Being Selective with Your Outsourcing John Krpan Executive Vice President Corporate and Business Dev

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Being Selective with Your OutsourcingJohn
KrpanExecutive Vice PresidentCorporate and
Business Development
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What is Selective Outsourcing?

• Contracting out responsibility for part or all of
  your operations
• You keep core/strategic functions
• Niche practitioners and specialists (best
  practices)
• Several providers (specialists) versus one end to
  end provider (generalist)

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Sample Niches

• Development vs. support and maintenance
• Hardware vs. software
• Planning and consulting
• Infrastructure
• Communications

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Outsourcing Trends

• Global IT spending on third parties in 2004 was
  965 billion
• Size of outsourcing deals are shrinking
• Number of deals have increased
• Niche players are evolving
• Indias growth is slowing
• China and eastern Europe are growing

• Cost is still a prime motivator
• Desire for redeployment (growing rapidly)
• Application support and maintenance
• Abnormal terminations on the rise
• of providers has exploded

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Does Outsourcing Work?

• A broader context
• Boeing (design)
• Nike (brand management)
• 7/11 (merchandising)
• Complementary business
• Different customers
• Different market
• Automotive

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Long Term Successes

• Automotive (partnerships)
• Windshields
• Transmissions
• Differentials
• Frames
• Tires
• Seats
• Steering wheels
• Batteries
• Sales

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What is Core?

• Depends on your perspective
• Business vs. IT
• Level of IT operation
• Its probably not what you think
• Competitive advantage
• IT is now ubiquitous, can it be unique?
• Learn from the past
• Accounting applications
• Boeing
• I know what you are saying, but we really are
  different

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Why is Selective Outsourcing Emerging?

• More competition means greater focus on your core
  business
• More control
• Less risk
• Less reliance on a single vendor
• Better contracts
• greater leverage
• greater flexibility
• Often more cost effective

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Benefits of Selective Outsourcing

• Greater chance of domain experts
• Training
• Culture
• Tools, methods, RD, etc.
• Benefits of Domain experts often include
• Higher quality services
• Lower relative cost
• Many niche providers offer
• Greater leverage and flexibility
• Ability to redeploy strategic resources
• More energy for your core business
• More transparent pricing and solutions

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Tradeoffs

• Management energy (one versus several vendors)
• Vendor cooperation
• Complementary services
• Careful selection
• Stability/longevity

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Solutions

• Get your house in order first
• Look for vendors with specialization
• Do not put vendors in conflict with each other
• Ensure that you can work with your partner(s)
• Traditional economies of scale do not apply
• Size will not guarantee benefits, but
• Sometimes, big is better
• Measure everything (SLAs)
• Ensure accountability for results not process
• For small vendors
• Incorporate these value added elements

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Sources

• Diamond Cluster International, 2005 Global
  Outsourcing Study
• IT World Canada, April 18, 2005
• IDC Reports
• Harvard Business Review IT Doesnt Matter, May,
  2003
• Harvard Business Review Strategic Sourcing,
  February 2005

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Case Study

• Utility Company
• John Wayne CEO
• Previous successes
• Met strong cultural barriers
• My grandfather did it this way

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Case Study

• A financial institution
• One large vendor
• Good, but not great quality of service
• Nervousness regarding reliance on a single vendor
• Testing best of breed concept

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Case Study

• A multinational chemical company (Europe)
• Locked into a single large vendor
• Poor flexibility in contract
• High penalty for contract termination
• Embraced a smaller niche supplier
• Basis for renegotiation of larger contract