Business-Oriented Trends in IT
Outsourcing
Alan McSweeney
Objectives
• To identify business-oriented trends in Information
Technology outsourcing
January 30, 2012 2
Topics
• Outsourcing Trends
• Business-Oriented General IT Trends
• Transition and Transformation Within Outsourcing
• Outsourcing and Innovation
• A (Financial) Tale of Three Outsourcing Vendors
January 30, 2012 3
ITO Trends
January 30, 2012 4
State of Outsourcing in 2011
conducted by the London School of
• Survey
Economics Outsourcing Unit
• 1,209Buyers, Providers and Advisors of Outsourcing
Services
• Large study across spectrum of outsourcing industry
insight into market trends and therefore
• Provides
should be part of any organisation’s strategy
January 30, 2012 5
State of Outsourcing in 2011
• Key points
− Outsourcing increasing across all organisation sizes and
organisations that do not currently outsource
− Cost an important factor
− After cost, track record, culture, global scale and knowledge are
important
− Advisors playing an increasingly important role
− Outsourcing providers not aware of how they are perceived
− Focus is on business benefits rather than technology
January 30, 2012 6
State of Outsourcing in 2011 – Some Results
• Nearly three quarters or organisations plan to increase outsourcing activities
• 59% of organisations with a shared services function and planning to increase outsourcing significantly
− Shared services function is an organisational infrastructural stepping stone to outsourcing
• Key reasons for outsourcing are
− Cost reduction - 60-76% view as very important, depending on organisation size
− More effective operations - 50-64% view as very important, depending on organisation size
• 46% have found outsourcing very effective in reducing costs
• 35% have found outsourcing ineffective in innovation
• 31% have found outsourcing ineffective in proving access to new technology
• 31% have found outsourcing ineffective in proving access to business process knowledge and experience
• In-house delivery of IT and Business Processes still dominates with outsourcing limited to Help Desk and application
development and support
• Factors rated as very important such as not being convinced of service providers’ capabilities (39%), not being
convinced of long-term business benefits (30%), insufficient short-term cost savings (37%) and fear of disruption
limiting (31%) decisions to outsource
• 29% of outsourcing suppliers view buyers not being convinced of their capabilities as being very important - gulf
between buyer and provider
• IT infrastructure and application development and maintenance outsourcing are seen as the core outsourcing areas
by buyers
− 68% already outsource infrastructure and will increase or plan to outsource
− 62% already outsource application development and maintenance outsourcing and will increase or plan to outsource
• 63% of medium-sized companies and 44% of large companies say outsourcing has been very effective in reducing
costs
• Buyers rate financial stability, track record and change management/governance process delivery, scale, industry
specific knowledge and culture as the most critically important skills of outsourcing suppliers
• The role of advisor in working with buyers on outsourcing is increasing
January 30, 2012 7
Study Respondents’ Profile
January 30, 2012 8
Buyers’ Organisation Size by Revenue
January 30, 2012 9
Buyers’ Industries
January 30, 2012 10
Outsourcing And Shared Services Delivery
Dominate Global Service Models Over Next 3 Years
• Emerging from the recession, will your company increase / reduce its reliance on
the following operating models for general and administrative functions, over the
next three years?
January 30, 2012 11
Most Organisations With Shared Services Are
Increasing Outsourcing
• Emerging from the recession, will your company increase / reduce its reliance on the
following operating models for your general and administrative functions, over the next 3
years?
January 30, 2012 12
Business Challenges Driving Outsourcing In 2011
• How Important Are The Following Business Drivers Behind Your
Company's IT Outsourcing And BPO Decision-Making This Year?
− Answer = Very Important
January 30, 2012 13
Europeans Want To Drive Out Cost And Globalise –
Without Changing Their Processes
• How Important Are The Following Business Drivers Behind Your Company's IT
Outsourcing And BPO Decision-Making This Year?
− Answer = Very Important
January 30, 2012 14
Buyers Achieving Modest Business Results Beyond
Cost-Reduction With Their Outsourcing Initiatives
• How Effective Have Your Current Outsourcing Initiatives Been
At Achieving The Following Business Benefits To-Date?
January 30, 2012 15
What Is Your Primary Sourcing Model For Managing
The Following IT and Business Processes?
