Overview of Outsourcing May 2005 Copyright 2005 Accenture

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. 2

INTRODUCTION A Working Definition of Outsourcing Services COMPANY OUTSOURCER Organization Service Level Agreement Outsourcing denotes the continuous procurement of services from a third party, making use of highly integrated processes, organization models and information systems. © 2005 Accenture All Rights Reserved. 3

INTRODUCTION On the origins of Outsourcing • 50 - 70 Vertical and Horizontal Integration • 70 - 80 Foreign Direct Investment • 80 - 90 Global Sourcing • 90 - Outsourcing © 2005 Accenture All Rights Reserved. 4

INTRODUCTION Very different level of acceptance German car manufacturers: degree of vertical integration Banking industry worldwide: cost share of outsourced services 2003 100% 80% 62% 60% 68% 76% 20% 60% Value Creation Suppliers 40% 38% 32% 24% 1, 4%: costs for outsourcing Value Creation Producer 40% 98, 6% 20% 0% 0% 1980 1990 © 2005 Accenture All Rights Reserved. 2000 5

INTRODUCTION Types of Outsourcing models: BPO Business processes Administrative processes AMO SDO Application Development and Maintenance IT-infrastructure © 2005 Accenture All Rights Reserved. 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 6

INTRODUCTION BPO - Business Process Outsourcing Industrialized Customized One-to-many One-to-one medium low high Degree of industrialization Custom designed services leveraging know-how © 2005 Accenture All Rights Reserved. Similar services delivered to multiple clients Single service delivered to multiple clients simultaneously 7

INTRODUCTION AMO - Application Management Outsourcing © 2005 Accenture All Rights Reserved. 8

INTRODUCTION SDO – Service Delivery Outsourcing Client Operations Management Delivery capabilities Security Data Technical Network Desktop Supplier Centers Support Services Mgmt. & Mobility Sales Support and Mobilization Hosting Services • 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 Technical Support • Network Services - Managing data and voice networks Network Management • Desktop Management and Mobility - PC, laptop, hand-held, distributed Security Operations • Supplier Management - Identifying, qualifying, contracting and managing strategic suppliers Desktop Management & Mobility Messaging & Collaboration © 2005 Accenture All Rights Reserved. 9

INTRODUCTION Sourcing of Outsourcing • Off-Site – Local service providers • Near Shore – Proximity cross-border service providers • Off-Shore – © 2005 Accenture All Rights Reserved. Remote Cross-border service providers 10

INTRODUCTION Geographics of Outsourcing Ireland (1) London (1) Montreal (1) Chicago (1) Cincinnati (1) Houston (1) Toronto (1) Wilmington (1) Atlanta (1) Riga (1) Prague (1) Bratislava (1) Budapest Madrid (1) Dalian (1) Malaga (1) Shanghai (1) Mumbai (3) Bangalore (3) São Paulo (1) © 2005 Accenture All Rights Reserved. Hyderabad (1) Chennai (1) Manila (8) Mauritius (1) 11

INTRODUCTION Trend is clearly towards Off-Shore © 2005 Accenture All Rights Reserved. 12

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 Mid. American Energy Sithe Energies Avaya Norsk Hydro Slovnaft Bell. South 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 e. Bay Grupo Financiero Ban. Crecer Morgan Stanley Total. Fina. Elf) Total E&P UK plc (formerly Guy Carpenter Argentaria EMC Providian Immobiliere 3 F Banca Italease Sonera ETS Royal and Sun. Alliance 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 Schmidt. Bank 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 SEI Impregilo Achieve Astilleros Espanoles, Caixa Catalunya Texas Instruments Mediolanum Interstate Brands now IZAR UBS Life International Caja Madrid Thomson Meridia KLM Royal Dutch Airlines Astra. Zeneca Cortal. Consors 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 Pfizer Dn. B NOR Campofrio Mecalux Renault Fujitsu Siemens Computers Carrefour Medicines Control Agency Resort Condominiums Infineon Caterpillar Milwaukee County Mental Health International Infostrada Delphi Multibras Electrodomesticos Whirlpool (RCI) JVC do Brasil Ltda. & Nokia Gradiente Industrial Delta Sainsbury’s O Globo Empresa Diageo Sara Lee Olivetti Tecnost DSV Group Solar Turbines Omnitel 2000 e. LSG Sky. Chefs. com Texas Medicaid Qineti. Q Transnet Portnet Siemens Mobile Communications Italy UPS SITA Wärtsilä Wyeth © 2005 Accenture All Rights Reserved. Ameren BC Hydro Borden Chemical BP Britannia Operator Cogema Dow Chemical Du. Pont Dynegy Direct Energy Essential Home Services (DEEHS) Enbridge Gas Distribution Enbridge Gas New Brunswick Freeport Mc. Mo. Ran 13

