dan mclean director outsourcing and it utility services ...$700m manulife financial and ibm gs ... *...
TRANSCRIPT
www.idc.com
Dan McLeanDirector
Outsourcing and IT Utility Services Research
OutsourcingA growing Canadian concern
An Industry CrateredWW IT Spending Growth (%)
1999 2000 2001 2002
10.8% 10.4%
-3.5%
-0.5%
We’ve Been Here BeforeWe’ve Been Here Before40 Years of Worldwide IT Spending % Growth$ Billions
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000 -75%
-50%
-25%
1960s 1970s 1980s 1990s
The mainframe crash
Oil crisesThe PC crash
The Gulf war
Vietnam
Reunification
Y2K
9/11
Source: IDC 2002 Source: IDC, 2003
2002 – A Year in Review in Outsourcing2002 – A Year in Review in Outsourcing
Many Canadian contracts appeared:$2.2B Canada Post and CGI $2.1B CIBC and HP Services$1.1B Bombardier and CSC$1B Hydro One and CGE&Y$700M Manulife Financial and IBM GS$250M Sun Life and IBM GS$200M Desjardins Group and CGI$250M Alcan and CGI$200M Stelco and EDS
Typically seven- to 10-year contracts
2002 - Competitive Review
Global Services
hp services
Business Consulting ServicesPwC Consulting
Deloitte Consulting
BRAXTON
The Market in 2003The Market in 2003
Business Outsourcing
Logistics $2.5B Cust. Care $1.4BHR $1.9B F&A $1.3B
Outsourcing in Canada
Network &DesktopOutsourcing
$1.2B
ApplicationsOutsourcing
$1.0B
IS Outsourcing$3.9B
Systems Infrastructure SP $419M
Canadian IT Outsourcing Services SpendingCanadian IT Outsourcing Services Spending
0
2,000
4,000
6,000
8,000
10,000
2003 2004 2005 2006 2007
IT Services XSPs (Sys. infrastructureSP + ApplnSP)Network and Desktop OutsourcingIS OutsourcingApplication Management
Source: IDC Canada, 2003
C$M
17.2%8.1%
6.1%
7.6%
CAGR 02-07
Top Canadian IT Services FirmsTop Canadian IT Services FirmsC&I%Estimated Canadian Services Revenues* C$M FY2002
1. IBM Global Services Canada (incl. PwC Consulting) 2,885 30%
2. CGI Group3. EDS Canada
8. TELUS
10. Fujitsu Consulting
5. Cap Gemini Ernst & Young
9. CSC Canada
7. Accenture
1,5681,220
850
293
260
380
284
307
4. HP Services Canada (not incl. Intria-HP)
Source: IDC, 2003
6. Cognicase 375
Others: DC/Braxton $218m; BearingPoint $140m (90%+)
34%
19%34%
32%
75%9%5%
76%
24%
* Based on IDC estimates for non-captive Canadian services revenue only, product flow-through removed, based on FYE
3. EDS Canada
2. CGI Group
7. Telus
10. Accenture
5. Cognicase
8. Cap Gemini Ernst & Young
6. CSC Canada
730
1,192
340
207
76
313
140
268
9. AT&T Canada
•Based on IDC estimates for Canadian outsourcing services revenue only, product flow-through removed, based on FYE•Includes BPO revenue
108
4. Bell Canada
Source: IDC 2002
Top Canadian IT Outsourcing FirmsTop Canadian IT Outsourcing Firms2002Est. Canadian Outsourcing Services Revenues C$M
1. IBM Global Services Canada (incl. PwC Consulting) 1,405
What About the Telcos?What About the Telcos?
More selective investment in IT services?More targeted customer and service approach?What might the Telcos do with their IT service properties? Bulk them up for eventual sale?Greater bundling of communication and IT services?
Determining Factor in Organizations’ Decision to Outsource ActivitiesDetermining Factor in Organizations’ Decision to Outsource Activities
0 5 10 15 20 25 30 35 40
Other
Merger/Acquisition
Change in SeniorExecutive levelmanagement
Technology audit
Poor businessperformance
Percentage
N=100; Q18. What event ultimately prompted – or would prove to be the determining factor – in your organization’s decision to outsource an activity?Source: IDC Canada, 2002
Preferred Type of Outsourcing RelationshipsPreferred Type of Outsourcing Relationships
0 5 10 15 20 25 30 35 40 45 50
Don't Know
Equity swap
Client/vendor jointventure
Preferred supplieragreement
Contracted outsourcingagreement
Percentage
A way to ensure SP has a stake in success?