• Untapped sourcing potential
• In-house delivery of IT and Business Processes still dominant in 2011
January 30, 2012 16
Concerns Holding Back Outsourcing In 2011
• How Important Are The Following Factors Preventing Your Organisation From IT
Outsourcing Or Business Processes Over The Next 12 Months?
January 30, 2012 17
Providers Oblivious To Buyers’ Perception Of Them
• How Important Are The Following Factors In Preventing Your Clients From Outsourcing IT
Or Business Processes Over The Next 12 Months? (Outsourcing Providers)
January 30, 2012 18
Demand For Core General And Administrative
Outsourcing Reaches Unprecedented Levels
January 30, 2012 19
First-Time Enterprise Buyers Look To Jump Into BPO
• % Buy-side organizations looking to outsource for the first time over
the next 12 months
January 30, 2012 20
Effectiveness Of Current Outsourcing Engagements:
Mid-Market Organisations Benefitting The Most
• How Effective Have Your Current Outsourcing Initiatives Been For Achieving The
Following Business Benefits To-Date?
− Answer = Very Effective
January 30, 2012 21
The Enterprise Market Gears Up For An Aggressive
Spike In Scope-Expansion Across Maturing Functions
• % Buy-Side Organisations Already Outsourcing And
Intending To Increase Scope Over The Next 12 Months
January 30, 2012 22
After Financial Considerations, Buyers Care (Or Say They
Care) About The Governance, Industry Acumen And Cultural
Attributes Of Providers
• How Important Are The Following Attributes To Your Clients Today,
When Considering A Service Provider Relationship For IT/BPO
Services?
January 30, 2012 23
Providers Underestimate Importance Buyers Place
On Change Management, Governance And Culture
January 30, 2012 24
Advisors Are Buoyant About It When Looking At
Future Outsourcing Plans
• Do You Expect Your Clients To Increase Or Reduce Their Activity
Across The Following Areas, Over The Next 18 Months?
− Outsourcing Advisers And Suppliers
January 30, 2012 25
Management Consultants Increasingly Influencing
Outsourcing
• Extent By Which Providers Have Been Seeing The Following Advisors
Influence Their Clients' Outsourcing Decision-Making Over The Last
Six Months
January 30, 2012 26
ITO Concerns
• Transition takes too long
• Not integrated
• Business disruptions
• Increased business risk
• Lower service quality
• Treatment of acquired employees
• Does not deliver value
• High cost of operation
• Confusion over what is being sold
January 30, 2012 27
Analysis of Some Information Technology Trends
• AICPA – Survey of members from 2001 to 2011 on initiatives in IT
that are of concern to their 370,000 members
− http://www.aicpa.org/INTERESTAREAS/INFORMATIONTECHNOLOGY/RESOURC
ES/TOPTECHNOLOGYINITIATIVES/Pages/2011TopTechInitiatives.aspx
• Gartner – well known analyst company
• Two very different views of information technology trends
− Business-oriented
− Technology-oriented
• IT tends to be concerned with technology trends for themselves
rather than their application to business
• IT outsourcing needs to concern itself with business needs rather
than just pure IT
January 30, 2012 28
Gartner – Key IT Trends 2008 - 2011
• How relevant are these trends to the business and to end-user organisations?
• Where have the old trends gone to – lack of continuity between years?
• Are they fads more than trends?
