Overview of Outsourcing

May 2005
Copyright 2005 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

Agenda Introduction to Outsourcing Preparing for Outsourcing

Running Outsourcing
Next Steps in Outsourcing

2005 Accenture All Rights Reserved.

INTRODUCTION A Working Definition of Outsourcing

Services
COMPANY OUTSOURCER

Organization Service Level Level Agreement Agreement

Outsourcing denotes the continuous procurement of services from a third party, making use of highly integrated processes, organization models and information systems.
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INTRODUCTION On the origins of Outsourcing

50 - 70

Vertical and Horizontal Integration

70 - 80
80 - 90 90 -

Foreign Direct Investment

Global Sourcing Outsourcing

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INTRODUCTION Very different level of acceptance

German car manufacturers: degree of vertical integration
100% 80% 62% 60% 40% 20% 0% 1980 1990 2000 38% 68% 76% Value Creation Suppliers

Banking industry worldwide: cost share of outsourced services 2003

100% 80% 60% 40% 20% 0%

1,4%: costs for outsourcing

98,6%

32%

24%

Value Creation Producer

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INTRODUCTION Types of Outsourcing

Outsourcing models:

BPO AMO SDO

Business processes Administrative processes Application Development and Maintenance IT-infrastructure

BPO: Business Process Outsourcing

APO: Administrative Process Outsourcing

ASP: Application Service Provider

DBRO: Design, Build, Run & Operate

ADM: Application Develop. & Maintenance ITO: IT Infrastructure Outsourcing

ITS: IT Services, Managed Hosting

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INTRODUCTION BPO - Business Process Outsourcing

Customized
One-to-one

Industrialized
One-to-many

low

medium

high

Degree of industrialization
Custom designed services leveraging know-how Similar services delivered to multiple clients Single service delivered to multiple clients simultaneously

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INTRODUCTION AMO - Application Management Outsourcing

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INTRODUCTION SDO Service Delivery Outsourcing

Client Operations Management
Delivery capabilities
Security Data Technical Network Desktop Supplier Centers Support Services Mgmt. Mgmt. & Mobility

Security - End-to-end security services including firewall management, intrusion detection, identity management and security policy

Data Centers - Remote and on-site managed server hosting - Data centers
Technical Support - Help desk, desk-side and self-service support - Global hubs Network Services - Managing data and voice networks Desktop Management and Mobility - PC, laptop, hand-held, distributed Supplier Management - Identifying, qualifying, contracting and managing strategic suppliers

Sales Support and Mobilization Hosting Technical Support Services Network Management Security Operations Desktop Management & Mobility Messaging & Collaboration
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INTRODUCTION Sourcing of Outsourcing Off-Site Local service providers

Near Shore Proximity cross-border service providers

Off-Shore Remote Cross-border service providers

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INTRODUCTION Geographics of Outsourcing

Montreal (1) Chicago (1) Cincinnati (1) Houston (1) Toronto (1) Wilmington (1) Atlanta (1)

Ireland (1) London (1)

Riga (1) Prague (1) Bratislava (1) Budapest Madrid (1)

Malaga (1)
Mumbai (3) Bangalore (3)

Dalian (1) Shanghai (1) Hyderabad (1) Chennai (1) Manila (8)

So Paulo (1)

Mauritius (1)

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INTRODUCTION Trend is clearly towards Off-Shore

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INTRODUCTION Typical Outsourcing Clients

