innovation in outsourcing a view across europe · pdf fileinnovation in outsourcing a view...

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Innovation in Outsourcing A View Across Europe

Outsourcing Law Group 14 October 2013

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The Outsourcing Law Group (OLG) is a group of like-minded law firms, each with a substantial outsourcing practice and a recognised market leader in the sector

On outsourcing projects, the OLG works as a single law firm, taking a unified approach under the leadership of one firm, and providing one set of rates, one bill and one currency

OLG leverages the joint resources of all OLG firms and staffs projects with the resources that have the most relevant competencies for each aspect of a project

OLG currently consists of: Morrison & Foerster: USA, UK and Asia Noerr: Germany, Central and Eastern Europe Gorrissen Federspiel: Denmark Kennedy van der Laan: Netherlands Courtois Lebel: France Orsingher Ortu – Avvocati Associati: Italy

What is the Outsourcing Law Group?

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Worldwide coverage Local knowledge

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Europe-wide Themes

Regulating innovation in outsourcing contracts What is innovation? Potential barriers to innovation Tool kit for regulating innovation

Country-specific experiences/case studies:

1) France 2) Germany 3) Netherlands

4) Denmark 5) Italy 6) United Kingdom

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Pia Mondrup Pedersen – Visiting Int’l Attorney, MoFo & Associate, Gorrissen Federspiel T: (+44) 20 7920 4024 E: [email protected]

Tim Roughton – Of counsel, MoFo T: (+44) 20 7920 4028 E: [email protected]

Speakers

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What is innovation?

Something that’s new

to a particular customer (e.g., practice, tool,

technology, process)

Something that’s completely novel, i.e.,

an invention

Something that improves the

customer’s services or costs, regardless of its

novelty

Source: IAOP 2012 survey of 202 outsourcing clients, providers, and advisors

Presenter

Presentation Notes

Source of information : IAOP survey of 202 outsourcing clients, providers, and advisors. Results were presented at IAOP seminar on innovation in outsourcing 26 June 2012. 89% of respondents could point to a specific innovation delivered in their deals. Asked 85 customers, 90 providers, and 27 advisors how they would define innovation if to choose between these three options.

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What is innovation?

The three communities agree that innovation is best defined as:


Something that improves the customer’s services or costs,

regardless of its novelty

Presenter

Presentation Notes

Three communities = 85 customers, 90 providers, and 27 advisors, all agreed to this answer.

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What is innovation?


Presenter

Presentation Notes

From the IAOP 2012 survey: The most common type of innovation was a new tool or technology (35%), such as a new customer tracking tool, asset management tool, e-invoicing tool, optical character recognition tool, and migration to the cloud. New or improved processes (16%) were the second most common types of innovation. Respondents described new or improved processes to evaluate sales force effectiveness, to assess asset value, and to train new workers, for example. Thirteen percent of the innovations were unique, so they were categorized as “other”. Examples included establishing a center of excellence and restructuring a back office. Automation was the fourth largest category, describing 12% of the innovations.

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What is innovation?

Evolution Regulation of SLA

improvements, currency upgrades, technology refresh

Gain sharing models specific

governance structure to

regulated innovation and

investment

Outcome based

contracts

Variation in tools and different stages in maturity

Presenter

Presentation Notes

SLA’s currency improvements etc. – also called “evolution” first step on the innovation ladder. These are well-known mechanisms with well-known effects, and can be regulated with good results. Gain sharing models, innovation projects with investments and innovation concepts defined in a cooperation between customer and supplier Pure outcome based contracts with award to the supplier based on the customers savings or revenue under the contract.

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Potential barriers to innovation

Contractual barriers

Leading to

Vendor focus is on meeting pre-defined measurable

services

No incentives for vendor to deliver higher performance

or better services than those initially defined

Customer focus on control of the deliveries of services

and cost control

Presenter

Presentation Notes

Todays contracts are often detailed in services descriptions and have extensive Service Levels and service level measurements and this has the primary focus from both vendor and customer, in their daily interaction and contract management. Focus is on cost control on both sides and on meeting and measuring the known expectations. The contracts often have high thresholds on what is a payable change and what is new services, all in good protection of the customer’s cost and an incentive for the vendor to keep efficient and ensure improvements within his own organisation. This is, however, a barrier for the vendor’s incentive to take and additional lead on suggesting innovation over and above what is already in scope of the contract due to the investment this will require from the vendor. Focus needs to be lead more towards additional regulation on innovation with clear incentives on the vendor to drive this, but also with involvement of the customer.

