engaging with the market to leverage your buying power
DESCRIPTION
IT Sourcing - managing the risks for success. 1. Strategic Sourcing – what does it mean? 2. What factors influence the decision-making process? 3. Assessing different models for streamlining buying and effectively structuring procurement 4. Effectively managing risk while delivering business value and constructing back-to-back deals 5. Expanding the sourcing options to include offshore in-house.TRANSCRIPT
Engaging with the Market to Leverage your Buying Power
Walter AdamsonDigital Investor Pty [email protected]
Advanced IT Contract Management and Negotiation Conference, November 2003
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Contents
Strategic Sourcing – what does it mean? What factors influence the decision-making
process? Assessing different models for streamlining
buying and effectively structuring procurement Effectively managing risk while delivering
business value and constructing back-to-back deals
Expanding the sourcing options to include offshore in-house.
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Strategic sourcing – what does it mean?
Strategic sourcing requires a new question Tactical sourcing is inefficient, and often
ineffective A common cause for current disappointments Future sourcing will be more complex
1.1
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Strategic sourcing requires a new question
Gartner - 30% of companies are unprepared
“What is the best source for every IT service” NOT “What do I have in IT that
seems appropriate for outsourcing”
“What is the best source for every IT service” NOT “What do I have in IT that
seems appropriate for outsourcing”
1.2
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Tactical sourcing is inefficient and often ineffective
Bottom-up view of the role of IT Often aided by IT’s reaction:
– IT efficiency-focused in fear of CEO/CFO
– Over-segmented and fear of loss of control
– Often aided by ‘advisors’ who generate work
• Complicates relationships
• Hidden management costs
1.3
©2003 Walter Adamson
Enhancing alignment and value for IT investments
A common cause for current disappointments
1.4
The single most common mistake is that organisations did not identify, and then
build and retain, the strategic, management and complementary
operational skills needed to create and capture the potential benefits of
outsourcing.
Walter Adamson
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Future strategic sourcing will be more complex
Strategic sourcing is a growth industry: US$68.5b business growing to $100b in 2007 More knowledgeable buyers New pressure for growth and innovation BPO a new global growth market Offshore in more complex forms
More complex, cross-functional relationships
1.5
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Factors influencing decision-making
Three key dimensions:
Business-level decision-making New organisational models – outtasking Extended options – going global
2.1
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Business-level decision
Benefits from the tactical approach exhausted: Cost , competencies , assets Focusing on contract yields no benefits
Future requires holistic strategy: Improve business risk, value chain, EVA More cross functional and “extended enterprise” Deliver value as a strategic management tool
2.2
©2003 Walter Adamson
Enhancing alignment and value for IT investments
New organisational models
Most advanced thinking is Cisco’s ‘outtasking’: Extending the organisation ‘deeply’ Cisco holds the keys to the overall data
architecture and systems interfaces Clear thinking about the customer value chain Clear thinking about core and non-core Sophisticated alliance relationships Clear performance metrics
2.3
©2003 Walter Adamson
Enhancing alignment and value for IT investments
New organisational models - 2
Key concept, mission critical can be outtasked:
2.4
Sourcing and Implementation Strategy
CONTENT Out-task – Type 1 Contract Sourcing
CORE In-house Out-task – Type 2
Mission-Critical Non-mission-critical
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Extended options – going global
The global options cannot be ignored: Moving from tactical to strategic Moving up the value chain Moving across functions - BPO Rapidly improving offshore capabilities Not restricted to 3rd party outsourcing
More complex, cross-functional relationships
2.5
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Assessing different models for structuring procurement
ManagementManagement BenefitsBenefits ROIROIContractContract
3.1
The funnel is often the other way around!
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Strategic sourcing relationships3.2
Fee-for-service Contract/Relationship Risk/Gain Sharing
(new vision)Transformation
(market breakthrough)
(value-chain reengineering)
Effectiveness(process integration)
(service)
Efficiency(cost)
VALUE
REPEATwhat they know
RE-APPLYwhat they know
RE-INVENTwhat they know
Need moreflexibility to
cater foruncertainty
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Multiple service provider3.3
(new vision)Transformation
(market breakthrough)
(value-chain reengineering)
Effectiveness(process integration)
(service)
Efficiency(cost)
VALUE
Traditional ContractualRelationships
Teaming & PreferentialRelationships
Advisory and Trusted Relationships
Boutique Fit for Purpose(No prior contract)
Relationship Best of Breed(Panel Contract)
Long-termCompetitive Contract
Fee-for-service Contract/Relationship Risk/Gain Sharing
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Contracts reflect relationships3.4
Multiple relationships are needed: Different relationships suit different purposes and
responsibilities and measures and expectations Axiomatically no one IT service firm can provide best
of breed at all levels of the value creation and capture hierarchy
But not within the one relationship level !!
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Managing Risk and Back-to-Back Contract Construction
Client Service Provider
Contract Terms and SLAs
4.1
©2003 Walter Adamson
Enhancing alignment and value for IT investments
A recent lesson in back to back#
Effective variations although not “in writing” Contract required variations “in writing” Actions of parties reflected new intentions Subcontractor failed to show that failure to
provide “in writing” terminated sub-contract “Agreement to vary” enforceable contract “Real intention” prevailed over written
#GEC Marconi Systems Pty Ltd v BHP Information Technology Ltd Feb 2003
4.2
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Expanding Sourcing Options to include Inhouse-Offshore
Benefits of off-shore plus control of inhouse: “Inhouse Offshore” IHOS Capture economic value directly Smooths integration of offshore process Reduced relationship costs vs outsourcing Knowledge retention
IHOS not a panacea but complementary
5.1
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Inhouse offshore risks
The risks are different to outsourcing: How to set up offshore - government, tax, legal Establishing management, performance goals Training, staff exchange and career management Systems interfaces and data management Finding a reliable local partner & advisor
5.2
©2003 Walter Adamson
Enhancing alignment and value for IT investments
Resources for IHOS
Manage the risk of setting up offshore: Investment capital Domain expertise Structured deals, risk offsets, and exits Local review and audit of process
London-based and other firms e.g. Ariadne Capital
5.3