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Business Requirements for Competency Augmentation Training document sample
Document Sample
BUSINESS CASE FOR
IT OUTSOURCING &
LINUX APPLICATION
MGMT 396- Autumn 2003
S. Kohli
Kaustuv Mukherjee
25th November 2003
Contents
Introduction
Process/Best
Practices
Current Scenario /
Future Trend
2
Business Issues
What are the critical buying criteria in the offshore
market?
What is the potential of the North America market for
growth?
How do different industry segments use offshore?
What applications are most ripe to outsource
offshore?
What countries are providing offshore services
What Linux Application are Business Ready?
Advanced Linux technology
3
Key Drivers for Offshoring
Time differences advantages
24 x 7 x 365 work cycles
Cost benefits
Quality Processes – CMM and ISO
Talent/Skill Pool
Capacity Issues resolved
Higher value chain
4
North American IT Services Market
Worldwide IT Services Spending 1997 - 2005
Worldwide IT Service Spending by Region -
$700
$700 2000
$624
$600 $555 L. America
Asia/Pacific
3% Other
4%
US$ in Billions
$494
$500 $440 2%
Japan
$395
$349
13%
$400
$310
$279
$300
$200
$100
$0
Europe
1997
1998
1999
2000
2001
2002
2003
2004
2005
Canada United
29%
3% States
46%
Source: International Data Corporation, 2001
5
U.S. Offshore IT Services Spending
US Offshore IT Services Spending
$20 6.0%
$17.7
5.3%
4.8% 5.0%
$15 4.3%
$14.3
3.9%
4.0%
US$ in Billions
$11.3
3.3%
$10
2.9%
$9.0 3.0%
$6.9
$5.5 2.0%
$5
1.0%
$0 0.0%
2000 2001 2002 2003 2004 2005
Offshore IT Services % of Total U.S.
Source: International Data Corporation, 2001
6
Challenges facing CIO’s today…
Talent constraints faced by
Business pressures
IT department
More cost effective use of
IT dollars. Demand for IT Intense war for technical
spend continues to talent.
outpace the increase in Key challenges Increasingly difficult to
budget forcing CIOs to win against ISVs,
postpone/rationalize CIOs cannot rely service providers and
spend solely on internal new economy players
organizations to Overall shortage of
Compressed time-to- develop and technical talent
market. Application maintain enterprise increasing to 8-9 million
development cycles have IT systems worldwide
reduced from 12-24 by 2004
months in early 1990s to Traditional
3-6 months in early 2000 “outsourcing” Rapid escalation in
service providers professional services fees.
Higher quality and are not cost-
Average US based
performance standards. effective
consultant costs twice
Use of enterprise as much as a full-
applications in more burdened IT employee
mission critical areas, e.g.,
eCRM has reduced the
tolerance of errors/faults
7
Source: McKinsey analysis;IDC, Giga; client interviews
… can be addressed by outsourcing to vendors
30-40% lower costs than
More cost traditional IT service
effective use providers
of IT dollars Likely to sustain lower costs Tested and
for the next 5 years robust
business
model with
Challenges Up to 40% shorter manageable
faced by development cycles risks
the CIO Compressed Shorter learning curves
24/7 production runs Well
time-to-market
Ramp-up capacity faster
established
Shorter rework cycles
and
competitive
vendor
base
Higher quality More established
and methodologies and
performance processes for meeting higher
standards performance standards
Source: McKinsey analysis, Satyam, Infosys, Wipro, Morgan Stanley Dean Witter
8
Country Comparison Skills surplus
countries
Regional hubs
User countries
High
Talent sophistication
US
Number
India
Skills
Cost
Germany UK
China
Indonesia France
•
•
•
Philippines Ireland
Singapore
Low
Low High
Vendor sophistication
• Number
• Quality
9
Contents
Introduction
Process/Best Practices
Current Scenario/Future Trend
10
Evolvescape’s RightSourcing Model
Satellite Based
Communication
Client / Off-site
Location Project Near Shore
Analysis and planning
High level design
User interface design
Approach/Model Project coordination
Onsite testing
Implementation
Near Shore Process
Post implementation support
Offshore Process
Optimum mix between onsite, off-site, Rapid reaction support
and off-shore
Use of dedicated development centers
around the world
Project Offshore
“24 X 7” delivery model Project management
Detailed design
Offshore Coding
Development Testing
Centers Documentation
(Key elements Post implementation support
of cost Bug fixes
savings Warranty support
approach) Maintenance
11
Customers need to address key
outsourcing process issues
Outsourcing Strategy Outsourcing Execution
How do we maximize benefit Which projects are suitable for
from outsourcing to vendors? offshore development?
What kind of relationship should How do we manage the
we establish with vendors? transition of individual projects?
