Business Analyst Interview at Wipro by tqd35848

VIEWS: 640 PAGES: 12

More Info

                                              In the first half of 2007, India outpaced Australia and Japan as the largest mar-

                                      I       ket for outsourcing contracts in the Asia Pacific region by capturing a total of
                                              $1.68 billion worth of contracts, according to Business Standard.This account-
                                              ed for 30 percent of the total contracts awarded in the region.
                                      There is no doubt that IT Outsourcing is gaining ground in India. And also inching toward
                                      maturity and acceptance is Asset Outsourcing. Asset ownership in an outsourcing deal
                                      falls under three categories, i.e., where the buyer transfers ownership of assets along
                                      with operational responsibility to the service provider; where the buyer retains assets and
    transfers only operational responsibility to the service provider; where the buyer transfers asset ownership to a third
    party (i.e., the financial intermediary) under a leaseback arrangement while engaging a service provider for operational
    Asset Outsourcing where the service provider assumes overall responsibility is being seen as a viable alternative to
    address the Total Cost of Ownership (TCO) challenge even while embracing new technologies quickly. OutDo tracks the
    factors for and against this trend.
    The thought leadership article focuses on the dilemma faced by customers when deciding to outsource -- fix existing
    operations first and only then outsource, or outsource without fixing in-house problems to achieve cost savings and
    performance gains.
    Also included is a case study on Colgate Pamolive, which engaged in a total outsourcing relationship encompassing
    Facilities Management, Annual Maintenance contracts and complete Asset Outsourcing.
    The President and CFO of Dr Reddy's Lab, Mr Saumen Chakraborty, shares his views on where the pharmaceutical
    industry is headed in India and on the relevance of IT and Outsourcing in Pharma.
    OutDo welcomes readers who would like to share their ideas or talk about their experiences in outsourcing.We would
    love to hear from you.

    Warm Regards

    Anand Sankaran
    Vice President,Total Outsourcing,Wipro Infotech

       Cover Story                   Interview                      Case Study                     Analyst View
       IT Asset Outsourcing:         Saumen Chakraborty,            Total Outsourcing              Deployment of Sourcing
       Emerging Trends               President and CFO,             Services bring                 Strategy: What Comes

                          3          Dr Reddy’s
                                     Laboratories Ltd
                                                        6           smiles to Colgate
                                                                                       7           First — Fix or
2   OutDo     OCT-DEC 2007

IT Asset Outsourcing:
Emerging Trends
As IT Infrastructure Outsourcing                Infotech. Under the deal, Wipro will pro-         IT infrastructure and application demands
gains ground, IT Asset                          vide the entire range of IT infrastructure to     while evaluating, deploying and managing
Outsourcing too is inching toward               the bank---equipment and services that            flexible, responsive and cost-effective solu-
maturity and acceptance. Driving                comprise the bank’s network, end-user             tions.
this trend is the Total Cost of                 equipment at all branches of the bank --on             As IT Infrastructure Outsourcing gains
Ownership challenge and the need                a build-own-operate basis. To quote the           ground through various models (onsite,
to embrace new technologies                     bank’s official, “The asset outsourcing           offsite, combined), IT asset outsourcing
quickly for competitive                         agreement will help the bank enjoy cost           too is inching toward maturity and accept-
advantage. Read on about what’s                 benefits by converting its expenses from a        ance. Businesses are turning to IT asset
happening in the IT Asset                       Capex to Opex model”.                             outsourcing as a top-line growth enabler
Outsourcing market today.                            These are just a couple of many such         rather than for mere cost-containment.
                                                examples. Deals of such nature and magni-         Asset outsourcing is expected to drive
                                                tude are increasingly becoming common             innovation and enable growth as also forti-
           aced with the challenge of cost      across the world among enterprises aiming         fy operational excellence.             Asset

F          savings in an increasingly compet-
           itive airlines industry, Malmö
           Aviation, the second largest air-
line in Sweden that carries over 1.1 million
                                                to lower costs and risk levels while main-
                                                taining operational excellence.

