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Truth or Dare

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Truth or Dare? Trends and realities in Canadian outsourcing. The big deals of 2004 ... Tell the Truth ... Establishing trust and telling the truth is key. ... – PowerPoint PPT presentation

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Title: Truth or Dare


1
Truth or Dare?
  • Trends and realities in Canadian outsourcing

2
The big deals of 2004
  • Cott Corporation signed a C210 million IS
    outsourcing contract over 10 years with CGI.
  • TD signed a C420 million IS outsourcing contract
    over seven years with HP.
  • Foresters signed a C108 million IS outsourcing
    contract over seven years with CGI.
  • Manulife signed a C140 million VoIP IS
    outsourcing contract over seven years with Bell.

  • Manulife signed C70 million network and desktop
    contract over four years with IBM.
  • Bell signed an network and desktop (document
    print services outsourcing) multi-million dollar
    contract over five years with Xerox.
  • Transalta signed a network and desktop contract
    worth C40 million with HP.
  • The government of British Columbia signed a C300
    million IS outsourcing contract over 10 years
    with ISM, an IBM subsidiary.

Source IDC Canada, 2004
3
How big is big?
  • IS outsourcing 4.4B in 2005
  • 5.2B in 2009
  • Network and desktop 1.4B in 2005
  • 1.7B in 2009
  • HR 1.8B in 2005 2.5B in 2009
  • Finance and Account 1.5B in 2005 2.0B
    in 2009
  • Customer Care 1.5B in 2005 2.0B in
    2009
  • Application Mgmt. 1.2B in 2005 1.5B in
    2008

Source IDC Canada, 2004
4
Reality Check 1
  • Outsourcing is not being done very deeply

Global Strategic Outsourcing Survey of 2004 by
A.T. Kearney and CAPS Research says
Typical portion of any given activity outsourced
is relatively low 84 outsource less than 25 of
the activity Average is 15.8 IT has deepest lev
el of outsourcing penetration but only 14
outsource more than 25 of that activity
5
Reality Check 2
  • Outsourcing is a marriage with no divorce

Assume you cant easily get out of a deal
Outsourcing may create a dependence, which is
difficult or impossible to let go
Better strike a deal that you can live with for
the life of the contract Seek to work to the inte
nt rather than the letter of an agreement
Speaks to the importance of establishing a
relationship built upon trust
6
Reality Check 3
  • Tell the Truth

Outsourcers should know all the gory details, so
that they arent hit with surprises
Deals go bad when you as a customer hide whats
really going on with the IT/business process(es)
you seek to outsource Outsourcers may quickly fin
d they cant do an effective job, since what they
didnt know prevented them from pricing the deal
appropriately Establishing trust and telling the
truth is key. Without it, the engagement will
ultimately fail Truth works both ways
7
Reality Check 4
  • Dont always expect it to be cheaper

Its often the reason why companies outsource,
but can you reasonably achieve that end
89 (Strategic Outsourcing Survey 2004) say they
expect to reduce costs through outsourcing
13 is the average savings reported 75 saw
savings within a year But many experienced compan
ies suggest this may not be a reasonable
expectation The goal should be to improve the pro
cess and create the ability to focus on core
business
8
Reality Check 5
  • You become part of the process

Outsourcers achieve economies of scale through
repeatable processes, which they apply to your
business Be aware that your business is adjusting
to fit the mold The customer may not (and argua
bly should not) have a say in technology choices
made by the outsourcer. Does that matter to you
What happens if you decide to bring it back
inhouse
9
Outsourcing Trends
  • Its growing in specific areas

Information technology Manufacturing and operatio
ns Procurement and supply-chain management Human
resources Finance and accounting Engineering an
d detailed design Product and service development
Call/contact centres
Source Strategic Outsourcing Survey, 2004
10
Outsourcing Trends
  • Theres a level of increasing reluctance

Loss of control 72 Activities not outsourced
are core 72 Protection of intellectual property
68 Company policy/philosophy 53 Inadequate b
usiness case 42 Concern dependency on supplie
r 38 Concern labour/community reaction 36 Lo
ss of critical capability 32
Source Strategic Outsourcing Survey, 2004
11
Outsourcing Trends
  • Offshore/Nearshore is part of the mix

ITWorldCanadas CIO Insider survey shows 16 of
respondents will investigate offshore
outsourcing Typically project-based application
development that requires little or no
day-to-day management Countries such as China, Ru
ssia and Eastern Europe emerging as offshore
destinations Vendors may see offshore as differen
tiator and offer it up as part of engagements.
12
Outsourcing Trends
  • Selective outsourcing is on the rise

Experienced customers are looking at more
discrete activities rather than outsourcing the
entire thing Theyre up to managing multiple supp
liers and relationships something previously
left to the outsourcers Learned through past expe
rience that core IT activities and decisions were
unwisely and/or inadvertently handed off
13
Outsourcing Trends
  • The utility may be the end point

Pay-as-you-go Does basic computing/networking cap
ability lend itself to being provisioned as a
utility service paid for monthly through
operational budgets Eliminates technology risk, p
rovides a way to get improvements/upgrades with
no capital expense Nick Carrs says its the way
computing is going The End of Corporate
Computing IT is shifting from an asset
companies own to a service they purchase.
14
Outsourcing Trends
  • Government becomes a customer

IDC believes that 2005 and 2006 will see the
federal government and several municipalities
accept the outsourcing model, driven by the
substantial cost savings that outsourcing
providers can offer. Will it be a better way to e
nable e-government There is an enormous IT legacy
in government, both in equipment investments and
staff Departmental investment with interdepartmen
tal requirements. Consolidation needed
15
Outsourcing Trends
  • VoIP becomes an outsourcing opportunity

IDC predicts that there will be several VoIP
contracts signed in 2005, concentrated in the
latter half of the year. IDC says in 2006 and 20
07, spending on VoIP will skyrocket as the
technology becomes mainstream for large and
medium companies in Canada.
16
Outsourcing Trends
  • No more mega-deals?

The IS outsourcing mega-deal, with annual
spending of C100 million or more, has become an
endangered species in Canada.
There are, and will continue to be, many deals
signed with annual spending of C50 million.
Outsourcing providers that intend to remain
focused on information technology opportunities
need to lower their cost of sales and service in
order to remain profitable with more numerous,
but lower value, contracts averaging C50 million
per year.
Source IDC Canada, 2004
17
Outsourcing Trends
  • Backsourcing
  • Resuming responsibility for previously outsourced
    IT functions bringing them back
  • WHY
  • Change in corporate strategy/philosophy. The
    company now views IT as competitive weapon rather
    than a cost centre
  • Prenuptial-style agreement terminate and regain
    control of their operations if the arrangement
    fails ensure smooth transition

JP Morgan Chase Company discontinues US5B
deal with IBM two years into 7-year deal in Sept.
2004
UK grocery chain J Sainsbury plc in Oct. 2004
renegotiates 7-year US3.25B deal with Accenture
(signed in 2000) Seeks to simplify IT systems tha
t have failed to deliver the anticipated increas
e in productivity.
Source Cutter Consortium, 2005
18
Outsourcing Trends
  • Other trends

A major of IS outsourcing contracts are renewed
with existing providers
A minority will not renew contracts with existing
IS outsourcers, BUT most will bring it back
inhouse rather than switch providers
Medium and small companies are a negligible
component of the IS outsourcing market in
Canada.
Source IDC Canada, 2004
19
Thank you
Dan McLean Editor-in-chief ITWorldCanada dmclean_at_i
tworldcanada.com
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