How do we select vendors for What kind of organization and
specific projects? governance is required to
How do we manage the manage vendor performance?
transition to offshore How do the vendors customize
development? its processes to customer
requirements?
12
Best practices in outsourcing processes
Outsourcing to vendors should be much more than
offshoring and staff augmentation
Adopt a partnership based approach to IT outsourcing
and move towards a competency based vendor
selection
Follow a staged approach for transition to an offshore
partner with a careful selection of projects
Best
Practices Prepare detailed transition plans for each project,
especially maintenance projects
Establish strong governance and management oversight
to manage relationship and performance
Ensure that outsourcing processes are tailored to
business requirements
13
Outsourcing to vendors is more than
offshoring and staff augmentation
“Traditional” Mindset “Winning” Mindset
Use vendors for project Outsource complete projects
components
Maximize offshore component Use offshore, offsite and onsite
presence judiciously
Use staff augmentation Maintain onsite presence for
approach for onsite presence managing and delivering
solutions
Focus on software outsourcing Extend IT organization virtually
only (includes software development,
network management, call
centers, infrastructure projects,
decision support systems, etc.)
14
Think partnership not transaction
“Transaction” approach “Partnership” approach
No long term commitment Medium/Long term commitment
RFP issued for every project Competency based vendor
selection
Vendors not expected to invest Vendors expected to invest in
infrastructure, knowledge transfer,
etc.
Vendors follow customer orders Vendors expected to leverage their
with limited value add knowledge base and contribute to
overall strategy and planning issues
Vendors not involved in Vendors expected to be actively
technology strategy and planning involved in technology planning
Insufficient focus on risk mitigation Proactive measures for mitigating
risks
While a partnership approach is recommended, in certain situations a transaction approach may be more
appropriate. For example:
Initial engagements to test the capabilities of a vendor
Projects involving confidential and proprietary knowledge, etc.
15
Partnership model has benefits
Enables vendors to offer lower pricing
because they have better visibility
into revenue streams
Reduces the vendor total cost of
doing business which can be passed
to customer.
Cost
Learning curve benefits
help in improving quality Learning curve
benefits help in
Allows vendors to faster time to market
prepare resource plan in
advance and staff Releases important
projects with appropriate customer resources
resources for more value added
work
Helps achieve best
practice transfer by Reduces time spent
vendors in the RFP process
Quality Time to market
16
A staged approach helps transition to
offshore partner
Complete
outsourcing Key Success Factors
Increase
scope and in a Transition
Test the scale
partnership
Involve the end user
closely in the transition
Presentation Back-end Re-architect Discuss in existing
Typical
screen re- systems back-end IT governance
projects
writes maintenance Implement forum
Database 24x7 QA* middleware
Involve end user in
cleansing E-business Server oversight
front end consolidation
Management of the
CMM level gap
between offshore
partner and user
organization is critical
Increasing management complexity and mission criticality
17
* Quality Assurance
Careful selection of projects
required
Large projects are … and also those
generally more requiring low customer
successful... interaction
Actual
Project Size
Savings
>50% of low interaction
<$10 million 21%
projects deliver greater
$10-$100 million 27% than 40% savings
Best Practice
More emphasis on projects requiring low
level of user interaction
Less emphasis on choosing small projects
Generally favors projects with less schedule
pressure but higher business priority
18
A simple framework for planning
transition and selecting projects
Business Stability High Requiring
Management Complexity
Quality of scoping vendor with Not
Changing market (e.g., high recommended
Internet applications) management to offshore
Release version - higher abilities
versions are more stable May require longer transition and Requiring vendors
System Complexity Medium higher onshore presence, medium with high
Number of interfaces to saving potential of 30 - 40% interaction
other systems, some of handling
which are also under capabilities and
Suitable; tools
development
high saving
potential of
Low 40 - 60%
Low Medium High
There will be exceptions to the Interaction Requirements
above framework in certain External interactions
situations. Examples of projects Customer input on interface design
typically not outsourced Third party input (e.g., JV partner)
Applications related to core
Internal interactions
Missing or bad documentation forcing interactions
business processes with other developers
Pioneering technology work Complex business knowledge requirement forcing
interactions with business partner
19
… technology provider successfully
followed a phased approach
CASE STUDY
Started
attending Year : 2000
partner No. of people: 125
conferences Contribution to
Marked up Year : 1999 new releases
Scaled SLAs No. of people: 90 (development)
down SLAs
High priority and
to give time Year : 1998 Jointly
No. of people: 60 high complexity
to vendor Full testing of bidding for
Medium priority implementing
Year : mid 1997 products
and medium solutions
No. of people: 30 complexity
Medium priority maintenance
Year : 1997 (including Started
No. of people: 6-8 and medium
analysis and presenting at
complexity
Development design) partner
maintenance
project to test Regression
conferences
vendor capability testing