2011 2010 2009 2008
1 Cloud Computing Cloud Computing Virtualisation Green IT
2 Mobile Applications and Media Advanced Analytics Cloud Computing Unified Communications
Tablets
3 Social Communications and Client Computing Servers - Beyond Blades Business Process Modelling
Collaboration
4 Video IT for Green Web-Oriented Metadata Management
Architectures
5 Next Generation Analytics Reshaping the Data Centre Enterprise Mashups Virtualisation 2.0
6 Social Analytics Social Computing Specialised Systems Mashup and Composite
Applications
7 Context-Aware Computing Security – Activity Social Software and Social Web Platform and Web-
Monitoring Networking Oriented Architectures
8 Storage Class Memory Flash Memory Unified Communications Computing Fabric
9 Ubiquitous Computing Virtualisation for Business Intelligence Real World Web
Availability
10 Fabric-Based Infrastructure and Mobile Applications Green IT Social Software
Computers
January 30, 2012 29
AICPA Top 10 IT Initiatives 2001-2011
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Security Of Data, Code Control and Use of Information Information Information Information Information Information Information Business And Information
1 & Communications / Mobile Devices Security Security Security Security Security Security Security Financial Reporting Security And
Data Security & Management Management Management Applications Controls
Document Retention /
Security Threats
Connectivity / WirelessInformation Privacy IT Governance Identity And Access Assurance And Electronic Spam Technology Business Training And E-Business
2 Access / High Speed Security Management Management Compliance Document Information Technology
Internet Connections / Applications Management Management Competency
Voice And Data
Backup Solutions/ Data Retention Secure Data File Business Continuity Conforming To Disaster And Data Integration Digital OptimisationApplication Information Electronically-
3 Disaster Recovery/ Policies and Storage, Management And Assurance And Business Continuity Integration Security and based Business and
Business Continuity Structure Transmission And Disaster Recovery Compliance Planning Controls Financial Reporting
Exchange Planning Standards
Secure Electronic Remote Access Business Process Privacy Privacy IT Governance Spam Technology Database and Web Services Quality of Service Privacy
4 Collaboration With Improvement, Management Management Application
Clients – Client Portals Work Flow and Integration
Process Exception
Alerts
Paperless Workflow/ Staff and Mobile and Remote Business Process Disaster Recovery Privacy Disaster Recovery Wireless Disaster Recovery Disaster Recovery Training and
5 Paperless Technology Management Computing Improvement, Planning and Management Technologies Planning and Technology
Training Workflow and Business Continuity Business Continuity competency
Process Exception Management Management
Alerts
Laptop Security / Process Training and Identity and Access IT Governance Digital Identity and Collaboration and Disaster Recovery Wireless Communication Disaster Recovery
6 Encryption Documentation andCompetency Management Authentication Messaging Technologies Technologies
improvements Technologies Technologies Bandwidth
Small Business Saving and Making Identity and Access Conforming to Securing and Wireless Wireless Data Mining Intrusion Detection Remote Qualified IT
7 Software / Office 2010 Money Management Assurance and Controlling Technologies Technologies Connectivity Tools Personnel
/ Windows 7 w/Technology Compliance Information
Standards Distribution
User Mobility/ Mobile Technology Cost Improved Business Mobile and RemoteApplication and Authentication Virtual Office Intrusion Detection Web-Based and Quality of Service
8 Computing/ Mobile Controls Application and Intelligence Computing Data Integration Technologies Web-Enabled
Devices Data Integration Applications
Tax Software/ Budget Processes Document, Forms, Mobile and Remote Electronic Archiving Paperless Digital Storage Business Exchange Customer Qualified IT Electronic Audit
9 Electronic Transmittals Content and Computing and Data Retention Technologies Technologies Technology Relationship personnel Trail
Of Tax Forms Knowledge Management
Management
Server Virtualization Project Electronic Data Document, Forms, Document, Content Spyware Detection Learning and Messaging Privacy Messaging Application Service
10 And Consolidation Management & Retention Strategy Content and and Knowledge and Removal Training Applications Applications (e- Provider
Deployment of Knowledge Management Competency mail, faxing,
New Systems Management voicemail, instant
messaging)
January 30, 2012 30
AICPA Top 10 IT Initiatives 2005-2011
2011 2010 2009 2008 2007 2006 2005
1 Security Of Data, Code & Control and Use of Information Security Information Security Information Security Information Security Information Security