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Contractual barriers

Leading to

Vendor suggestions on general knowledge, not

specific to customer

Customer has no funding and cannot invest time

and resources into project

Pricing is based on traditional payment for

new services

Presenter

Presentation Notes

The clauses in contract regulating innovation are often quite softly worded and requires the supplier to bring forward suggestions on innovation, often based on technology advancements, new best practices etc. and with on involvement from the customer except from participating in meeting to have the suggestions presented. Supplier has no incentive to initially spend a lot of time finding and presenting suggestions, since the hours spent is not paid for or reworded unless the customer decides to start a project, and there is no incentives to do so, otherwise. The customer will often have no specific funding for innovation projects, and unless there is specific pricing mechanisms e.g. gain sharing or similar the customer will have little incentive in staring something new if the outcome is not clearly given. Governance needs to be set up to drive this more jointly and pricing mechanisms and funding needs to be pre-set to some extent to ensure incentives and buy-in from both the customer side and vendor side.

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Organisational barriers

• Executive level should provide the framework • Realise and prioritise resource involvement • Comfort zone must be challenged

Customer involvement

• Assessment of vendor’s innovation capabilities

before down-selection • Track record of projects and services delivered to

other customers

Vendor capabilities

• Resources to govern the collaboration • Risk/reward – outcome-based pricing models

Willingness to invest

Presenter

Presentation Notes

Customer involvement: Executive level should provide the framework – I.e. set the level of expectation and the direction for the innovation expected. It does not come on an ad hoc basis. Realise and prioritise resource involvement – Innovation is not vendor driven alone, if customer wish to have innovation which have an impact on the customer’s operational and strategic performance targets, involvement is necessary to help the vendor find and deliver the right innovation projects. Innovation can be purchased as a service, but must be defined and implemented. Comfort zone must be challenged – organisations often don’t like being subject to changes, and innovation will not happen if this is not addressed and managed in the customer’s organisation. Vendor capabilities: If innovation is key/incremental to the contract relationship, time should be spent on assessing innovation capabilities before down selection. This is best done by seeking evidence of improvements made in same scope, complexity and criticality to business. Site visits, referral calls/interviews etc. Willingness to invest: Both the vendor and the customer must be willing to invest resources in to managing/governing the collaborative set-up between the parties as a part of the build in investment/fixed price. Furthermore, risk/reward sharing pricing models or other models should be implemented to create the incentive to provide innovation for the vendor. The customer should be prepared to pay for the projects, however, the pricing models can be outcome based, so the more benefit the customer have the more the vendor profits.

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Organisational barriers

Multi-country, pan-European outsourcing

- Customer challenges

Different technologies

Differences in organisational

maturity Different strategies

Differences in

legislation

Different culture

Presenter

Presentation Notes

Multi-country cross-boarder outsourcing contract. Specific customer challenges which should be considered before choosing the specific way of regulating innovation in the contract. How is the customers it-technology and it and business organisations structured? Can an overall innovation through-out the countries take place at all, or should this be evolved on a country-by-country basis, or can some projects be overall and some country-by-country or regional? Different technologies – is the evolution in the same stage in all areas where an innovation should take place? Organisational maturity, e.g. in using various processes and the culture in some countries may lead to different approaches needs to be taken in some innovation projects, for these to become successful. Different regulation on some areas (e.g. on employment law, personal data protection, financial services or other sector specific legislation) may mean that some innovation cannot take place in the same way or at the same speed in all jurisdictions. For example, could it be possible to have a complete outcome based pricing model setting the goals and leave detailing of the innovation to local levels?