                                                Advantage — Asset Outsourcing
                                                                                                  Management has now become a critical
                                                                                                  business process owing to compliance and
                                                                                                  regulatory requirements.
                                                                                                       Also driving asset management out-
passengers a year, partnered with Unisys to         According to an industry analyst,             sourcing is companies’ quest to combat the
manage its entire IT asset, except for one      “Customers are increasingly seeking               Total Cost of Ownership (TCO) challenge
customized application that services its        providers who can meet their entire spec-         and at the same time embrace new technol-
ticketless travelling and loyalty programs.     trum of IT requirements. That includes                         .
                                                                                                  ogy quickly The result is the onset of a new
     According to Malmö Aviation’s execu-       managing their IT assets and infrastructure,      generation of service providers, who in
tives, the 5-year IT infrastructure outsourc-   in combination with technology-enabled            addition to technology expertise possess
ing contract will save Malmö Aviation 5         operational processes.” Businesses are also       the complete understanding of the busi-
million Swedish kroner, which is 5 percent      looking for service providers who can pro-        ness nuances of their customers and hence
of its total IT and applications costs!         vide end-to-end services with a business-         translate into trusted partners.
     Recently one of the leading private        driven approach, providers who understand              Take the example of the HDFC-Wipro
sector banks in India, HDFC Bank, signed        the customer’s business. The service              agreement. As per the deal, Wipro will pro-
a 10-year, Rs 3.6-billion deal with Wipro       provider is expected to fulfill an enterprise’s   vide all the IT assets the bank needs now

                                                                                                                     OCT-DEC 2007   OutDo         3

    and in future. The assets include servers,
    desktops, UPS, network switching equip-
                                                    Asset outsourcing is a viable model as it will
    ment, routers, modems and printers. Wipro
    will put in place the bank’s IT assets based
                                                    quickly and cost-effectively provide an
    on the quarterly projections of asset           environment conducive to rapid technology
    requirements provided by the bank.
          A leading technocrat at Yahoo India,      adoption and business innovation while helping
    on conditions of anonymity, says the
    advantages of IT asset outsourcing is           companies attract and retain the right talent.
    underscored by the following factors:
    1. Changing attitudes among IT organiza-           Uniform and assured services                  safeguarding against technology obsoles-
          tions in favour of outsourcing IT asset     Assured availability of technical skills,      cence. Buyers retain control over IP and
          management                                  on demand.                                     solutions but are not saddled with the chal-
    2. Indian vendors, with their process               Asset outsourcing is a viable model as       lenges of maintaining and running a large
          maturity and offshore service delivery    it will quickly and cost-effectively provide     in-house IT organization. As IT service
          capabilities, rapidly breaking into the   an environment conducive to rapid tech-          providers move up the value chain, pricing
          segment.                                  nology adoption and business innovation          will increasingly be either value-based or
          Further, he says that the creation, and   while helping companies attract and retain       transaction-based.
    running, of IT assets itself is changing rap-   the right talent. After all, as an expert             The pricing models typically build on
    idly Customers are increasingly voting in       points out, "Companies not operating with        future market changes. In addition to “price
    favour of haulable, deployable, plug-and-       the latest in technologies will find it diffi-   per usage” or “per business unit”, benefits
    play IT assets. The advantages of such an       cult to attract workers in the very near         such as discounts due to cost reductions
    asset in a “Box” are obvious:                   future.”                                         accruing out of falling hardware/software
       Low rate of obsolescence                                                                      prices are built into the pricing models.
       Quick and easy access to new technolo-       Cost Benefit for all                             Many contracts now have a technology
       gies with little concern about building a        One of the direct fall-outs of asset         refresh clause to keep clients at the leading-
       legacy; Burden of keeping the ‘lights on’    management outsourcing is competent              edge of technologies that will continue to
       is simply absent
                                                    pricing models such as ‘pay per use’ or ‘pay     drive innovation in their business.
                        Operational and business
                                                    per business unit’ through which business-            To revisit our example, the HDFC
                            continuity despite
                             changing technology    es can save costs on building and maintain-      Bank-Wipro agreement has an important
                              landscape             ing their IT assets. More innovative pricing                             .
                                                                                                     clause on price review The bank has the
                                                    models, moving away from                         right to review the prices every six months,
                                                    dollars per hour, are expect-                    especially in a scenario where hardware
                                                    ed to emerge in the time to                      prices are crashing, and suitably revise them
                                                    come. Such pricing mod-                          based on market conditions.
                                                    els help businesses con-                              According to analysts at the Everest
                                                    serve capital by avoiding                        Research Institute, one of the most impor-
                                                           investments in tech-                      tant factors determining pricing, incentive
                                                             nology infrastruc-                      alignment and other dynamics of the out-
                                                               ture while                            sourcing engagement, is the ownership of
                                                                                                     the IT assets. There are three options of
                                                                                                     asset ownership arrangement, they say.
                                                                                                     Buyers can:
                                                                                                     1. Transfer ownership of IT assets along
                                                                                                          with operational responsibility to their
                                                                                                          technology partner/service provider
                                                                                                     2. Retain the assets while the
                                                                                                          partner/service provider assumes the