Communications / Data Mobile Devices Management Management Management
Security & Document
Retention / Security Threats
2 Connectivity / Wireless Information Security Privacy Management IT Governance Identity And Access Assurance And Electronic Document
Access / High Speed Management Compliance ApplicationsManagement
Internet Connections /
Voice And Data
3 Backup Solutions/ Disaster Data Retention Policies Secure Data File Business Continuity Conforming To AssuranceDisaster And Business Data Integration
Recovery/ Business and Structure Storage, Transmission Management And And Compliance Continuity Planning
Continuity And Exchange Disaster Recovery Standards
Planning
4 Secure Electronic Remote Access Business Process Privacy Management Privacy Management IT Governance Spam Technology
Collaboration With Clients – Improvement, Work
Client Portals Flow and Process
Exception Alerts
5 Paperless Workflow/ Staff and Management Mobile and Remote Business Process Disaster Recovery Privacy Management Disaster Recovery
Paperless Technology Training Computing Improvement, Planning and Business
Workflow and Process Continuity Management
Exception Alerts
6 Laptop Security / Encryption Process Documentation Training and Identity and Access IT Governance Digital Identity and Collaboration and
and improvements Competency Management Authentication Messaging Technologies
Technologies
7 Small Business Software / Saving and Making Conforming to
Identity and Access Securing and Controlling Wireless Technologies Wireless Technologies
Office 2010 / Windows 7 Money w/Technology Management Assurance and Information Distribution
Compliance Standards
8 User Mobility/ Mobile Technology Cost Improved Application Business Intelligence Mobile and Remote Application and Data Authentication
Computing/ Mobile Devices Controls and Data Integration Computing Integration Technologies
9 Tax Software/ Electronic Budget Processes Document, Forms, Mobile and Remote Electronic Archiving and Paperless Digital Storage Technologies
Transmittals Of Tax Forms Content and Knowledge Computing Data Retention Technologies
Management
10 Server Virtualization And Project Management & Electronic Data Document, Forms, Document, Content and Spyware Detection and Learning and Training
Consolidation Deployment of New Retention Strategy Content and Knowledge Management Removal Competency
Systems Knowledge
Management
January 30, 2012 31
Security, Privacy, Governance, Disaster Recovery
2011 2010 2009 2008 2007 2006 2005
1 Security Of Data, Code & Control and Use of Information Security Information Security Information Security Information Security Information Security
Communications / Data Mobile Devices Management Management Management
Security & Document
Retention / Security Threats
2 Connectivity / Wireless Information Security Privacy Management IT Governance Identity And Access Assurance And Electronic Document
Access / High Speed Internet Management Compliance ApplicationsManagement
Connections / Voice And Data
3 Backup Solutions/ Disaster Data Retention Secure Data File Business Continuity Conforming To AssuranceDisaster And Business Data Integration
Recovery/ Business Storage, Transmission Management And
Policies and Structure And Compliance Continuity Planning
Continuity And Exchange Disaster Recovery Standards
Planning
4 Secure Electronic Remote Access Business Process Privacy Management Privacy Management IT Governance Spam Technology
Collaboration With Clients – Improvement, Work
Client Portals Flow and Process
Exception Alerts
5 Paperless Workflow/ Staff and Management Mobile and Remote Business Process Disaster Recovery Privacy Management Disaster Recovery
Paperless Technology Training Computing Improvement, Planning and Business
Workflow and Process Continuity Management
Exception Alerts
6 Laptop Security / Encryption Process Training and Identity and Access IT Governance Digital Identity and Collaboration and
Documentation and Competency Management Authentication Messaging Technologies
improvements Technologies
7 Small Business Software / Saving and Making Identity and Access Conforming to Securing and Controlling Wireless Technologies Wireless Technologies
Office 2010 / Windows 7 Money w/Technology Management Assurance and Information Distribution
Compliance Standards
8 User Mobility/ Mobile Technology Cost Improved Application Business Intelligence Mobile and Remote Application and Data Authentication
Computing/ Mobile Devices Controls and Data Integration Computing Integration Technologies
9 Tax Software/ Electronic Budget Processes Document, Forms, Mobile and Remote Electronic Archiving and Paperless Digital Storage Technologies
Transmittals Of Tax Forms Content and Knowledge Computing Data Retention Technologies
Management
10 Server Virtualization And Project Management Electronic Data Document, Forms, Document, Content and Spyware Detection and Learning and Training