INTRODUCTION Outsourcing Service Providers Off-Site One Stop Near-Shore Off-Shore • IBM • Accenture • EDS Locals • Cap • CSC • Fujitsu Pure Players • Tata • Info. Sys • Guja © 2005 Accenture All Rights Reserved. 14

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 © 2005 Accenture All Rights Reserved. 15

INTRODUCTION Value Contribution of Outsourcing © 2005 Accenture All Rights Reserved. 16

Agenda • Introduction to Outsourcing • Preparing for Outsourcing • Running Outsourcing • Next Steps in Outsourcing © 2005 Accenture All Rights Reserved. 17

PREPARING FOR OUTSOURCING From Drivers to Strategic Options Outsourcing Change Drivers Defining the Burning Platform Outsourcing Options In-House Status Quo 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 © 2005 Accenture All Rights Reserved. 18

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 … Change Drivers Management Control Service Scope & Level Budget Levels § § § • • • § § Financial Flexibility 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 … Infrastructure Quality Skill & Capability Pool Organizational Impact Time to Benefit Client Rating © 2005 Accenture All Rights Reserved. 19

PREPARING FOR OUTSOURCING Outsourcing Options & Contribution Time to Benefit Organizational Impact Skill & Capability Pool Infrastructure Quality Financial Flexibility Budget Levels Service Scope & Level Spin-off Management Control Sourcing Option High Limited None Limited Short Medium Limited Medium High Medium Low Medium Long Medium Medium Long Lift-Out Low Strong Medium Strong Medium Shoring Low Strong Strong Short Co-Sourcing Captive Joint Venture © 2005 Accenture All Rights Reserved. 20

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? © 2005 Accenture All Rights Reserved. 21

PREPARING FOR OUTSOURCING Understand Partner Constraints Criteria Assessment Financials • Service providers are mainly driven by volume, and to a lesser extend by margin and margin composition Duration of Contract • 3 years is standard, but will not allow time for fundamental transformations. • 5 years gives more room for change Scope of Technology & Services • In how far can the existing park be integrated into provider’s infrastructure & skill pool Demand Stability • In how far can demand for service delivery be accurately assessed? Scope of Control • How much insight & governance control does the client want to exert? Which service model will prevail? Transformation Potential • 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? ) … … © 2005 Accenture All Rights Reserved. 22

PREPARING FOR OUTSOURCING Approach to Outsourcing Assess Current Environment Define Target Model and sourcing strategy “What needs to change? ” “What must we change to? ” Kickoff Timeframe High Level Activities Half-day Executive Workshop Create Programs Executive Meeting • Baseline the business and operating direction and strategy as applicable • From workshop, identify and build out “to-be” state • Benchmark expenses to similar industry segments across functions/processes • Define future sourcing strategy • 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 © 2005 Accenture All Rights Reserved. • Identify initial areas of cost savings and prioritize based on future direction • Identify 4 -5 areas for focused planning “How will we implement the changes? ” Decision • 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 • Identify Infrastructure & Operations management and organization impacts and corresponding risks 23