4     OutDo     OCT-DEC 2007

     operational responsibility                   also wish to maintain control over the           high costs of maintaining up-to-date IT
3. Transfer the asset ownership to the            assets that are core to their business.          infrastructure in-house and the importance
     third party (i.e., financial intermediary)          ,
                                                  Finally buyers with large IT operations          of remaining competitive by adopting new
     under a leaseback arrangement                often prefer to take advantage of scale          technologies fast, are compelling enough
     Earlier, assets ownership transfer to a      themselves rather than pass it on to service     reasons for companies to outsource IT
service provider was an integral part of an       providers.                                       asset management to recognized specialists
Infrastructure Outsourcing (IO) engage-                From a service provider perspective         with core competencies in this area.
ment. The Service provider needed to own          too, asset-light outsourcing makes business          To quote Frost & Sullivan Research
the assets to deliver the benefits of the out-    sense as increased capital expenditure           Analyst Ana Maria Rojas, stringent service
sourcing such as cost savings, increased          requirements in asset-heavy deals can            level agreements that cover all necessary
returns on assets, improved operations,           diminish their returns on investment.            precautions to mitigate risks is an absolute
scalability and so on to buyers. Changing                     ,
                                                       Finally new technologies serve as a cat-    must if asset outsourcing is to have a future.
regulatory environment, however, renders          alyst for the asset-free approach. They are      Service level agreements (SLAs) and meas-
transferring ownership of IT assets unfea-        more amenable to the asset-light approach        urements must be negotiated according to
sible. Moreover, say Everest analysts, “not       as adoption of new technologies invariably       the client’s requirement, and must change
all buyers want to forfeit their assets and       involve change in asset base in addition to      based on business need, she maintains.
not all service providers are in a hurry to       posing difficulties in predicting the technol-
accept them”.                                     ogy road map.                                    Broadly the SLAs must cover
     According to a recent Gartner report,             Researchers estimate that in the next       1. Delivery and commissioning of assets
70% of external support contracts that            two to three years it will be possible to        2. Performance of assets
include a transfer of asset ownership will        deliver close to 60- 70% of the benefits of      3. Availability of required infrastructure, at
result in “value loss” because of the inabil-     IT infrastructure outsourcing remotely              the time of requirement, to the end users
ity to transfer warranty and other value-         without ownership of the underlying IT           4. Bi-partite quarterly/monthly review
added services.                                   assets (which will further accelerate adop-         meetings based on MIS reports for
     As a result, asset-light outsourcing is      tion of asset-light outsourcing).                   quick remedial action whenever
emerging as a viable alternative. Often,               However, it is worth noting that the           required
businesses favour owning their IT assets          asset-heavy deals are not likely to disappear.   5. Response time depending upon severi-
for various reasons -- uncertainty of the         There will continue to be significant num-          ty level of outages/incidents
business and IT volume growth, merger             ber of buyers who do not see any benefit in      6. Penalty provisions should the SLA be
and acquisitions, and broad changes in the        owning IT assets. Secondly, the long-               violated
technology landscape. In                          delayed adoption of the Utility Computing
addition, businesses                              (pay-per-use model) will force significant       Conclusion
                                                  adjustment to the asset-light trend because          Trends indicate that critical compo-
                                                  asset ownership transfer is key to the Utility   nents of IT such as security, architecture,
                                                  Computing model.                                 program/project management and product
                                                       Finally suppliers that also possess a       evaluation will continue to be managed in-
                                                  hardware and software business are driving       house using a set of strong risk manage-
                                                  a significant share of the outsourcing mar-      ment and governance frameworks, SLAs,
                                                  ket. For such suppliers, assuming owner-         and performance management models.
                                                  ship of the buyer’s assets coupled with          However, trends also indicate that Asset
                                                  refresh responsibility, presents an ideal way    Outsourcing whether Asset light or Asset
                                                  to acquire a captive customer base for hard-     heavy, will continue to coexist, offering
                                                  ware and software.                               buyers increasing number of options.