Consolidation & Deployment of New Retention Strategy Content and Knowledge Management Removal Competency
Systems Knowledge
Management
January 30, 2012 32
Data, Information and Document Management/
Integration and Analysis and Related Initiatives
2011 2010 2009 2008 2007 2006 2005
1 Security Of Data, Code & Control and Use of Information Security Information Security Information Security Information Security Information Security
Communications / Data Mobile Devices Management Management Management
Security & Document
Retention / Security Threats
2 Connectivity / Wireless Information Security Privacy Management IT Governance Identity And Access Assurance And Electronic Document
Access / High Speed Internet Management Compliance ApplicationsManagement
Connections / Voice And Data
3 Backup Solutions/ Disaster Data Retention Policies Secure Data File Business Continuity Conforming To AssuranceDisaster And Business Data Integration
Recovery/ Business and Structure Storage, Transmission Management And And Compliance Continuity Planning
Continuity And Exchange Disaster Recovery Standards
Planning
4 Secure Electronic Remote Access Business Process Privacy Management Privacy Management IT Governance Spam Technology
Collaboration With Clients – Improvement, Work
Client Portals Flow and Process
Exception Alerts
5 Paperless Workflow/ Staff and Management Mobile and Remote Business Process Disaster Recovery Privacy Management Disaster Recovery
Paperless Technology Training Computing Improvement, Planning and Business
Workflow and Process Continuity Management
Exception Alerts
6 Laptop Security / Encryption Process Training and Identity and Access IT Governance Digital Identity and Collaboration and
Documentation and Competency Management Authentication Messaging Technologies
improvements Technologies
7 Small Business Software / Saving and Making Conforming to
Identity and Access Securing and Controlling Wireless Technologies Wireless Technologies
Office 2010 / Windows 7 Money w/Technology Management Assurance and Information Distribution
Compliance Standards
8 User Mobility/ Mobile Technology Cost Improved Application Business Intelligence Mobile and Remote Application and Data Authentication
Computing/ Mobile Devices Controls and Data Integration Computing Integration Technologies
9 Tax Software/ Electronic Budget Processes Document, Forms, Mobile and Remote Electronic Archiving and Paperless Digital Storage Technologies
Transmittals Of Tax Forms Content and Computing Data Retention Technologies
Knowledge
Management
10 Server Virtualization And Project Management Electronic Data Document, Forms, Document, Content and Spyware Detection and Learning and Training
Consolidation & Deployment of New Retention Strategy Content and Knowledge Removal Competency
Systems Knowledge Management
Management
January 30, 2012 33
AICPA Top IT Initiatives
• Notice any differences?
• Business-oriented focus of IT initiatives
− Not concerned with IT plumbing and infrastructure (such as cloud)
but on business concerns - running the business - and business-
related IT concerns – potential impact of IT systems on the wider
business
− Security, privacy, disaster recovery/business continuity and
governance concerns dominate
• How will pure technology trends assist in delivering these
initiatives?
• Effective IT outsourcing assist with addressing these
concerns
January 30, 2012 34
Transition and Transformation Within Outsourcing
• Transition is the entire process for assuming operational
responsibility for the acquired entity
− Transition moves the acquired entity organization from its current mode of
operation to an integrated managed mode of operation
− Transition includes the takeover of the “as-is” business and operating
environment as well as contractual requirements necessary to facilitate the
transfer.
• Transformation is the implementation of completed integrated
solution within a specified time, that lead to entirely integrated
operation, service enhancements and/or quality, productivity,
technology improvements and cost savings/reductions
• An approach to transformation is very important for successful
outsourcing
• Transformation is the basis for greater cost savings and innovation
• Outsourcing without transformation is a risk as what is outsourced
can stagnate over time
January 30, 2012 35
Transition and Transformation
Steady State
Transition Transformation
Operation
Customer Customer Standardised Primary
Infrastructure Infrastructure Infrastructure Support
and and Through Transferred to
Applications, Applications, Refresh, Appropriate
Staff, Support Transferred Customer Cost Location
Processes and and Being Support
Tools Supported by Processes and
Supplier Tools
Replaced by
Supplier
Standards
• Transition and transformation is a process that must be articulated effectively to
customers
• Customer must understand the implications and must accept the process
• Delays or stoppages affect supplier’s costs
January 30, 2012 36