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Tool kit for regulating innovation

The central purpose of the contract

The subject of specific targeted governance and

pricing mechanisms

Innovation can be pursued as:

or 2

1

Presenter

Presentation Notes

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Tool kit for regulating innovation

Collaboration

Rigorous governance process

Executive buy-in and strategy

Innovation concepts

Financial incentives for both parties

Contractual incentives, it requires:

Presenter

Presentation Notes

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Tool kit for regulating innovation Collaboration/Governance

Innovation Steering Board

Innovation Office

Innovation Manager

Innovation Project Working Groups

Ensure the commitment of resources from

both parties

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Tool kit for regulating innovation Executive buy-in and strategy

Ensure funding

Ensure the commitment of

resources

Customer executives to communicate

what shall be the focus/strategy

Other?

New Services?

New or improved business

processes? New tools and technologies?

Presenter

Presentation Notes

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Tool kit for regulating innovation Innovation concepts

Customer Strategy New technologies

Transformation of service areas

Implementing new infrastructure for SAP environment and new

functionality in SAP

Concepts

Projects

Presenter

Presentation Notes

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Tool kit for regulating innovation Example Innovation projects

Presenter

Presentation Notes

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Tool kit for regulating innovation Financial incentives

Who pays and which incentives shall be

applied?

Investment

Penalties and bonuses

Charging models

Other models

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Tool kit for regulating innovation Gain share example 1 – reduced consumption

• Service Desk – pricing based on unit charges (no. of calls to help desk)

• Innovation project introduces user self-help tool which reduces need for calls to service desk

• Investment (implementation of tool and training) = €500k • Annual reduction in service charges = €1,000k • Parties agree that “reduced consumption” innovation projects have a

benefit sharing period of two years and 75/25 split • Net benefit to customer over 2 years = (€1,000k x 2) - €500k =

€1,500k • Supplier receives 25% of net benefit = €375k

Presenter

Presentation Notes

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Tool kit for regulating innovation Gain share example 2 – reduced costs

• Innovation project identifies opportunity for supplier to reduce software licence costs by €5 million per annum

• Parties agree that “reduced charges” innovation projects have a 50/50 split and a benefit sharing period for the remainder of the term (or for as long as benefit is realised)

• Unit charge (or fixed price) is therefore reduced so that the aggregate charge is reduced by €2.5 million per annum

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Innovation in outsourcing

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Recognized expertise in particular on collective employment issues and company restructuring

Enabling clients to implement successful strategic projects

Advice in all the main areas of business law affecting outsourcing projects

Providing assistance with high added value, focused on the needs of our clients

• For over 40 years, Courtois Lebel offers its national and international clients a wide range of legal services in the key areas of business law.

• Courtois Lebel has expanded its areas of expertise in order to offer its clients comprehensive pragmatic solutions, both in legal advice and litigation.

• Courtois Lebel has strong links and shared background with major European consultancies.

• Courtois Lebel has an significant experience of the execution of major outsourcing projects for clients, in France and internationally,

Courtois Lebel - France

Key contact:

Herve Gabadou

T: (+33) 1 58 44 92 74

E: [email protected]

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Introduction

A change of behaviour is needed to reach the full potential of BPO contracts (2012 Accenture survey)

What about ITO and cloud computing contracts?

Barriers to innovation in BPO and ITO contracts

Some outsourcing operations are still contemplated for bad reasons

Contract incentives are skewed towards lower cost services and immediate gratification

But some thoughts in relation with more adapted mechanisms for obtaining and keeping value are gaining ground (value scorecards)

Innovation: A View from France

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A discrepancy between objectives and legal drafting remains

• Need for proactive remedies that provides more flexibility and a more constructive partnership mind-set

• Due to alleged regulatory constraints, some Telco operators claim that their T&Cs are not negotiable.

Cloud computing is perceived as a breakthrough innovation

Gives rise to organizational issues

The labour cost of cloud computing is a concern. Journalistic only?

The appropriate choice of cloud services remains a concern (see French DPA recommendations)

The due diligence process carried out for cloud computing companies acquisition is not as mature as in the U.S.A.