                                                  Tempering risks
                                                     Despite the prevailing uncertainty              For more information, please write to
                                                  about security issues in transferring the
                                                  ownership of assets to third parties, the

                                                                                                                      OCT-DEC 2007    OutDo         5

                          “A solid IT platform is crucial for
                         pharmacovigilance & compliance”
                   — Mr Saumen Chakraborty, President and CFO, Dr Reddy’s Laboratories Ltd

    Saumen Chakraborty talks to CMP                                       How critical is IT for business competi-
                                                                          tiveness in the pharma industry? Can you
    about where the Indian pharma industry                                please elaborate on your company’s
    stands today and how pharma leverages                                 strategic IT initiatives?
                                                                               IT is a mandatory competitive factor. We
    Information Technology Excerpts:                                      require a solid IT platform for pharmacovigi-
                                                                          lance, which entails collecting, monitoring,
    What is your take on the growth of pharma industry in                 researching, assessing and evaluating infor-
    India? How does it compare with the global market?                    mation on the adverse effects of medica-
        India is growing at a healthy rate of about 14-15% per annum      tions. The electronic Common Technical Document (a standard
    as against single digit growth rate of global markets. Rural and      format for submissions to regulatory authorities) is also impera-
    semi-urban markets in India are growing at about 30%. Currently       tive for regulatory compliance. We have a robust system in place
    India is contributing about 6% in volume and 2% in value terms        for both.
    to the global market. Our per capita consumption is still low .                                                              ,
                                                                               As IT service providers gain domain competency we will see
                                                                          IT further boosting our R&D efforts. IT is critical for our busi-
    What factors have contributed to the growth of the industry?          ness planning and smooth functioning of supply chains. DRL
        Indian economic growth has contributed to the healthy             uses mySAP business suite. When business demands it, we will
    growth. Higher awareness and affordability have propelled con-        implement emerging technologies such as RFID. We are exploring
    sumption of chronic illness and therapeutic areas. Semi urban and     the need for advanced simulation software for R&D.
    rural markets have also helped the industry grow faster.
                                                                          Pharma industry uses IT extensively in various facets of its
    How far has Indian pharma industry progressed in the drug             business. Do you think the time has come for pharma com-
    discovery path?                                                       panies to consider outsourcing their IT operations?
         Of the three stages of drug discovery: discovering, develop-                    .
                                                                              Definitely I don’t see why we cannot completely outsource
    ing and commercializing, India has significant expertise in drug      IT operations to a service provider who brings in value to our
    discovering. Development in specific and multiple therapeutic         business. We are open to total outsourcing as long as we realize
    areas is very expensive and no company in our country is current-     specific value advantages from it. IT service providers must inte-
    ly going it alone. Same is the case with commercialization. Indian    grate compartmentalized service offerings and bring in domain
    companies work with global companies for product in/out-licens-       expertise for total outsourcing to gain ground.
    ing, co-development and so on.
                                                                          What are the key strengths you expect your IT partner to
    Do you foresee any challenges/barriers to growth?                     bring in?
         As we expand our operations, we have to negotiate country-                           ,
                                                                              Fundamentally we require our IT partner to understand our
    and market-specific challenges. The biggest challenge is to gain an   business like an in-house IT team would. The service provider
    insight into various markets because economies the world over         must invest in building skills in specific areas like Business
    are at different stages of regulatory evolution. Building a talent    Intelligence. The most important factor is for both the parties to
    pool to develop niche expertise and drive sales and marketing is a    understand each other’s needs to avoid expectation-delivery mis-
    bottleneck. Staying at the top of IP chain is the biggest challenge   match.
    ahead of us.