Outsourcing Process
Contract Service
Effective Date Commencement Date
Pre-Operation and Steady State
Evaluation and Negotiation and
Pre-Integration Transition Transformation Operation of
Decision Contract Signing
Start Integrated Entity
Due Diligence
Preliminary Transformation
Final Transition Plan Review and
Transition Plan Planning
Confirmation
Integration Transformation
Due Diligence Contract Review
Preparation Delivery
Transition Transformation
Transition Initiation
Completed Completed
Finalise Integration
Solution
Architecture
January 30, 2012 37
Transition and Transformation Management
Integration Start Transition Transformation Transformation
Signed Contract
Review Criteria Achieved Review Criteria Achieved
Transformation
Terms and Transition to
to Delivery
Conditions Delivery Handoff
Handoff
Propose, Negotiate and Close Delivery
Ongoing
Planning Transition Transformation Operation
Research, Analysis, Identification Transition Initiation/Kick-off Transformation Initiation/Kick-off
Preliminary Transition and
Post Contract Verification Stabilisation
Transformation Plans
Due Diligence Solution Handoff Standardisation
Transformation Close
Final Integrated Transition Plan Acquisition Management Office
Transfer Quality Review Acquisition
Milestone Engagement Stage
Operation Commencement
Preparation Key Reporting Transition and
Events Transformation Phase
Final Integrated Transition Plan
Handoff Events Activity
January 30, 2012 38
Types of Outsourcing Arrangement
• Efficiency/Utility (Make it Cheaper) arrangement outsourcing
focuses primarily on cost control and, over time, cost reduction, with
the goal of maintaining consistency in the delivery of services
• Business Enhancement (Make it Better) arrangement is about
business productivity. The organisation’s performance, as compared
with their competitors, will improve, resulting in movement toward
defined business goals
• Transformational (Make me Money) arrangement is characterised
by a partnership between the service provider and service recipient
that is focused on innovation and new business, changing the very
basis on which an organisation competes
• Which arrangement are you looking for?
• Clearly understand what your expectations are
January 30, 2012 39
Problems With Outsourcing
• Many organisations take a “fire and forget” approach to
outsourcing
• Problems with outsourcing are as much the fault of the
outsourcing organisation as they are of the supplier
• Outsourcing organisation need to define an operating
model and be engaged with the outsourcing relationship
• You can outsource anything except the management of
the outsourcing relationship
January 30, 2012 40
Outsourcing and Innovation
• Outsourcing is not viewed by buyers or suppliers as a
source of innovation
− Not seen as an agent of change, innovation, transformation,
access to new technology
• Outsourcing is seen as “your mess for less”
• Buyers neglect the value of transformation and how it can
contribute to innovation and generate real business
benefits
• Providers do not sell transformation as a pre-requisite for
innovation as well as further cost savings
• Companies looking to outsource should look for a
transformation and innovation vision from their supplier
January 30, 2012 41
Business Challenges Driving Outsourcing In 2011
• How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing
And BPO Decision-Making This Year?
− Answer = Very Important
• Innovation, Change, Access to New Technology, Transformation seen as relatively
unimportant
January 30, 2012 42
Europeans Want To Drive Out Cost And Globalise –
Without Changing Their Processes
• How Important Are The Following Business Drivers Behind Your Company's IT Outsourcing And BPO
Decision-Making This Year?
− Answer = Very Important
• Innovation, Change, Access to New Technology, Transformation seen as relatively unimportant
outside Asia
January 30, 2012 43
Buyers Achieving Modest Business Results Beyond
Cost-Reduction With Their Outsourcing Initiatives
• How Effective Have Your Current Outsourcing Initiatives Been At Achieving The
Following Business Benefits To-Date?
• Existing outsourcing suppliers not seen as effective in delivering Innovation,
Change, Access to New Technology, Transformation
January 30, 2012 44
Effectiveness Of Current Outsourcing Engagements:
Mid-Market Organisations Benefitting The Most
• How Effective Have Your Current Outsourcing Initiatives Been For Achieving The Following Business
Benefits To-Date?
− Answer = Very Effective
• Existing outsourcing initiatives not seen as effective in delivering Innovation, Change, Access to New
Technology, Transformation
January 30, 2012 45
After Financial Considerations, Buyers Care (Or Say They
Care) About The Governance, Industry Acumen And Cultural
Attributes Of Providers
• How Important Are The Following Attributes To Your Clients Today, When
Considering A Service Provider Relationship For IT/BPO Services?