Halliburton RAG American Coal 02 (formerly BT Cellnet) LASMO plc Repsol YPF Alcatel Lyondell-Citgo Refining Rhodia Algar MOL - Hungarian Oil & Gas Siam Cement AT&T MidAmerican Energy Sithe Energies Avaya Norsk Hydro Slovnaft BellSouth Orange and Rockland Utilities Southern Company GAS Boston Scientific PPL (Pennsylvania Power & Light) Talisman Energy Ltd. BT Terasen Utility Services Cegetel Espirito Santo Sequros Thames Water Citrix GE Consumer Finance Ticona Grupo Financiero BanCrecer eBay Morgan Stanley TotalFinaElf) Total E&P UK plc (formerly Guy Carpenter Argentaria EMC Providian Immobiliere 3F Banca Italease Sonera ETS Royal and SunAlliance Infocaja BBVA Sun Microsystems Sallie Mae Banco Rio de la Plata Edgars Consolidate Stores Limited ING Group Tecnomen Santander Italian Pension Agency Alcan Bankiter Exel plc Telecom Argentina SchmidtBank Johannesburg Securities Exchange Ardent HCSC Barclays Bank plc Telecom Italia JPMChase SEC Padova Health Alliance Plan Bilbao Bizkaia Kutxa (BBK) Asahi Brewery Telefonica Argentina London Stock Exchange Losango Impregilo Achieve SEI Astilleros Espanoles, Caixa Catalunya Texas Instruments Mediolanum Interstate Brands now IZAR UBS Life International Caja Madrid Thomson Meridia KLM Royal Dutch Airlines AstraZeneca CortalConsors Universal Leven VIA Networks Levi Strauss Neptune Orient Lines Best Buy Credit Lyonnais Workers Compensation Board XM Satellite Radio LSG Sky Chefs Thomas Cook New Look Depository Trust & Clearing Brahma Xelion Marriott Payless Shoe Source Bristol Myers Squibb Deutsche Bank MDB Information Network DnB NOR Pfizer Campofrio Mecalux Renault Fujitsu Siemens Computers Carrefour Medicines Control Agency Resort Condominiums Infineon Caterpillar Milwaukee County Mental Health International Infostrada Multibras Electrodomesticos Whirlpool Delphi (RCI) JVC do Brasil Ltda. & Nokia Gradiente Industrial Delta Sainsburys O Globo Empresa Diageo Sara Lee Olivetti Tecnost DSV Group Solar Turbines Omnitel2000 eLSG SkyChefs.com Texas Medicaid QinetiQ Transnet Portnet Siemens Mobile Communications Italy UPS SITA Wrtsil Wyeth 2005 Accenture All Rights Reserved. Ameren BC Hydro Borden Chemical BP Britannia Operator Cogema Dow Chemical DuPont Dynegy Direct Energy Essential Home Services (DEEHS) Enbridge Gas Distribution Enbridge Gas New Brunswick Freeport McMoRan

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INTRODUCTION Outsourcing Service Providers

Off-Site Near-Shore Off-Shore

One Stop

IBM Accenture EDS

Cap CSC Fujitsu Tata InfoSys Guja

Locals

Pure Players

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INTRODUCTION Key drivers for Outsourcing (Survey Results) Why do outsourcing? - Survey Results
Access best in class business processes Harness leading technologies Increase efficiencies Enhance capabilities Expand service Enrich customer relations Improve supplier relations Free up management time Decrease operating costs

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INTRODUCTION Value Contribution of Outsourcing

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Agenda Introduction to Outsourcing Preparing for Outsourcing

Running Outsourcing
Next Steps in Outsourcing

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PREPARING FOR OUTSOURCING From Drivers to Strategic Options

Outsourcing Change Drivers
Defining the Burning Platform In-House Status Quo

Outsourcing Options
Continuous Improvement

Spin-off Determine Scope In-House Transformation

Co-Sourcing
Captive

Understand Internal Constraints

Joint Venture Understand External Constraints External Outsourcing Lift-Out Shoring

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PREPARING FOR OUTSOURCING The Burning Platform

BUSINESS CONCERNS Perceived low availability of services Perceived low level of service quality (accessibility, turn-around time etc.) No clear service reporting and service management Roles & Responsibilities not clear. Processes unclear, too slow, too many hand-offs Slow and error-prone service introduction Unsatisfactory support of remote sites & subsidiaries No service culture Cost allocation & charges unclear and cannot be influenced by business decisions IT CONCERNS Unreasonable service level expectations from business No cost & resource awareness Large number of non-standard work requests Overlarge project portfolio, paired with spaghetti development infrastructure High-level of business applications Inefficient / underutilized server platform, aging central technology platforms and complex networks Large and divers skill pool required to support infrastructure