6     OutDo    OCT-DEC 2007

Total Outsourcing Services
          bring smiles to Colgate Palmolive
CPIL needed a business partner who                                                   Snapshot
could leverage IT to help the company                                                ORGANIZATION
                                                                                      Colgate Palmolive
retain its competitive edge. Wipro's Total                                           INDUSTRY VERTICAL

Outsourcing Services ensured high IT                                                   FMCG

infrastructure availability and increased                                             Improving Return on Capital
                                                                                      Expenditure through IT initiatives
end-user satisfaction at reduced Total                                                Prompt and uniform IT support for 31
                                                                                      warehouses spread across India
Cost of Ownership.                                                                   TOOLS AND TECHNOLOGIES
                                                                                      eHelpline for call tracking
Customer Description                      provider for facilities management          GSMC tools for IT infrastructure and
    Colgate Palmolive India Limited       and break-fix services for managing         application support
(CPIL), a 51% subsidiary of Colgate-      the company’s vast IT infrastructure.
Palmolive, USA, is India's largest        The services delivered were onsite
                                                                                       Mix of onsite, oncall and remote sup-
toothpaste maker by market share. Its     and expensive. Service levels were           port
product range includes toothpaste,        also low, with limited leverage on           Centralized call logging and manage-
tooth powders and toothbrushes            process frameworks and tools. In             ment using e-Helpline
under the 'Colgate' brand. The compa-     order to reduce IT costs, improve            Complete infrastructure management
ny is also a leading producer of per-     operational efficiencies, unlock capital     using ITSM, PMI®-PMBOK® and Six
sonal care products under the             in IT as well as enhance support for         Sigma methodologies
'Palmolive' brand.                        remote locations, Colgate entered            Remote monitoring and management
                                          into a five-year contract with Wipro.        for SAP Basis support from Wipro’s
Challenge                                 Colgate was confident, Wipro with its
                                                                                       Complete Asset provisioning on pay-
    The sweepstakes for the market        two decades experience in IT infra-
                                                                                       per-use basis
share in the Oral Care business in        structure management, could execute
India are high. With competition hot      the much needed turn-around for the        BENEFITS
on its heels, CPIL’s market share was     company   .                                 High IT infrastructure and application
under pressure. Result -- shrinking            As a first step, Wipro undertook       availability
budgets and need for IT to assist busi-   a "Discovery Exercise" to understand        Improved operational efficiency and
ness in retaining the competitive edge.   the IT infrastructure and needs of          productivity
                                                                                      Flexible delivery models – On-site,
The client was also concerned about       CPIL’s business units. Meetings with
                                                                                      remote and on-call services.
the lack of prompt and uniform IT         business and IT stakeholders were
                                                                                      Leverage on ITIL processes and Six
support for its 31 warehouses spread      conducted to identify pain areas and
                                                                                      Sigma methodologies for service delivery
across India.                             how IT could be leveraged to                Strong Program Governance frame-
                                          improve efficiency The desired serv-        work ensuring smooth project execu-
Solution                                  ice levels were scoped after mutual         tion and single point accountability
    Colgate had engaged a service         discussions. The scope of services

