sourcing trends: challenges and opportunities facing service providers

Copyright © 2012 Information Services Group, Inc. All Rights Reserved. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from ISG, Inc.

Sourcing Trends: What is Next?

Outsourcing Institute Service Provider Summit

January 30th, 2013

Stanton Jones, Analyst, Emerging Technology

Challenges and Opportunities Facing Service

Providers

2 Copyright © 2012 Information Services Group, Inc. All Rights Reserved

Over the past decade, many sourcing decisions and projects have evolved to from the strategic to the tactical.

Sourcing and the CIO

CIO

N-1

N-2

Sou

rcin

g R

elat

ed P

roje

cts Strategic

Tactical

Fewer

More

Deals 2002: 377 2011: 933

Lower

Higher

Competition 2000: 32% TMS 2010: 64% TMS

Ge

ne

ral T

ren

d

Longer

Shorter

Duration

1999: 6.5Y 2012: 4.8Y

TMS: True Multi-Source where no one provider has more than 80% of spend


As technologies evolve, Functional Out-Tasking and Service Integration will emerge as the growth areas for Third Party Services. SI Management is strategic.

Trends in the Technology Sourcing Market

Multi- Tower

One Neck To Choke

Model

Tower 2

Tower 3

Tower 4

Out-Tasking Players

► EMC

► Akamai

► VMWare

► Hitachi

► iPSoft

► Oracle

► SFDC

► Rackspace

► Amazon

► Workday

► Etc.

Importance of Labor Arbitrage

Importance of Software, Platforms, Labor Automation,

Scalability

Strategic Tactical

Tower 1


Wave 2 Characteristics Wave 1 Characteristics

Functional Out-Tasking: What is the big deal?

Think of the market progression from the left hand side of the chart to the right in two waves: Wave 1: Labor Arbitrage; Wave 2: Labor Automation

► 15%-30% cost take out

► Model is scalable to the extent that you can scale labor

► Custom/complex, legacy :“Your mess for less”

► Access to Low Cost Labor necessary to provide continuous value

► Revenue/Profit correlated to People

► Projecting 40%-60% cost take out for automated functions (need more data)

► Model is scalable and is largely independent of labor growth

► Transformative – New way of doing business

► Access to “Rocket Scientists” who can codify manual processes

► Revenue/Profit NOT correlated to People

Wave 1 Labor Arbitrage

Wave 2 Labor

Automation


Research: Is the Automation Trend Real?

Most providers feel that labor is likely to decrease in favor of automation over the next three years…


Live Poll: Instructions

You can also use Twitter: send a Tweet to @Poll with the code (vote)


Live Poll: What do you think?


Transaction Services

Operational Services

Strategic Services

ADM is a mature outsourcing market offering both on and offshore service providers. Solutions include multi-sourcing models with on and offshore business models.

Process Level Perspective: ADM Services

Version Control

Requirements Definition

Application Architecture Application QA

Application Testing

Application Build

Application Design

Performance Testing

Application Coding

ADM Strategy Development

Configuration Management

Technical Training Security Administration

2nd Level Technical Support

Application Maintenance

User Training

1st Level Technical Support

Hig

h

Ente

rpri

se V

alu

e A

dd

ed

Basic High Complexity of Interaction

Strong retained candidate

Possible outsourcing candidate Strong outsourcing candidate

Suitability For Sourcing

Tower 1




Strategic Services

IT is a mature outsourcing market that offers top global service providers and evolving offshore services in remote monitoring and administration services.

Process Level Perspective: IT Infrastructure Services

LAN Management

Integration Services

Optimization Services

Disaster Recovery

Data Center Management

Data Backup & Recovery

Security Administration Network Administration

Technical Training

Strategy Development

Desktop/Mobile Device Management

Server Administration 2nd Level Technical Support

Desktop/Mobile Device Administration 1st Level Technical Support

Systems Monitoring Network Monitoring

Hig

h

Ente

rpri

se V

alu

e A

dd

ed

Basic High Complexity of Interaction

User Training

Data Administration

Systems Administration

Production Control / Scheduling

Service Management Strong retained candidate



Tower 2




Strategic Services

EUC is a mature outsourcing market that offers top global service providers and evolving offshore services in remote monitoring and administration services.

Functional Perspective: End User Computing (EUC) Services

IT Strategy Development

Business Continuity Management

Service Management Operations Site Operations (IMACs, Deskside Support)

Risk Management Disaster Recovery

VIP/Executive Support Remote Access Services

Access Control Infrastructure Administration Video Conferencing

Virtual Platform Operations (Citrix)

Peer to Peer Messaging 2nd level Technical Support

Platform Strategy Development

Directory Services (DHCP, DNS, Active Directory)

Software Distribution

Shareware (WebEx, SharePoint, etc.)

Platform Engineering

Email Services (Email Servers, Blackberry Servers) Asset Management

Technical Training Mobile Device Support (Client side, PDA/Blackberry/iPhone support)

Printer

User Training 1st level Technical Support

Hig

h

Ente

rpri

se V

alu

e A

dd

ed

Low High Complexity of Interaction

Systems Monitoring

Strong retained candidate



Tower 3


Comprehensive

Credibility

Capability

Functional Out-Tasking: What is the catch?