Change Drivers Client Rating

Management Control

Service Scope & Level

Budget Levels

Financial Flexibility

Infrastructure Quality

Skill & Capability Pool

Organizational Impact

Time to Benefit

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PREPARING FOR OUTSOURCING

Outsourcing Options & Contribution

Management Control
Service Scope & Level Budget Levels Financial Flexibility

Infrastructure Quality

Skill & Capability Pool

Organizational Impact

Time to Benefit

Sourcing Option

Spin-off Co-Sourcing Captive Joint Venture Lift-Out Shoring

High Medium High Medium Low Low

Limited Medium Medium Medium Strong Strong

Limited Medium Low Medium Strong Strong

None Limited Low Medium Medium Strong

None Medium Medium Medium Medium Strong

None Medium Low Medium Medium Strong

Limited Limited Medium Medium Strong Strong

Short Medium Long Long Medium Short

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PREPARING FOR OUTSOURCING Understand Internal Constraints

Availability of Seed Money I need to reduce cost, this requires efficiency gains, efficiency gains require investments Structural Inflexibility Your current business and application architecture may not allow for simple and low cost ICT changes Time to Benefit Most quick-wins have already been explored over the last couple of years. Major initiatives have pay-backs seldom shorter than 24 36 months Business vs. IT Projects Most projects are invisible to the normal business users and do not directly contribute to business revenue generation Capacity & Know-How Are there sufficient internal resources available to drive the change in a timely fashion? Will heavy external resource usage kill the business case? Change Capacity Can the internal organization absorb this change now (ex. Overall moral, unions, etc.) Sustainability Can initiatives be maintained in light of business development?
Procurement, Financing & Quick Wins Reduce External Services Head Count & Infrastructure Improvement Change Application & Technology Architecture

ILLUSTRATIVE

6 Months

12 Months 18 Months 24 Months 30 Months 36 Months

ICT Budget
- Illustrative -

Business Projects 20 % SWR & NSWR 10 % Maintenance 15 % Operate & Infrastructure 45% Manage & Support 10 % Discretionary

Fixed

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PREPARING FOR OUTSOURCING Understand Partner Constraints

Criteria Financials Duration of Contract Assessment Service providers are mainly driven by volume, and to a lesser extend by margin and margin composition 3 years is standard, but will not allow time for fundamental transformations. 5 years gives more room for change In how far can the existing park be integrated into providers infrastructure & skill pool

Scope of Technology & Services

Demand Stability
Scope of Control Transformation Potential

In how far can demand for service delivery be accurately assessed?

How much insight & governance control does the client want to exert? Which service model will prevail? What are the potential synergies in terms of people, processes, infrastructure etc. What are the hand-back constraints? How will benefits be shared?

Follow-up Business

What else might be offered to the client (ex. Business process outsourcing?)

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PREPARING FOR OUTSOURCING Approach to Outsourcing

Transformation Mobilize and design Implementation

Decision
IT Opportunity Assessment Assess current environment Define Target Model and sourcing strategy Create change program

Outsourcing Supplier selection Transition Transformation

Assess Current Environment

Define Target Model and sourcing strategy

Create Programs

What needs to change?

Kickoff

Timeframe High Level Activities

Half-day Executive Workshop

What must we change to?

Executive Meeting From workshop, identify and build out to-be state Define future sourcing strategy Identify initial areas of cost savings and prioritize based on future direction Identify 4-5 areas for focused planning Identify Infrastructure & Operations management and organization impacts and corresponding risks

How will we implement the changes?