Innovation: A View from France

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• A Europe-wide established employment law team with pre-eminent know-how and reputation

• Well-suited to handling highly sophisticated international transactions

• Close interaction with internal practice groups and industry teams, e.g. outsourcing

• Long track record of outsourcing projects in a wide range of sectors

Among Germany’s leading independent law firms with 450 lawyers

Experience of more than 100 often highly complex outsourcing projects

Excellent presence in CEE: offices in Warsaw, Prague, Moscow, Bucharest, Budapest and Bratislava

Most innovative German law firm - Financial Times Innovative Lawyers

Noerr – Germany and CEE

Key contact:

Peter Brautigam

T: (+49) 89 28628145


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Handling Innovation: Example from the Insurance Industry

Create a Clause, obliging the Parties to adapt the System, so that it meets the State of Technology

3 Steps

Collecting and Consolidating of Innovations

Evaluation

Implementation and delivery

Establish an Innovation and Technology Board

Contractor has to inform the Customer about Innovation

Contractor has to evaluate Usability in the Hardware Environment of the Customer

Consider Service Level Agreements

Contractor and Customer discussing the Implementation of new Technology

Contractor will introduce new Roadmaps based on original Plans

Customer agrees to new Roadmap

Conduct Change Management Process

Innovation: A View from Germany

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Meetings of the Technology and Innovation Board

The Technology and Innovation Board should meet in a periodic time interval (e.g. every Year)

Roadmaps should include especially

Names of IT solutions and Products

Current state of the System

Short descriptions of supported Processes

Description of the IT environment

Expected costs

Innovation: A View from Germany

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One of the top 20 independent law firms in the Netherlands

More than half of the firm’s work is for international clients

Top tier in many practice areas with a strong focus on technology and employment law

Innovative, open, friendly, informal and totally engaged with clients

• The leading IT firm in the Netherlands

• Innovative out-of-the-box thinking and entrepreneurial savvy

• Broad experience in IT and business process outsourcing

• Our outsourcing team supports in all aspects of outsourcing: drafting, negotiating of the agreement(s), HR issues and transactional aspects.

Kennedy Van der Laan – The Netherlands

Key contact:

Patrick Wit

T: (+31) 20 5506 642


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Introduction

Innovation comes from Provider’s business improvements

Customer ideas and requirements for change

Market developments

Most contracts include clauses on continuous service improvement and innovation

Nothing ever happens, at least not during the lifetime of the contract

Way to go forward

Separate innovation from the services and change control , include commitment to propose

Create a market-place, business case driven and project oriented (run and change distinction)

Requires access, transparency, commitment to work together: all part of the contract

Innovation: A View from The Netherlands

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One firm, multiple perspectives

Consistent dedication to quality and understanding of our clients' needs

An integrated firm with more than 220 lawyers

Covering all branches of Danish and EU commercial law

• Gorrissen Federspiel is based in Copenhagen and Aarhus, has 226 lawyers, 44 partners and is one of the leading corporate law firms in the Nordics

• Broad experience of IT and business process outsourcing in Denmark and abroad

• Has advised on many of Denmark and the other Nordic region’s largest and most complex outsourcing transactions

Gorrissen Federspiel - Denmark

Key contact:

Tue Goldschmieding

T: (+45) 33 41 42 03


mailto:[email protected]

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Innovation: A View from the Nordics

•Evolution can successfully be regulated by contract clauses and SLAs.

•Evolution is the gradual improvement, including HW and SW currency obligations. No separate payment unless the threshold of “New Services” is reached

Distinguish between

innovation and evolution

•Over the last 15 years, we have tried long-winded and complex innovation clauses with and without SLAs and financial incentives. They don’t work!

•Despite gain sharing clauses, vendors have an overriding interest in maintaining status quo (which there business case was based upon)

•A vendor would always rather sell more of the same than reducing consumption!