N=100; Q19. If you were to outsource a significant portion of your IT, what type of outsourcing relationship would you prefer?Source: IDC Canada, 2002
Benefits derived from outsourcing – a matchBenefits derived from outsourcing – a match
0 10 20 30 40 50
Increased customer satisfaction
Improve business processes
Convert fixed costs to variable
Intro new/improved products/svcs
Lower capital investment costs
Lower operational costs
Improve focus on core business
Access to skills resources
Percentage
Currently OS-NoCurrently OS-YesTotal
N=177; A04. What do you perceive are the top 2 benefits/value derived from outsourcing?Source: IDC Canada, 2003
If Outsourcing, Organization Prefers to Retain Control Over…If Outsourcing, Organization Prefers to Retain Control Over…
0 10 20 30 40 50
DK/Refused
People
Process design
Day to daymanagement
Service levels
Business outcomes
Strategy
Percentage
Currently OS-NoCurrently OS-YesTotal
N=177; A07. If or when considering to outsource an aspect of your business, what ONE aspect of control of your outsourcing arrangement do you prefer to retain?Source: IDC Canada, 2003
Recent Canadian Research in OutsourcingRecent Canadian Research in Outsourcing
Q1 Ipanel Survey of 190 business and IT key decision makersApproximately 80% say they’ll renew with existing providers (IT,NDOS, applications and business OS)37% of NDOS users, 29% of Business OS users and 20% of IT OS users say they’ll expand scope of contracts upon renewal.Flexibility seen most often as the key factor that fosters trust in outsourcing
Trust – The Deal Maker or BreakerMore than 35% say it is the deciding factor to ultimately signing a contractAn additional 35% say it is a consideration of higher importancethan other factors
What’s Trust?What’s Trust?
Informs of subcontracting/offshore outsourcingWillingness to take equity stake in clients' businessWillingness to "open its books" Contributes to discussion of clients' IT/Business alignmentSuperior understanding of technologyWillingness to be accountable for clients' business performanceTakes action before being askedMaintains "high personal touch" with clientsPredictable costsAdheres to SLAFlexibility
Mirror, Mirror – Two UniversesMirror, Mirror – Two UniversesOutsourcing
CUSTOMIZED-always a one off-sees transfer of
assets and people-fixed contract
Each piece represents a key area of activity in outsourcing. Collectively it can define all types of deals. Network
Systems
Apps
Biz
Network
Systems
Apps
Biz
Utility
Networks
Systems
Apps
Biz
STANDARDSERVICES
-pay as you go- feature function
built upon a base service
-recurring fee structured
Makes sense here
Could move to hereCommodity
But can it work here?Unique
Network
Systems
Apps
Biz
Network
Systems
Apps
Biz
OutsourcingIT Utility
Service OfferingStandard Services Customized Services
IT ArchitectureUtility Service provider defines Customer Defines
AssetsUSP defines and owns
Customer/Vendor defines, both may own
Operations ManagementStandard part of offering Customer defines
FinancingPay per use Contract
Critical Year for Utility ServicesCritical Year for Utility ServicesHosting has existed for a few years. Challenge will be to drive richer implementations and greater investment.Key message might be that ebusiness is a strong way to attract new customers at a lower costNot all are convinced that Utility has value. Some suggest everycustomer wants customization when purchasing services.Can utility service providers deliver “mass customization” that provides unique value add?Utility seems to be a compelling offering as an infrastructure service where customers purchase computing power based on performance, reliability, availability, application and businessprocess support. Does this demand high customization?Are the right customers being targeted? Small business could benefit enormously, but few service providers want to engage these customers.
The Road to UtilityThe Road to Utility
Voice/DataConvergence
WebServices
ComputingUtility
SmartAgents
Automation
Relationship Between IT and BusinessRelationship Between IT and Business
Evolution of Business Priorities
Evolution of ITArchitectures
Relationship Between IT and BusinessRelationship Between IT and Business
Agile Business
Utility Computing
AdaptiveComputing
Web-Based Computing
Client/Server
CostControl
Focus on Core Competence
BusinessTransformation
Outsourcing Accelerates Business TransformationOutsourcing Accelerates Business Transformation
Broader Company Non-Core Operations, Human Resources. Customer Service, Accounting,
Logistics
Broader IS OperationsApplications, Help Desk
Desktops, NetworksData Center Operations
1990 -1995 -
2000 -2005 -
2010
Client/Server
Web-Based Computing
Utility Computing
AdaptiveComputing
CostControl
Focus on Core Competence
Mutual Gains Re-investMutual Gains
BusinessTransformation
Summary and ObservationsSummary and Observations
Utility – Pros and ConsUtility – Pros and Cons
Utility presents a real alternative to outsourcing:More selective A real option for small/medium businessPay as you go – pay for what you use. No long-term contractIT infrastructure as a “utility” seems inevitable
But there are doubters:Traditional O/S companies will say it doesn’t work, but the truth is many aren’t interested in serving the medium/small business market.Traditional communication service companies should be pretty good at this. The model fits their businesses
ThoughtsThoughtsIt’s now about business transformation, not simply cost savings
Trust is an essential element and service providers will be working to figure out what that is and how to turn that into a value differentiator
When budgets are tight, then companies start looking more closely at the value of outsourcing
Technology may be core to your business, but is the day-to-day operation of IT essential?Likewise with business functions – the things that might be handed off are the operational aspects of HR, finance and accounting, logistics, and customer care
ThoughtsThoughtsIf a customer does not have a clear understanding of IT costs, then they should not outsource.
Is there a trend towards dealing with advisors and brokers? Would they be helpful to you?
General rule in outsourcing is have an exist strategy:- Are you equipped to take over when the contract expires- Be vigilant in measuring performance and value
What’s in store for IT service providers in 2003?- Are telcos still targeting IT services? There’s evidence to
suggest some are looking to retrench into familiar territory. Bell, Aliant (want to sell xwave), Telus.
- Consultants also want to be outsourcers – Accenture, CGI, Bearing Point
- One-stop shops
