development
Quality

Broad-base
Expertise

Drivers
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Access to
Superior
Expertise

The Future

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