• It is better to secure innovation through strong benchmarking clauses or by acquiring “New Services”

Keep innovation out of the contract

•The only exception to the above is a recent trend. Namely outcome-based outsourcing where the remuneration to the vendor is based on the customer’s achievement of revenue, profitability, OPEX or CAPEX targets

•Under such circumstances, the interests of the vendor and the customer are sufficiently aligned

Outcome-based outsourcing

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Focused on technology outsourcing as a core market

Significant international capacity: with 60% of clients from outside Italy

Accessible, available, responsive and reliable: offices in Rome and Milan

Rated top tier on major directories in Intellectual Property, Information Technology, Telecommunications and Media

• Italian leader in Telecoms, Media and Sourcing

• Focused Technology sector group with significant experience of outsourcing and access to a wider full-service practice familiar with issues affecting the Technology sector

• A young and dynamic team

Orsingher Ortu - Avvocati Associati - Italy

Key contact:

Domenico Colella

T: (+39) 02 89 075050


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Introduction

ITO involving an international bank

Scope: IT infrastructure and SW applications managing the bank’s operations

Multi-vendor scenario

Mission-critical factors

A Case Study

Technology Tools (e.g., IaaS)

Governance: Innovation Committee

Financial Incentives

Benchmarking

Mutual and continuing transfer of knowledge and know-how

Flexibility and proactive support tools (e.g., regulatory issues)

Innovation: A View from Italy

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One of the largest law firms in the world, with a unique technology focus

Full, first-tier service on sourcing projects in the United States, Europe and Asia

Using a collaborative style to create enduring outsourcing relationships

Client-focused ethos and global geographic reach

• With over 1,000 lawyers in 16 global offices, MoFo is one of the top 25 global law firms

• MoFo has a clear focus on technology law, the technology sector and complex services-based projects

• 60 specialist technology and outsourcing lawyers offer flexible, scalable resource on all types of technology and outsourcing projects

• Projects include outsourcings for large government agencies (H.M. Revenue & Customs (U.K.), State of Georgia), banks (Lloyds Banking Group, Bank of America), manufacturers (Novartis), technology businesses (McKesson, Amadeus)

Key contact:

Alistair Maughan

T: (+44) 20 7920 4066


Morrison & Foerster - UK

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Introduction

What to Incentivize?

When to Incentivize?

Who to Incentivize?

What Incentives?

A Case Study

Tactical short-term changes: charge reduction initiatives

Strategic longer-term changes: use of Transformation Fund

Agreed savings initiatives

Joint investment

Shared process governance

“more for less” leading to “more for more”

Protections and benefits for vendor

Innovation: A View from the UK

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Courtois Lebel is in the top 5 of the independent firms in the Technology field (Legal 500).

We act for both technology businesses such as Logica (CGI), Sopra Consulting and SAS Institute (the Business Intelligence leading company) and leading French companies such as Aviva, BNPP, Lafarge, Natixis, etc.

Courtois Lebel has more than twenty years of experience in this area. The firm has one of France’s largest technology and outsourcing teams with 10 lawyers, including 3 partners

The DNA of the IT & telecommunications department is in its capacity to understand and give a legal classification of a technical and operational situation that is often complex.

The team has developed dedicated tools and methodologies for use by and on behalf of its clients

Courtois Lebel A leading French technology and outsourcing adviser

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Noerr has grown to become Germany’s leading independent law firm with 15 offices across Germany and the CEE/CIS region, with additional locations in Alicante, London and New York City. Starting out in Munich in 1950, Noerr today is a full-service law firm with its own distinctive style and culture, and widely recognized for providing interdisciplinary advice and quality services responsive to the needs of its national and international clients.

Noerr’s preeminent IT group has in-depth knowledge and expertise in handling licensing, procurement, outsourcing, sales, auctions, and technology transfer transactions that involve computers, software, networks, telecommunications equipment, and other intellectual property. Noerr’s IT partners are acknowledged throughout Europe as leading minds in outsourcing, IT outsourcing and other IT projects. The firm also provides a dedicated Outsourcing & IT Outsourcing Group, combing the firm’s hybrid expertise in business, communications, technology law, and IP, which allows them to provide exceptional business-focused legal advice in relation to demanding transactions.

