Challenges for Infrastructure Outsourcing Atul Gupta Vice President

Challenges for Infrastructure Outsourcing Atul Gupta Vice President , Strategic Outsourcing , IBM July 29, 2011 © 2008 IBM Corporation

Agenda § Outsourcing Continuum and growth of Infrastructure Outsourcing § Challenges and Pragamatic approach for Infrastructure Outsourcing 2 © 2008 IBM Corporation

Evolution of Infrastructure Outsourcing in India 2006 onwards Full Scope Infrastructure Management Services Maturity 2000 - 2005 1990 s Managed Services Manpower Augmentation Asset Ownership On-Site Services DC Outsourcing Capacity Based / Shared Services Business Outcome Based Evolving Cloud Offerings No Assets Time 3 © 2008 IBM Corporation

Outsourcing Business Models Vendor Partnership Alliance Collaborative Partnership Portfolio Outsourcing Co-Sourcing Out-Tasking Staff Augmentation § § Task/RFP Based Most Client Risk Statements of Work Volume Purchase Agreements § § Project integration Less Client Risk Standard Tsand. Cs Multi-year, bottomline contract § Forward Pricing § Outcome Based § § § Initiative Integration More Supplier Risk Knowledge Transfer Managed Skills On-Demand Service Level Agreements (SLAs) § PMO/Governance § End-to-end Mgmt § Some transfer of Management responsibility to Supplier § § Most Supplier Risk Outcome based SLA based Productivity enhancement / Application portfolio optimization § Access to expertise, skills and innovation § Shared investment in dedicated resources § Option for FTEs to transfer to Supplier § § § § § Strategy Integration Most Supplier Risk Outcome based Custom Tsand. Cs SLA/Shared Risk. Reward PMO/Governance Skills and Capacity On Demand Leverage IBM infrastructure investments Leverage best practices Access to expertise, skills and innovations Benefits Realization Increasing Value Outsourcing Increasing Partner Risk Decreasing Client Risk “How Do It? ” 4 “What Do I Want? ” © 2008 IBM Corporation

However, Outsourcing IT infrastructure comes with its own challenges § Why Outsource § What is to be Outsourced § Who is the Partner of Choice § What is the relationship structure § How to ensure that it creates ongoing value 5 © 2008 IBM Corporation

HOW to outsource starts with WHY? OUTSOURCING IS: - a business strategy - a business relationship OUTSOURCING IS NOT: - a transaction - a quick fix 6 © 2008 IBM Corporation

Why Outsource? “Classical” Drivers/Goals of Outsourcing 7 Strategic Partnering § Focus on core competencies § Align IT operations with business requirements Growth Enablement / Go to Market § Improve reaction times (Time-to-Market) § Leverage technological innovation for competitive advantage Flexibility and Transparency § Shift fixed capacity to more variable IT services § Adapt quickly to organizational changes (e. g. mergers, acquisitions, sales, etc. ) Risk Management § Stability of the IT operation (even when facing future transformation) § Conformance to all legal and regulatory requirements Human Resources § Assure timeliness availability of critical skills § Reduce headcount / increase flexibility of workforce / improve motivation Cost Effects § Decrease cost levels and ensure continuous cost improvement § Conversion of fixed IT costs into variable costs Infrastructure/ Technology § Create operational resilience and address future challenges (space, locations, etc. ) § Address IT currency – “state-of-the-art“ technology, process, innovation © 2008 IBM Corporation

Soft Factors – Can You Outsource? § Executive sponsorship § Competing business priorities § Ability to absorb and manage change § Availability of resources to support the process § Corporate Culture § Politics (internal/external) What “should be done” versus what “could be done” depends on your company’s strategy and situation 8 © 2008 IBM Corporation

What is to be Outsourced § Evaluate In-house Competencies § What needs to be retained § Legal and Data Privacy requirements § Existing In-house problems and issues § Will it make a strong Business Case 9 © 2008 IBM Corporation

Selecting the Right Partner § Hygiene Issues – Capabilities, Credentials , ability to deliver , Industry Experience § Cultural Match – Shared Values § Financial Stability § Access/ Impact on Emerging Technologies § Flexibility § Share Information transparently – will lead to solution creativity § Use external help (Consultants) if lack of prior in-house experience in Outsourcing 10 © 2008 IBM Corporation

Relationship Structure and Governance § Whats the right Relationship Structure including Financial Structure § Appropriate Risk Reward § Contractual Flexibility to handle business volume changes § How not to get into trap of getting same services cheaper § How will value be created on an ongoing basis § Risk Transference – specially during initial phase § Ongoing Governance Mechanisms 11 © 2008 IBM Corporation

Meeting the Financial Challenge Internal Solution Mature Organisation As-Is Path “Spending Bubble” Costs Outsourced Solution • Technology • Skills • Infrastructure Time Internal Solution Growth Oragnisation “Spending Bubble” As-Is Path Outsourced Solution Time 12 © 2008 IBM Corporation

Overcoming Outsourcing Challenges DON'T: § Delegate the outsourcing decision § Make it an IT decision § Fail to share outsourcing decision criteria § Limit vendor access to technical and financial data § Expect unrealistic savings § Lengthen the decision process – time kills § Fail to communicate regularly with affected employees 13 © 2008 IBM Corporation

Success Factors – “The Do’s” § Clear Goals and Objectives of Outsourcing § Organisational agreement on Expectation from Outsourcing § An Owner for the Initiative § Clear definition of scope, decision process and schedule who, what, when, how § Jointly developed and accepted "Base Case" (baselines and budget forecast over a 5/7/10 -years) § A clear Business Case why >>> 14 Partnership between Client and Provider © 2008 IBM Corporation

Balanced Decision Solution (What & How Good) MAKING THE RIGHT Value (Price, Structure & Schedule) 15 CHOICE Partner (Capabilities & Relationship Fit) © 2008 IBM Corporation

Thank You! Atul Gupta Vice President – Strategic Outsourcing IBM India Ltd. gatul@in. ibm. com +91 9810077983