                                                                                                          OCT-DEC 2007   OutDo   7

    was as follows:                                has also reduced resource deployment
       IT infrastructure Management services       while maintaining high service levels, cus-
       Annual Maintenance Contracts                tomer responsiveness and productivity
       Assets provisioning, deployment and         gains.
       sustenance                                       As with any Total Outsourcing
         Based on Wipro’s recommendation,          engagement, Wipro is required to seam-
    the company entered into an Asset              lessly manage extensive IT infrastructure
    Outsourcing agreement where Wipro              and resources for Colgate. Co-ordinating
    assumed complete ownership for all of          between the vast technical and operational
    CPIL’s assets in India. This encompassed       aspects of the project, requires a strong
    servers, desktops, printers and all network    control model that overarches the entire      to keep them abreast of service levels.
    related equipment like routers, switches       engagement, while driving an actively
    etc. CPIL would use the assets on a pay-       managed partnership. Wipro uses a             Tools used for service delivery
    per-use basis -- payment being in the form     Program Governance framework to                 eHelpline for call tracking
    of quarterly rentals. The solution rendered    ensure smooth execution and single point        GSMC tools for infrastructure and
    CPIL free to concentrate on its core busi-     accountability for all IT issues. Our pro-      application support
    ness, leaving the management of its IT         gram governance processes include
    infrastructure in the hands of experts.        Service Delivery Management, Technology       Customer Benefits
    Wipro handles all asset related functions      Management, Contract Management and             High IT infrastructure and application
    right from procurement and commission-         Relationship Management. The basic ten-         availability
    ing to performance management, asset           ants behind this framework are flexibility,     Improved operational efficiency and
    refresh and overall IT infrastructure avail-                ,
                                                   transparency continuous improvement,            productivity
    ability from the end-user perspective.         service approach, customer satisfaction         Flexible delivery models – On-site,
         Currently CPIL is using the latest        and communication. The program gover-           remote and on-call services.
    MPLS cloud technology for establishing         nance framework uses ITIL processes for         Leverage on ITIL processes and Six
    connectivity between its 31 warehouses.        service management and Six Sigma                Sigma methodologies for service deliv-
    For SAP Basis Support, Wipro is provid-        processes for continuous improvement in         ery
    ing 12x7 proactive, tool-based support                         .
                                                   service delivery Wipro also conducts            Strong Program Governance framework
    from its Global Service Management             monthly and quarterly meetings between          ensuring smooth project execution and
    Centre (GSMC), Mysore. This has ensured        itself and Senior Management of Colgate         single point accountability
    high availability to users across locations.
    Plans are also on for moving Lotus Notes
    and basic ADS support to GSMC.
         To ensure prompt end-user support,
    Wipro has implemented e-Helpline, an
    automated call-logging tool. Users can log
    calls through web and e-mail. Once a call
    is logged, it is assigned to engineers for
    onsite support, on call support or remote
    support depending on the requirement.
    The tool which is ITIL compliant, enables
    automatic escalation in case of service
    level violations. Users can also track the
    status of their call until closure. This has
    resulted in centralized control as well as
    greater transparency in IT administration
    among both IT managers and end-users.
    The flexibility in service delivery models

8     OutDo     OCT-DEC 2007
                                                                                                 ANAL YST
                                                                                                                       TPI Perspective

             Deployment of Sourcing Strategy:
What Comes First – Fix or Move?
             orporations and organizations     or activity. They can be further classified     when achieved, will impact the scope and

C            deciding on a sourcing strategy
             are commonly faced with the
             question of whether to first
“fix” their existing operations, meaning
                                               into major projects or minor ones.
                                                    Re-engineering programs: In cases
                                               of ongoing re-engineering initiatives with-
                                               in the client organization, the question is
                                                                                               level of effort as well as the service levels
                                                                                               that can be set around it. In such a case, the
                                                                                               client needs to decide if the improvements
                                                                                               are to be made before transferring the
improve efficiency and effectiveness, or       whether or not they should be completed,        process to the service provider.
“move” (outsource) in an effort to achieve     prior to outsourcing.                                There are no straight answers to the
significant benefits, including cost savings        Essential for outsourcing: The cur-        questions arising from the different types
and performance gains. The answer,             rent state of a function or process may not     of changes outlined above. Any decision
expectedly is not straightforward and is       be amenable to outsourcing; however, in         will depend not only on the changes called
essentially dependent on the circumstances     spite of this, the decision to outsource may    for but also on their assessment against the
of each situation.                             have been made. Hence, the current envi-        business drivers and constraints.
    TPI has assisted clients in dealing with   ronment will need to be realigned in terms           From our experience, we believe that
such situations by individually analyzing      of hand-offs, tweaks to processes and           the following framework (key drivers and
the circumstances of the client, prior to      changes to make outsourcing viable.             constraints) is helpful in arriving at such a
recommending the path forward. This                 Poorly defined processes: The              decision:
paper reviews the relevant factors that        process or function itself may not be good           These factors can form the principal
need to be considered when faced with the      in terms of its definition, structure or per-   levers to determine the right approach in
question.                                      formance. The client needs to decide if it      any specific situation.
                                               should settle for the “same mess for less”           Consider, for instance, a situation
Types of Change                                — by transferring the process to the serv-      where a process is not well defined or
    Typically the “fix’” can refer to a wide   ice provider and hoping for subsequent          structured and the client wishes to out-
range of initiatives — from minor process      improvements.                                   source that process. If evaluated against
or functional design changes to the imple-          Processes with significant improve-        these drivers and constraints, as illustrated
mentation of a completely new technology       ment potential: A given process may have        below, the client is in a better position to
platform or a major upgrade of core busi-      significant potential for improvement that,     make a decision on the “fix versus move”
ness applications.
    A key question is if the client should
implement the required changes, re-engi-
neer the processes, re-estimate the scope
and service-level impact or just move the
current state of affairs to the service
provider and secure the provider’s commit-
ment to deliver those changes or improve-