Decision

Baseline the business and operating direction and strategy as applicable Benchmark expenses to similar industry segments across functions/processes Interview key stakeholders Understand key drivers of resource utilization to set a baseline and construct an economic model Plan and develop material for executive workshop

Develop high-level implementation roadmaps based on approved target operating model and sourcing strategy Identify key stakeholders and related action plan Define economic model for the integrated change program

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PREPARING FOR OUTSOURCING Assess Operating Model Impact

Application Development Management (ADM): Split-up of work steps
In-house / On-shore In-house / Off-shore Outsourcing / On-shore Outsourcing / Off-shore
Resources on-site 30% 20% 30% 75% Deploy Design Build Test 25% 70% 70% 80% Detailed Design Technical Design Majority of build offshore Product test Integration test and fixing Deployment assistance Offshore resources onshore

CLIENT EXAMPLE

10% Business Requirements

100%

Concept

Development

20% Functional Design 40% Requirements refinement/design control 25% Acceptance test 5%

Deployment

Maintanance

40% Requirements, Functional Design and Acceptance 10% Acceptance and Implementation 10% Acceptance and Implementation 40% Prioritization, Escalation

30% 20% 20% 20%

Enhancements

70% 80% 80% 80%

Build, test and implementation Technical changes, as requested, assuming no new functionality Fixes and root cause analysis 2nd level support

Technical Upgrades Performance Tuning Fix on Fail

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PREPARING FOR OUTSOURCING Do not forget TUPE

TUPE stands for The Transfer of Undertakings (Protection of Employment) Regulations 1981. The Regulations were introduced to safeguard employees rights in the event of a transfer of an undertaking, business or part of a business. This includes: The obligation to inform and consult all employees in scope transfer Transferee inherits all claims and statutory rights Continuity of employment is preserved for employees Employees transfer on their existing terms and conditions of employment Transfer connected dismissals are automatically unfair

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PREPARING FOR OUTSOURCING Key Data Components

What needs to change? What must we change to? How will we implement the changes?
Margin/Growth Service Health Information Allina

Improve Community Information

Improve Customer Information

Balanced Membership Growth

Improve Provider Information

Target Operating Model

Improve Internal Information

Risk of Ability to Implement

Improve Customer Service

Improve Employee Service

Develop Products and Services 1.1 Predict local market changes 1.2 Assess internal execution capabilities 1.3 Design more flexible products 1.4 Segment population better 1.5 Communicate during product development Manage Delivery Capacity 2.1 Support pull-through strategy 2.2 Better manage provider contract terms 2.3 Model provider locations 2.4 Track contracts more closely 2.5 Innovate new reimbursement models 2.6 Roll out provider profiling 2.7 Enhance Q-Star to support providers Sell Products and Services 3.1 Enable electronic enrollment 3.2 Assemble member-unique benefits 3.3 Manage workflow electronically 3.4 Reinvent broker value chain 3.5 Improve automation of buyer contracts 3.6 Enhance underwriting capability 3.7 Improve SSS functionality 3.8 Enhance employer group reporting Deliver Health Care Products and Services 4.1 Coordinate health improvement initiatives 4.2 Triage members and channel them 4.3 Develop outcomes management strategy 4.4 Enable doctors to perform HRAs 4.5 Develop Proactive Interventions 4.6 Improve case management capability 4.7 Better match transitions and transactions across Allina 4.8 Improve disease management capability Deliver Administrative Products and Services 5.1 Create reimbursement modeling system 5.4 Stabilize key system availability and performance 5.5 Create business-specific data warehouses 5.6 Increase electronic claims submission 5.7 Implement utilization management tools 5.8 Improve referral/authorization/precerts 5.10 Improve COSMOS management reporting Support Relationship Building and Management 6.1 Automate appeal/complaint process 6.3 Create proactive intervention facility 6.5 Develop life care plans for members 6.6 Improve information distribution 6.7 Improve access to compliance data 6.8 Improve performance reporting capabilities 6.9 Improve Q-Star stability 6.10 Roll out HealthVillage 6.11 Develop common call center infrastructure Manage Infrastructure 7.5 Enhance communication through entire system 7.6 Turn our data into revenue 7.7 Solve help desk responsiveness issues