• Buyers of outsourcing services do not rate Innovation and Transformation as
important supplier attributes
January 30, 2012 46
Providers Underestimate Importance Buyers Place
On Change Management, Governance And Culture
• Buyers of outsourcing services do not rate Innovation and Transformation as
important supplier attributes but suppliers still underestimate the important of
Innovation
January 30, 2012 47
Transformation Process Introduces Standardisation
and Enables Innovation
• Takes disparate set of
From … To … sources and creates
standard model
• Effective
transformation is an
enabler of innovation
with IT function
− On-demand self-
service
− Elastic
− Measured and
metered usage and
pricing
− Scale
− Resilience
− Available
− Secure
January 30, 2012 48
A (Financial) Tale of Three Outsourcing Vendors
• Sample analysis of three vendors involved in outsourcing
− Dell – small outsourcing practice based on acquisition of Perot
Systems and legacy outsourcing business
− HP – large outsourcing vendor with expanded practice since the
acquisition of EDS
− IBM – large outsourcing vendor
• By no means exhaustive – there are many outsourcing
service providers
January 30, 2012 49
Vendor Comparison Summary
2010 2009 2008
Dell HP IBM Dell HP IBM Dell HP IBM
Revenue 52,902 126,033 99,870 61,101 114,552 95,758 61,133 118,364 103,630
Gross Margin 9,261 29,996 46,040 10,957 27,034 43,761 11,671 28,644 45,701
Gross Margin % 17.5% 23.8% 46.1% 17.9% 23.6% 45.7% 19.1% 24.2% 44.1%
Net Income 1,433 8,761 14,833 2,478 7,660 13,425 2,947 8,329 12,334
Net Income % 2.7% 7.0% 14.9% 4.1% 6.7% 14.0% 4.8% 7.0% 11.9%
Outsourcing Revenue 5,622 18,835 22,241 5,351 18,692 21,620 4,980 8,211 22,733
Outsourcing Revenue % 10.60% 14.90% 22.30% 8.80% 16.30% 22.60% 8.10% 6.90% 21.90%
• Outsourcing Revenue for Dell includes all services including
outsourcing
• Dell performing poorly relative to its competitors:
− Lower margins
− Lower proportion of service and outsourcing revenues
January 30, 2012 50
Vendor Comparison
• Compare Dell, HP and IBM
• Comparisons taken from 10-K filings
• Difficult to make exact comparison
− Major service-related takeovers
• Dell acquire Perot in Nov 2009
• HP acquire EDS in Aug 2008
• Classification of revenues not consistent between years
• Restatement of revenues
− Dell 2010 10 K
• Services revenue for 2009 = 5,351
• Services revenue for 2008 = 4,980
• Dell 2009 10 K
• Services revenue for 2009 = 5,715
• Services revenue for 2008 = 5,320
January 30, 2012 51
Vendor Comparison
• Which vendor can articulate a transformation vision for
your organisation?
January 30, 2012 52
IBM
• Revenue from
− Hardware – classified as Systems and Technology
− Software
− Services – divided into:
• Global Technology Services - provides IT infrastructure services and
business process services, including outsourcing and other services
• Global Business Services - provides professional services and application
management services
− Outsourcing classified as:
• Strategic Outsourcing Services - existing infrastructure
• Global Process Services - standardised processing platforms and business
process outsourcing
• Gross margins not reported down to outsourcing business
area
January 30, 2012 53
IBM – Financial Summary
2010 2009 2008 2007 2006
Revenue 99,870 95,758 103,630 98,786 91,424
Gross Margin 46,040 43,761 45,701 41,688 38,307
Gross Margin % 46.1% 45.7% 44.1% 42.2% 41.9%
Net Income 14,833 13,425 12,334 10,418 9,492
Net Income % 14.9% 14.0% 11.9% 10.5% 10.4%
Global Technology Services Revenue Total 38,201 37,347 39,264 36,103 32,322
Global Technology Services Total Gross Margin 34.7% 35.0% 32.60% 29.90% 29.80%
Global Technology Services Revenue (Excluding Outsourcing) 15,960 15,727 16,531 15,108 13,433
Outsourcing Revenue 22,241 21,620 22,733 20,995 18,889
Outsourcing Revenue % 22.3% 22.6% 21.9% 21.3% 20.7%
Global Business Services 18,223 17,653 19,628 18,041 15,969
Global Business Services Gross Margin % 46.1% 45.7% 26.70% 23.50% 23.10%
Software 22,485 21,396 22,089 19,982 18,161
Software Gross Margin % 86.9% 86.0% 85.40% 85.20% 85.20%
Systems and Technology 17,973 16,190 19,287 21,317 21,970
Systems and Technology Gross Margin % 46.1% 45.7% 38.10% 39.70% 37.70%
Global Financing 2,238 2,302 2,559 2,502 2,365
Global Financing Gross Margin % 51.3% 47.5% 51.30% 46.70% 50.30%
January 30, 2012 54
IBM – Financial Summary
January 30, 2012 55
IBM – Financial Summary
January 30, 2012 56
IBM – Financial Summary
• Consistent performance
• Balanced across product and service areas
• C. 22% revenue from outsourcing
January 30, 2012 57
HP
• Revenue from
− Services – classified under:
• Infrastructure Technology Outsourcing
• Business Process Outsourcing
• Technology Services
• Application Services
− ESS – Enterprise Systems, Storage and Networking
− Software
− Personal Systems
− Imaging and Printing
− Financing
• Does not report Net Income for individual business lines
− Earning from Operations rather than Net Income – includes acquired intangible
assets, pension settlements, etc.