PREPARING FOR OUTSOURCING Assess Operating Model Impact Application Development Management (ADM): Split-up of work steps In-house / Off-shore Outsourcing / On-shore Outsourcing / Off-shore In-house / On-shore Maintanance Development 10% Business Requirements 100% Resources on-site Concept 20% Functional Design 30% Design 40% Requirements refinement/design control 25% Acceptance test 5% Deployment CLIENT EXAMPLE 20% 30% 75% 40% Requirements, Functional Design and Acceptance 80% Build 70% Test Deploy 30% Detailed Design Technical Design 70% 25% Enhancements Product test Integration test and fixing Deployment assistance Offshore resources onshore Build, test and implementation 70% 10% Acceptance and Implementation 20% Technical Upgrades 80% 10% Acceptance and Implementation 20% Performance Tuning 80% 40% Prioritization, Escalation 20% Fix on Fail 80% © 2005 Accenture All Rights Reserved. Majority of build offshore Technical changes, as requested, assuming no new functionality Fixes and root cause analysis 2 nd level support 24

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 © 2005 Accenture All Rights Reserved. 25

PREPARING FOR OUTSOURCING Key Data Components “What needs to change? ” Financial Analysis “What must we change to? ” “How will we implement the changes? ” Target Operating Model Operations Maturity Model™ Gap Analysis External Point -of-View Executive Review © 2005 Accenture All Rights Reserved. Current Infrastructure and Operations 26

Agenda • Introduction to Outsourcing • Preparing for Outsourcing • Running Outsourcing • Next Steps in Outsourcing © 2005 Accenture All Rights Reserved. 27

RUNNING OUTSOURCING Framework Key Principles Common Objectives & Goals • Delivery Model is based on several key components Governance • Common objectives & goals • End-to-End governance structure Contract, SLA, OLA, KPI, MBO Methods, Standards, and Tools LOCAL Common Processes Projects Reporting & Status Tracking • Multi-level team organisation SPOC NEAR-SHORE SPOC OFF-SHORE • 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 Client Accenture Skill Pool © 2005 Accenture All Rights Reserved. AMP +… • Establishes a single point of responsibility for entire relationship. 28

RUNNING OUTSOURCING Common Objectives & Goals © 2005 Accenture All Rights Reserved. 29

RUNNING OUTSOURCING Standard Methodology & Tools © 2005 Accenture All Rights Reserved. 30

RUNNING OUTSOURCING Common Organization Model Sample Joint Management Local Deployment Teams Local Deployment Team Development Center Service Mgt & Support Office Local Project Manager Off-Site Coordinator Business Lead (Change Manager) Unit Manager Staff Functions Deployment Support Team Solution Delivery Team Functional Architect Technical Architect & Associate Manager Configuration Specialists Table Management & Application Customization Gap Management Mercator Application Integration Team Local Design & Acceptance Team Conversion Lead Operational Readiness Lead Data Migration Team Conversion Support Team Documentation Vendors Near Off Other © 2005 Accenture All Rights Reserved. Data Migration & Deployment Tools Service Delivery Partner Application Management Partner Test & Release Team Test Team Release Management Development Support Team Environment & Dev Tool Mgt. Configuration Management Client IT Security, Audit & Compliance 31

RUNNING OUTSOURCING Common Processes Local Near-Shore Off-Shore Scope Work-Stream Config. Components Configuration Workshops & Detailed Specification Management Sign Off Support & QA Specifications TP Perform Detailed Configuration Design & Prepare Work Package Functional Design Check List TP Technical Review & Interface Impact Analysis Technical Design Check List Build (Configure & Code) Support Build Process Prepare UAT Product & User Acceptance Test Support Build & Validate Test TP © 2005 Accenture All Rights Reserved. Component Test & Documentation Work Package Check List Product Delivery Check List QA Solution Prepare Assembly & Non. Regression Test TP TP Component & Quality Check Lists Execute Assembly & Non. Regression Test 32

Agenda • Introduction to Outsourcing • Preparing for Outsourcing • Running Outsourcing • Next Steps in Outsourcing © 2005 Accenture All Rights Reserved. 33

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 © 2005 Accenture All Rights Reserved. 34

Questions ? © 2005 Accenture All Rights Reserved. 35