Recognized as “an authority in IT” by Chambers Europe 2012, Noerr has a reputation as “one of the few [German firms] to focus clearly on this field” (German JUVE guide 2011)

For more information, see www.noerr.com or our Outsourcing & IT Outsourcing Group http://www.noerr.com/en/Desktopdefault.aspx/tabid-332

Noerr An elite IT team

http://www.noerr.com/

http://www.noerr.com/en/Desktopdefault.aspx/tabid-332

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Kennedy Van der Laan is a Dutch law firm with an international focus. The firm is based in Amsterdam, has 95 lawyers and civil notaries and 25 partners. Chambers Europe describes the firm as “Kennedy Van der Laan is one of the Netherlands top independent law firms, based in Amsterdam. The firm has excellent legal knowledge in all avenues of work, offers prompt and practical advice, deals with legal issues and creates the right solutions in an unconventional and socially responsible way.”

Kennedy Van der Laan is leading in technology and outsourcing in The Netherlands with more than twenty years of experience in this area. The firm has the largest technology and outsourcing team with 20 lawyers, including 6 partners.

The practice covers both IT outsourcing and BP outsourcing (incl. HR service, financial services and facilities). The majority of the clients are AEX listed multinationals in areas like banking, insurance, retail and industry. The firm also supports some selected providers of outsourcing services.

The lead partners of the outsourcing practice, Patrick Wit, Reinoud Westerdijk and Joost Linnemann, are all recognized as among the best technology and outsourcing lawyers in the country. Reinoud Westerdijk is a member of the board of ITechLaw. Patrick Wit is the legal member of the program committee of the Dutch Outsourcing Platform.

Kennedy Van der Laan The leading technology and outsourcing practice in The Netherlands

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Gorrissen Federspiel is based in Copenhagen, has 225 lawyers, 41 partners and is one of the leading corporate law firms in the Nordic region

Gorrissen Federspiel has the only fully dedicated outsourcing team in the Nordic region and is generally recognised as the leading outsourcing practice. The team consists of 1 partner, 3 project lead attorneys, 1 attorney, and 2 junior associates. Most of the lawyers in the outsourcing team are ITIL v3 foundation certified

The practice is based on large-scale international projects and deals primarily with cross-border transactions, often with no domestic or Nordic team lead

Ole Horsfeldt, is the author of IT Outsourcing, published by Thomson, the only legal and practical book on outsourcing published in the Nordics, and has for several years been chairman of ITechLaw’s outsourcing committee. Ole Horsfeldt is part of IAOP’s Nordic leadership

Gorrissen Federspiel The leading practice in the Nordics

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Orsingher Ortu – Avvocati Associati is a TMT specialized Italian law firm that counts 25 lawyers and fee-earners. Our partners are consistently rated top tier on major directories in Information Technology and Outsourcing, Media and Intellectual Property and have spent a significant number of years as head of practice at international firms such as Freshfields or Dewey LeBoeuf

Our outsourcing team has more than 15 years of experience in advising multinational corporations on complex transactions including ITO/Infrastructure, BPO, HR deals

This team is skilled to assist your company for any aspects of an outsourcing transaction including corporate, employment and regulatory matters

Technical excellence, business-orientation, responsiveness and reliability are key values underlying the relationship with our clients

The Firm “advises clients from a plethora of industries, but particularly those in the media sector. Domenico Colella [handles] complex technology deals” // Chambers, 2012

Orsingher Ortu – Avvocati Associati Italian top player in the TMT sector

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MoFo is one of the leading international law firms, with more than 1,000 lawyers in 16 offices in Europe, Asia and the United States. Our clients include some of the largest financial institutions, corporations and government agencies

We have had an office in London since 1980. Today, our London office includes 16 partners and 55 lawyers – and focuses on technology & outsourcing, corporate, litigation and finance projects

Technology and outsourcing are key MoFo strengths. We act for technology businesses such as Apple and Intel in their global operations, and for large organizations such as Lloyds Bank, Novartis and the UK government in their technology and outsourcing projects

Chambers has called MoFo “the premier IT firm in the World” For more information, see http://www.mofo.com/outsourcing-services/ or our tech

blog http://www.mofotechblog.com/

Morrison & Foerster A leading international technology and outsourcing adviser

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http://www.mofo.com/outsourcing-services/

http://www.mofotechblog.com/

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THANK YOU

Outsourcing Law Group

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