There is a market void in the area of Service Integration. Without robust Service Integration, Out-Tasking will have limits as organizations struggle to govern.

► Service Providers who pursue Service Integration as a strategy need to have both Credibility and Capability

Credibility: Will the C-Suite “let you drive”

Capability: Solutions have to be “Wow”, no retreads

► Service Integration by its very nature covers “end-to-end”.

► Service Providers must provide comprehensive solutions in logical groups – no sub-optimization.

Solutions will vary by industry and major process grouping

Independent

► The role of Service Integrator will necessarily deal with multiple independent parties, both internally and externally.

► To be successful, a SI Provider must demonstrate a level of independence with respect to the underlying work functions


The “CIO Agenda” is a narrative to move Sourcing and back to the CIO office and has three majors themes.

Sourcing: Getting Back to CIO Office

CIO

N-1

N-2

Strategic

Tactical

CIO Agenda

CIO Agenda Themes

Market is Changing Rapidly

Sourcing New Technology Services

is more Nuanced

CIO’s need to get back to First

Principles


Sourcing New Technology

Services is more Nuanced


CIO Agenda Highlights

Each theme has a myriad of topics to discuss and will vary from company to company and firm to firm, however, the major elements are the same.

► Big Data driving analytics and business predicative models.

► Software defined ______. Bots, Droids, Algorithms replacing human labor.

► Exponential rate of change challenging humans linear paradigms.

► Technology is impacting all functions in businesses.

► Because of the rapid change, 5, 7 and 10-year contracts are dated.

► Static operating models (and contracts) are aging quickly.

► RFP is morphing into transformation projects.

Getting Back to First Principles

► CIO – Chief Information Officer. Key Word: Information

► CIO’s need to embrace “Information” as their primary agenda.

Real Time, reliable, predictive, relevant, and democratic.

► Style and Design of Information/Data platforms are key to success.


Sourcing New Technology

Services is more Nuanced


Next Steps: CIO Agenda In Action

CIO’s are hungry for thought leadership and education in this dynamic market. The myriad of choices can at times be paralyzing to organizations as they consider their strategic direction with respect to the Service Delivery models.

► Develop a quarterly briefing package for the C-Suite for all major clients

Cover major technology, business, financial, political trends

► NO Selling this is an educational opportunity and meant to build the relationship, credibility, and jointly developed visions for the future

► Let the client pull – don’t push. If the briefings are good, you will not need to push.

► The RFS is gaining traction as alternative to RFP; be prepared for more open-ended responses and presentations based on standard platforms.

► Help clients understand what they need to change and the benefits when adopting standard services/platforms.

► Unlike Wave 1, Innovation is inherent in shared platforms!

Getting Back to First Principles

► Organized data is the key to actionable information.

► Follow Apple’s design lead for this area:

Cool sells – Easy connected ecosystems sell – Design sells

► Focus on design of Big Data and Presentation formats. Design for the end user, not the operations manager. (video)


Hans Rosling: Stats that reshape your worldview

Source: http://www.ted.com/talks/hans_rosling_shows_the_best_stats_you_ve_ever_seen.html


Let’s Talk…

►As long as we’ve met, I’ll accept!

►@stantonmjones

►Blog on Consider the Source focused on how emerging technology is impacting the broader sourcing market

► [email protected]

►Public decks and white papers

https://twitter.com/stantonmjones

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Service Delivery

ISG Operating Model - Services Framework

Service Strategy, Planning & Control (Governance) Architecture & Standards Mgt

(Design Authority)

Sourcing Strategy & Lifecycle

Management

Service Portfolio Management

Organizational Change &

Communications

Policy & Standards (e.g. Security,

Processes)

Programme Management

Corporate Support Functions

Compliance Legal/ Regulatory

Audit Procurement Corporate

HR/Finance/IT Risk

Management

Service Towers

Network

Mobile Voice

AMS

AD

HR

F&A

Other

EUC

Hosting

Serv

ice

De

sk

Service Integration Business Demand

Business Units


Budgeting & Forecasting



Business Unit n



Man

agem

ent

of

Pro

vid

ers

& V

en

do

rs A

lignin

g Services to

B

usin

ess Need

s

Customer Satisfaction Mgt

Demand Mgt

Financial Mgt & Chargeback

Business Service Catalog Mgt

Business Relationship Mgt

Risk Mgt & Controls Assurance

Cross-Provider Service Management for IT and Business Process Services: • Service Component Catalog • Service Level • Capacity • Availability • Service Continuity • Information Security & Access • Event • Incident & Problem • Service Request • Change • Service Asset and Configuration • Release & Deployment • Service Validation & Testing • Evaluation • Knowledge

Project Mgt (incl. Transition & Transformation)

Measurement & Reporting

Syst

em

s In

tegr

atio

n

sourcing trends: challenges and opportunities facing service providers

Business

administration services

information services

party services

labor automation wave

labor arbitrage wave

information storage

mature outsourcing market

sourcing trends