IT Outsourcing

Chad Doiron / Michael SaundersApril, 2007

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Today’s Presentation

Why are companies outsourcing?

What is being outsourced?

How are companies outsourcing?

Challenges

Benefits

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21%

23%

44%

56%

63%

0% 10% 20% 30% 40% 50% 60% 70%

Accelerate Projects

Flexible CapacityModel

Gain Expertise

Focus on CoreCompetency

Reducing OperatingCosts

Why are companies outsourcing?Percent of companies indicating key drivers of IT Outsourcing

Source: Aberdeen Group “The Business Value of IT Outsourcing Benchmark Report”, 2006

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AAFA MembersExpertise & Domain Knowledge 44% (4 out of 9)

Industry Best Practices

Offshore Opportunities 33% (3 out of 9)

Easily Augment Staff 67% (6 out of 9)

Drive Down Costs 78% (7 out of 9)

Leverage Buying Power 11% (1 out of 9)

Rapid Growth Through Acquisitions 44% (4 out of 9)

Build Competencies Quickly 67% (6 out of 9)

Other: Company Growth; Process Transformation; “Near to Customers”; Data “Security”

Why are we outsourcing?

Most AAFA members who are outsourcing are motivated by the goal of cost reductions.

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The future…

Focus On Internal Core Competencies

Labor Arbitrage

Improve (Predict) Service Levels

Enterprise Transformation

Why will companies outsource:

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What is being Outsourced?

Source: Aberdeen Group “Outsourcing Application Development and Maintenance”, 2006

Percent of companies indicating some degree of IT Outsourcing

64%

67%

67%

69%

71%

73%

79%

80%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Voice NetworkManagement

Business Continuity

IT Security

Disaster Recovery

Data NetworkManagement

Data Center

End-User Computing

Application Developmentand Maintenance

Only 30% of AAFA members indicated that they are doing any kind

of outsourcing.

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0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2004 2005 2006 2007 2008 2009

What is being Outsourced?

Source: Gartner 2007 Key Issues for Outsourcing, Infrastructure and Applications

$203 Billion Dollars in 2005 (7.4% Growth Rate)

Network Outsourcing

Enterprise Application Outsourcing

Desktop Outsourcing

Data Center Outsourcing

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AAFA MembersApplication Development& Maintenance 100% (9 out of 9)

End User Computing(Pc’s And Helpdesk) 22% (2 out of 9)

Data Center 44% (4 out of 9)

Data Network Management 22% (2 out of 9)

Disaster Recovery 22% (2 out of 9)

IT Security 11% (1 out of 9)

Business Continuity 11% (1 out of 9)

Voice Network Management 11% (1 out of 9)

What do we Outsource?

All AAFA members who are outsourcing are doing so in

the area of application development and

maintenance.

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The future…

Increased mix of off-shore/on-shore resources

Additional business processes(A/P, customer service, human resources, etc.)

Enterprise Architecture

Research & Development

What will be outsourced:

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How are companies outsourcing?First

GenerationSecond

GenerationThird

GenerationGeneration

“X”

ScopeOf Role

PrimaryObjectives Resource Expertise Competency Innovation

View OfRelationship “Vendor” “3rd Party” “Extended

Employees” “Partner”

Organizational Implications

Projects CategoriesFunctions

Limited Organizational

Impact

Senior Involvement

Integrated Organizational

Roles

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Example of Third Generation Organization

CIO

Company ITS DirectorsOutsource Manager

Flexible pool of Outsource Business Consultants

OutsourceApplications Manager

OutsourceInfrastructure Manager

OutsourceDevelopment Resources

OutsourceInfrastructure Support

OutsourceHelpdesk

Company Business Analysts

Companies avoid outsourcing business process knowledge.

Company retain ownership of applications, finance, security, infrastructure, technology, etc. by maintaining key management resources in place.

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Outsource Services Contract:

Additional Contract Considerations

Base services include service level agreements, scope and

support requirements

Metrics used to establish minimum requirements

Monetary penalties if metrics not achieved

Costs tied to benchmarks

New projects structured under change controls that describe the

scope, cost, and deliverables

All projects managed according to single overall governance

model

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The future…

Greater Focus on Partnership(Less Focus On The Company / Vendor Relationship)

Greater Focus On Innovation

Use multiple vendors

Shift in Budget Spend(From Operational “Keeping The Lights On” To Strategic)

Shorter Contracts With More Flexibility

How will companies outsource:

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Challenges

31%

37%

32%

34%

19%

27%

27%

24%

44%

47%

51%

51%

54%

48%

56%

47%

25%

16%

17%

15%

27%

25%

17%

29%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Voice NetworkManagement

Business Continuity

IT Security

Disaster Recovery

Data NetworkManagement

Data Center

End-User Computing

Application Developmentand Maintenance

Below Expectations Adequate Above Expectations

Satisfaction Levels with Outsourcing Activities

Source: Aberdeen Group “The Business Value of IT Outsourcing Benchmark Report”, 2006

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ChallengesTop Challenges with Current Outsourcing

Source: Aberdeen Group “The Business Value of IT Outsourcing Benchmark Report”, 2006

28%

30%

33%

42%

51%

0% 10% 20% 30% 40% 50% 60%

Inability to AchievePlanned CostReductions

OutsourcerManagement

ExcessiveManagement Time

Requirements

Missing ManagementSkills or Staff

OutsourcerUnderperformance

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The Outsourcing Paradox:

Challenges

“A successful outsourcing requires trust, understanding

and alignment, yet, the interests of the customer and the

service provider are not naturally aligned…

A successful outsourcing must strive to be a partnership,

yet the nature of the transaction can produce complex

agreements, lengthy deal cycles and adversarial

negotiations.”

Source: Edward J. Hansen Morgan Lewis & Bockius, LLP

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Reduced Operating Cost

Improved Version Control and Lifecycle Management

Improved Documentation of Procedures and Best Practices

Improved Development Quality

Broad-base Expertise

Internal Staff Focus on Strategic Issues

Faster Turn-around for Greater Solution

Access to Superior Expertise

Benefits

Cost

Administration

Quality

Innovation

Transformation

Valu

e

Drivers

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The Future…

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Questions