The types of changes may fall into
one of the following categories:
    Technology implementations: This
may include platform migrations, business
applications upgrades, systems integration
efforts, automation of some manual work

                                                                                                                  OCT-DEC 2007    OutDo         9
                       ANAL YST
                                                                                                                         TPI Perspective

          The above illustration reflects a situa-
     tion in which the service provider (or the
     marketplace, if there is no identified serv-
     ice provider) has demonstrated capability
     to deliver the goods and it is feasible to
     outsource the process as “status quo” (with
     other factors also working favorably). It
     will make perfect commercial sense to
     move and then have the service provider
     fix the process with specific SLA targets
     and benefits commitments.
          Since the assessment of each of the
     factors will, obviously differ in each situa-
     tion, the exercise warrants a custom assess-           provider by relying or blending in capa-     sourcing (BPO)/knowledge process out-
     ment each time.                                        bilities of each                             sourcing); however, the anticipated bene-
          Choosing to “move first” or “fix first”             If the change implementation is            fits of such offerings are yet to be realized
     will each have its set of associated benefits       undertaken first prior to transition to serv-   in experience by clients.
     – it is key to ensure the right approach is         ice (fix, then move), the benefits realized          Going forward, the ability of service
     followed each time the decision is made.            will include:                                   providers to deliver true transformation
     Conversely adopting the wrong approach                 Reduced risk in transition to the service    benefits will determine whether clients
     may not only lead to delays and problems               provider                                     start buying into transformation or bun-
     but also an “opportunity loss” in terms of             Ability to re-estimate the effort and        dled offerings as a trend
     the benefits that could have been realized             scope of outsourcing required, as well
     with the right approach.                               as the improved service levels that may      Conclusion
                                                            be expected                                       Regardless of the nature and scale of
     Key Benefits of Each Approach                          Early realization of the business bene-      change planned or anticipated, the organi-
          If the transition to the service provider is      fits from change implementation/             zation has to take a decision on “fix or
     followed by change implementation (move,               reengineering                                move first” in an outsourcing situation.
     then fix), the potential benefits include:             Service provider resources may still be      There are no easy answers since a variety of
        Early commencement of outsourcing                   leveraged (though at higher cost due to      factors and constraints need to be consid-
        (or offshoring) benefits                            skewed client-service provider staff mix).   ered to determine the right approach. In
        Ability to leverage relatively low-cost               Transformation Offerings in the            the absence of a formal assessment to
        resources (rate card) of service                 Market                                          determine the right approach, the organi-
        provider for the “fix” (change imple-                 There is a discernible trend, during the   zation will be at risk for a potential sub-
        mentation)                                       last 18 months, of service providers            optimal situation – delayed and/or lower
        Ability to leverage the “expert resource         aggressively pitching their “transformation     realization of business benefits. Of late,
        pool” of the service provider. In some           offerings” to clients. The service providers’   transformation offerings from service
        cases, based on the past relationship            intent is to be able to provide clients with    providers are orienting the clients towards
        between the client and the service               the transformation impact (read as higher       “move, then fix” type approach, however,
        provider, the latter may have resources          quantum or an end-to-end impact) togeth-        the proposed benefits of such offerings are
        who are experts in the client’s bespoke          er with the responsibility to deliver end-to-   yet to be realized by clients to reduce their
        environment                                      end processes or a wider spectrum of serv-      level of skepticism.
        Utilization of the financial gains from          ices.                                                             ,
                                                                                                              In summary a formal evaluation is
        outsourcing to fund improvement pro-                  We believe that service providers are      prudent each time the client is faced with
        grams                                            making an attempt to differentiate them-        the decision of “moving” first versus “fix-
        Opportunity to build a true “transfor-           selves with innovative and bundled offer-       ing,” to ensure the organization derives the
        mation partnership” with the service             ings (across IT and business process out-       benefits of adopting the right approach.