0.1 - 0.2 0.1 - 0.2 0.5 - 1 0.5 - 1 0 0.3 - 0.5 0.1 - 0.2 0.2 - 0.5 0.5 - 1 1 - 1.5 0.5 - 1 0.3 - 0.5 0.5 - 2 1 - 2 1 1 - 3 0.25 - 0.5 0.5 - 1 0.5 - 1 0.25 - 0.5 0.1 - 0.3 0.1 - 0.3 1 - 3 0.1 - 0.3 0.5 - 1 0.5 - 1.5 0.5 - 1.5 0.5 - 1.5 0.5 - 1 0.5 - 2 1 - 3 0.5 - 1.5 0.5 - 1 0.25 - 0.5 0.1 - 0.3 0.1 - 0.2 0.5 - 1 1 - 2 0.1 - 1.5 0.1 - 0.2 0.1 - 0.5 0.1 - 0.3 1 1 - 1.5 0.1 - 0.1 0.5 - 1 0.1 - 0.3

12 12 6 6 3 6 3 9 9 12 12 6 12 18 9 18 9 9 6 6 3 6 18 6 9 12 12 18 12 12 18 12 9 6 6 9 12 18 9 6 6 6 12 12 3 6 6

Barriers to Change

Business Process Area / Change Initiatives

L L M H L M M M M H H L H H L H L L L L L L M H H L M M L L L M L L L L M H L L L L L L L M L

L L L H L M L L M H M L M H M H L M M L L M H L M M H H H L H M M L L L M H M L M L L L L M M

M M H H L M M L L H H L M M L H M H L L M M H L M H L H M L M M H M L L M M L L L L L M L H L

L M L M L M L H H M M H H H H H H M M H L M L L M M H M L M M M L H L M H H M L M H H M L L H

L L L M L L L L L L L L L L L L L L L L M M H H M M L H L L L L L L L L M H L L L L L L L L L

H L L H M M L L M L H H M L H M M M H H M M M M H L M M L H H H M L H L H M H H H M H L H L M

L M M H L H L M M M M L H H H M M L L L H H M M H M H M L L H L L H L M H H L L L M H M L M L

Summary of IT Capabilities (Summer 2000) IT Capability Performance

Inadequate Best Practice

Summary of Issues
Fundamental issues in the partnership between IT and the business Highly reactive organisation, unintegrated silos, limited coherence of vision Beyond a few well-intentioned individuals, there is little evidence of architecture leadership Major issues recognised; but change is hugely challenging. There is still a lack of partnership between SC and ISSM Legacy is reasonably stable - but are we ready for e? Some poor financial controls; cultural issues inhibit getting best value from IT people.

Operations Maturity Model

Governance Strategy Development & Planning Architecture Management Solutions Development & Planning Service Delivery Resource Management

Inadequate

Best Practice

Inadequate

Best Practice

Inadequate

Best Practice

Inadequate

Best Practice

Inadequate

Best Practice

Gap Analysis

External Point-of-View

(M $)
(A)

2001

2002

2003

2004

As Is SD Budget Baseline Adjustments due to Price/Performance evolution Potential savings from infrastructure Other savings opportunities To Be Operational costs Organization and One-Time Costs Total Costs

937

913

925

940

Match with Allina IT Focus

Administrative Cost Mgmt.

Length of Project (months)

Supports Allina Experience

Project Cost Range (Early estimate in Millions)

Improve Health Outcomes

Improve Provider Service

Improve Clinical Quality

Revenue Generation

Medical Cost Mgmt.