− Earning from Operations greater than Net Income by c 30%
January 30, 2012 58
HP – Financial Summary
2010 2009 2008
Revenue 126,033 114,552 118,364
Gross Margin 29,996 27,034 28,644
Gross Margin % 23.8% 23.6% 24.2%
Earnings from Operations 11,479 10,136 10,473
Earnings from Operations % 9.1% 8.8% 8.8%
Net Income 8,761 7,660 8,329
Net Income % 7.0% 6.7% 7.0%
Total Services (Including Outsourcing) Revenue 34,935 34,693 20,977
Total Services (Including Outsourcing) Earning from Operations 5,609 5,044 2,518
Total Services (Including Outsourcing) Earning from Operations % 16.1% 14.5% 12.0%
Infrastructure Technology Outsourcing 15,963 15,751 7,488
Business Process Outsourcing 2,872 2,941 723
Total Outsourcing 18,835 18,692 8,211
Total Outsourcing % 14.9% 16.3% 6.9%
ESS Revenue 18,651 15,359 19,400
ESS Earnings from Operations 2,402 1,518 2,577
ESS Earnings from Operations % 12.9% 9.9% 13.3%
Software Revenue 3,586 3,572 4,220
Software Earnings from Operations 759 684 499
Software Earnings from Operations % 21.2% 19.1% 11.8%
Personal Systems Revenue 40,741 35,305 42,295
Personal Systems Earnings from Operations 2,032 1,661 2,375
Personal Systems Earnings from Operations % 5.0% 4.7% 5.6%
Imaging and Printing Revenue 25,764 24,011 29,614
Imaging and Printing Earnings from Operations 4,412 4,310 4,559
Imaging and Printing Earnings from Operations % 17.1% 18.0% 15.4%
Financing Revenue 3,047 2,673 2,698
Financing Earnings from Operations 281 206 192
Financing Earnings from Operations % 9.2% 7.7% 7.1%
January 30, 2012 59
HP – Financial Summary
January 30, 2012 60
HP – Financial Summary
January 30, 2012 61
HP – Financial Summary
• Substantial increase in outsourcing revenue after EDS
acquisition
• Services Earning from Operations % substantially greater
than average Earning from Operations % across all
business areas
− Services including outsourcing more profitable
January 30, 2012 62
Dell – Financial Summary
2010 2009 2008
Revenue 52,902 61,101 61,133
Gross Margin 9,261 10,957 11,671
Gross Margin % 17.5% 17.9% 19.1%
Net Income 1,433 2,478 2,947
Net Income % 2.7% 4.1% 4.8%
Product Revenue 43,697 52,337 53,728
Product Revenue % 82.6% 85.7% 87.9%
Product Revenue Gross Margin 6,163 7,667 8,579
Product Revenue Gross Margin % 14.1% 14.6% 16.0%
Service Revenue Including Software 9,205 8,764 7,405
Service Revenue Including Software % 17.4% 14.3% 12.1%
Service Revenue Gross Margin 3,098 3,290 3,290
Service Revenue Gross Margin % 33.7% 37.5% 44.4%
Service Revenue Excluding Software 5,622 5,351 4,980
Service Revenue Excluding Software % 10.6% 8.8% 8.1%
January 30, 2012 63
Dell – Product/Software/Services Breakdown
January 30, 2012 64
Dell – Product/Software/Services Breakdown
January 30, 2012 65