10     OutDo      OCT-DEC 2007
                                                                                              ANAL YST
                                                                                                                   TPI Perspective

      007 measures to date demonstrate decidedly mixed             period last year.

2     results in this first half.
      In the first half of 2007, there were 139 commercial
      contract awards in the Broader Market, a volume that
was down 25% Y/Y. The Total Contract Value (TCV) of
                                                                   The most noteworthy changes in the first half are:
                                                                        The dramatic decline in contract restructurings – a
                                                                   sign, in our opinion, that incumbent relationships are
nearly $33B is down 23% Y/Y. Even without the sizeable             being renewed “under the radar”; a decline in the number
General Motors award in 1H06, the first-half Y/Y decline           of outsourcing agreements. Our headline take-away is
would still have been fairly significant. And even in a com-       that tactical offshore tasking of discrete processes
parison with the recent five-year average for first halves,        appears to be offering an alternative to full outsourcing,
2007 TCV dropped 21% and Annualized Contract Value                 with clients electing more frequently to adopt these strate-
(ACV) fell 20%.                                                    gies; and the reversal of a trend toward smaller contract
    This market softness is especially apparent in the             values.
Americas, in BPO and, increasingly in Information                       Broadly speaking, the average TCV of a contract
Technology Outsourcing (ITO). We also see it in the for-           awarded globally during the first half of 2007 for new
ward-looking measure of our pipeline of advised transac-           scope was $245M, up more than 20% from the average for
tions. Typically the first half of a calendar year accounts        those same contracts awarded in 2006. After four consec-
for about half of a full year’s TCV and ACV. Using that            utive years of year-over- year decline in average TCV for
marker, with a first-half tally of nearly $33B, the trajecto-      new scope agreements, this is the first up-tick in average
ry for 2007 is still expected to yield lagging full-year results   award values.
in both TCV and ACV.                                                    All in all, we view the industry to be somewhat at a
    As mentioned earlier, however, those are the aggregate         crossroads. The complexities of managing outsourcing
figures. If we look only at the “new scope” added to the           contracts and the often-unfulfilled expectations of receiv-
market – that is, exclude all contract restructurings from         ing benefits beyond cost savings – such as those from
the number and value of the awards – we see a measure of           innovation and operational transformation - are com-
growth in the value but not the volume of contracts.               pelling some clients to seek a quicker, less complex path
    There have been 115 contracts awarded globally YTD             towards cost savings via simple offshore contracting for
representing new scope. This volume is down 16% from               discrete tasks.
that in the first half of 2006, and is the lowest volume of             Other clients are going beyond a focus on cost savings
any first half since 2003.                                         to seek transformational and innovative outsourcing rela-
    Breaking with past trends, these contracts were of             tionships, but they are more frequently in the minority.
larger average contract value than we’ve seen in the recent             We believe the decline in the number of outsourcing
past. With $28B of new scope TCV, 2007’s first half deliv-         agreements, and the relatively soft outlook for 2007 in
ered an increase of just over 6%, compared with the new            total, is driven by the fact that offshore tasking is consid-
scope awarded during the first half of 2006. So, fewer             ered an alternative to outsourcing among many clients.
contracts with larger average sizes yielded a modest               This is presenting new challenges to the industry’s serv-
increase in value.                                                 ice providers – to play in the labour arbitrage game
    The same relative percentage of growth is seen in a            and/or to offer the transformational scope that portends
view of ACV. So far this year, we’ve counted $4.6B of new          greater value creation for clients and providers alike in
scope ACV awarded, compared with $4.3B in the same                 the longer term.

                                                                                                              OCT-DEC 2007   OutDo   11

To top