Low priority and
low complexity
maintenance of a
small component
Moving up the value chain with increasing customer confidence in vendor capabilities 20
A detailed transition plan is required for
each individual project
Steps for offshoring project – Application Maintenance example
Knowledge Onshore/Offshore Transition Offshore
Project Planning
Acquisition Offshore Offshore Execution
Simulation Training/Pilot
Duration 2-4 weeks 2-3 months 1-2 weeks 2-3 weeks Ongoing
Description Establish project Members of off- Execution of Establishment of Complete
scope, expectations shore team work maintenance maintenance fulfillment of
and criteria for on site to requests in a process, maintenance
success – Work with client simulated off- procedures, and requests off-
Set team personnel to shore metrics program shore to agreed
composition, understand environment at off-shore site upon service
infrastructure issues Validation of Incremental levels
requirements and – Document maintenance transition of low
performance system/ infrastructure and medium
metrics application difficulty tasks
Finalize
transition plan
Client staff
FTE*
Off-shore
vendor staff
FTE
21
Further details on Outsourcing Processes available in the „Outsourcing Processes‟ section of the ODC Boot Camp binder
Strong governance and management
oversight is critical
Key Levers Best Practices
Partnership board consisting of senior management from both sides is the
final decision making authority
Partnership Every quarter, partnership board reviews the level of outsourcing and the
Board performance scorecard
Every year, partnership board conducts joint strategic technology planning
sessions
Day-to-day project management is performed by dedicated relationship
Relationship managers from each side
Management Relationship managers facilitate smooth project execution, define
processes and act as trouble shooters
Performance tracking should be automated
Performance scorecard (SLA‟s) for off-shore vendor
Performance Commitment tracker for US partner
Management Clear definitions of success and failure
Predefined processes for increased and decreased collaboration
Exit clauses that define responsibility and timelines for knowledge transfer,
documentation and intellectual property rights
22
Risks associated with outsourcing to vendors
manageable
Perceived risks Why we believe risks can be managed
High attrition rates due to Leading vendors are investing
large demand heavily in training, compensation
and partnerships with universities
Talent to train more students
Complex projects have CMM level 4 and level 5
many failure points certification
Project Active governance policies with
interactions at all levels
Differences in work Leading IT vendors proactively
Cultural culture manage culture gaps
Electricity and telecom not Government actively promoting
reliable uninterrupted power supply and
Infrastructure Different IPR laws telecom to technology companies
Established legal system
Geopolitical events can US and Indian governments agreed
Political/Country destabilize trade e.g. with to de-link the IT trade from politics
India
23
Linux Business Application
66 % of the Internet
Server market
$2 Billion investment by
IBM & HP
Office Automation to
Space Travel (NASA)
Runs in Multiple
Hardware Architecture
PC, Mainframes, phones
& embedded systems
Security and Availability
24
In summary. . .
Move towards competency based vendor
selection
To obtain the largest benefit from offshoring:
Adopt a partnership based approach
Not rely heavily on staff augmentation
Move the vendor up the value chain in a phased manner
Successful execution of outsourcing strategy requires
Careful selection of project
Detailed transition plan for each project
Strong governance and management oversight
25
Contents
Introduction
Process/Best Practices
Current Scenario/Future Trend
26
Historical Market Maturity
Pre-2001
Traditional key drivers to the market:
Inability to retain IT staff internally
Lack of internal skills to support key strategic initiatives
Ability to scale staff
Therefore, offshore deals were focused on:
Staff augmentation
Speed to completion
Shorter-term non-strategic relationships
Little due diligence
Offshore Provider sales structures were:
Delivery-oriented
Mid-level technical focus
In-bound client vs. company generated demand
Repeat/referral (word of mouth) business
27
Current Market Conditions
Current market drivers include:
Return on Investment
Cost containment
More extensive due diligence/strategic partnering
Industry references
Third-party evaluations
Domain/application experience/expertise
Market Leverage
Shifting to the next phase of market maturity!
28
New Market Realities
To be effective, offshore providers must retool their sales
and marketing in the following areas:
Business requirements must be addressed in tandem with
technical requirements
Value propositions that differentiate your company will be
required
“Share of client” will become a meaningful success metric
Domain, application, and industry knowledge will become
increasingly important
Emphasis on sales process and methodology
Emphasis on client creation
Sales and marketing not driven by delivery
29
World business leaders bullish on India
"A truly global company will be one that uses the intellect and
resources of every corner of the world. And, India is a
developed country as far as intellectual capital is concerned.
The opening of the research center marks a new level of
commitment by GE in India.”
Jack Welch
August 2000
"Three years ago during my first visit to India, the country was
emerging as an IT super power. Today the country is handling
the most sophisticated projects in the world. Going ahead, we
would be investing over 50 million dollars on the development
activities of the center.”
Bill Gates
September 2000
30
Questions
Thank You !
31