Financial Analysis

2005

940

(B)

Included in (A) 3 0 934 35 969 28 10 875 74 949 85 40 800 70 870 129 50 761 40 801 129 50 761 19 780

Executive Review

Current Infrastructure and Operations

(C) (D) (E)= (A)-(B)-(C)(D) (F)

(G)=(E)+(F)

(H) = (A) (G) (H) = (A) (G)

Cash Flow Cumulative Cash Flow

Total Revenue Cash Flow Cumulative Cash Flow

-32 -32
937 -32 -32

-36 -68
903 -46 -78

55 -13
903 33 -46

139 126
894 93 48

160 286
894 114 162

(I)

(J)=(I)-(G)

(K)

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Agenda Introduction to Outsourcing Preparing for Outsourcing

Running Outsourcing
Next Steps in Outsourcing

2005 Accenture All Rights Reserved.

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RUNNING OUTSOURCING Framework

Key Principles Common Objectives & Goals
Governance

Delivery Model is based on several key components Common objectives & goals End-to-End governance structure Multi-level team organisation

Projects Reporting & Status Tracking

Methods, Standards, and Tools

LOCAL

Contract, SLA, OLA, KPI, MBO

Leveraged core competencies and skills Formalised SLAs, OLAs, KPIs Forum for engaging multiple sources in the key processes of communication, coordination and integration Optimize global resources Encourage collaborative working Leverage technology to enable business strategy

SPOC

NEAR-SHORE

SPOC

OFF-SHORE

Common Processes

Client

Accenture

Skill Pool

AMP

Establishes a single point of responsibility for entire relationship.

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RUNNING OUTSOURCING Common Objectives & Goals

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RUNNING OUTSOURCING Standard Methodology & Tools

PLAN ANALYZE DESIGN BUILD TEST

SUPPORT TOOLS
SDM Estimator SBP Standards & Methods SBP Configuration Manual

AAB IT & Security Policies & Standards Deliverables Library & Template Project Deliverables Repository Accenture Knowledge Exchange

DEPLOY

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RUNNING OUTSOURCING Common Organization Model

Sample
Local Deployment Teams Local Deployment Team
Local Project Manager
Service Mgt & Support Office

Joint Management

Development Center
Unit Manager Staff Functions

Off-Site Coordinator

Deployment Support Team Functional Architect

Solution Delivery Team Technical Architect & Associate Manager

Test & Release Team Test Team

Business Lead (Change Manager)

Local Design & Acceptance Team Conversion Lead

Configuration Specialists

Table Management & Application Customization

Release Management

Gap Management Operational Readiness Lead

Mercator Application Integration Team

Development Support Team Environment & Dev Tool Mgt. Configuration Management

Conversion Support Team Documentation Data Migration & Deployment Tools

Data Migration Team

Vendors
Near Off Other

Service Delivery Partner

Application Management Partner

Client IT Security, Audit & Compliance 31

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RUNNING OUTSOURCING Common Processes

Local
Scope Work-Stream Config. Components

Near-Shore

Off-Shore

Configuration Workshops & Detailed Specification

Support & QA Specifications

Management Sign Off

TP
Functional Design Check List

Perform Detailed Configuration Design & Prepare Work Package

TP
Technical Design Check List

Technical Review & Interface Impact Analysis

Build (Configure & Code)

Prepare Assembly & NonRegression Test

Support Build Process

Support Build & Validate Test

Component Test & Documentation

Prepare UAT

Product Delivery Check List

Work Package Check List QA Solution

TP

Component & Quality Check Lists

Product & User Acceptance Test

TP

TP

Execute Assembly & NonRegression Test

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Agenda Introduction to Outsourcing Preparing for Outsourcing

Running Outsourcing
Next Steps in Outsourcing

2005 Accenture All Rights Reserved.

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Next Steps in Outsourcing

Outsourcing will continue to grow, mainly for BPO Services will become more standardized, creating new norms New service providers will appear in Eastern Europe and China Asian players will move on-shore and compete head-on with traditional local players Local regulations will continue to be opened up to support cross-border services Politics will start to address increasing social issues and concerns

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Questions

?
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