12 Feb 2014 IS5114

IS5114 Information Technology Outsourcing

2012/2013 Semester 2

Outsourcing Planning and RFP Development
Dr Kwong Yuk Wah
Adjunct Associate Professor
Department of Information Systems
School of Computing
National University of Singapore
2
Outsourcing Phases
http://www.sun.com/blueprints/0402/sla.pdf
Engagement Transition Transformation Exit
Ongoing
Operations
Sign Contract
Business as Usual
(BAU)
Steady State (BAU)
Steady State (New)
Outsourcing Phases
Source : Singapore Computer Society
12 Feb 2014 IS5114
Gartners Sourcing Life Cycle
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4
Outsourcing Phases and Related Competencies
http://www.sun.com/blueprints/0402/sla.pdf
Communications Management
Contract Formation and
Negotiations
Contract Initiation, Transition and
Transformation Management
Interpersonal Skills
Human Resource Management
Risk Management
Cost Management
Contract Migration and Handover
Management
Service Quality Management and
Performance Monitoring
Relationship Management and
Dispute Resolution
Service Provider Evaluation and
Selection
Outsourcing Planning and RFP
Development
Exit Ongoing
Operations
Transition /
Transformation
Engagement
COMPETENCIES
OUTSOURCING PHASES
Source : Singapore Computer Society
12 Feb 2014 IS5114
5
COMIT Framework
http://www.sun.com/blueprints/0402/sla.pdf
COMIT
Certification
Outsourcing
Competencies

Management
Competencies

Cost Management
Risk management
Human Resource Management
Communications Management
Interpersonal Skills
Outsourcing Planning and RFP
Development
Service Provider Evaluation and Selection
Contract Formation and Negotiations
Contract Initiation, Transition and
Transformation Management
Relationship Management and Dispute
Resolution
Service Quality Management and
Performance Monitoring
Contract Migration and Handover
Management
Source : Singapore Computer Society
12 Feb 2014 IS5114
Check list of IS Competencies
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IS Skills Evolution
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Contract vs Relationship
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Different Competencies (1)
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Different Competencies (2)
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Different Competencies (3)
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Source: Gartner (November 2010)
Collaboration Between Service Providers is Key
When Multi-sourcing
13
Case Study : BAE-CSC
(Single Vendor)
1991-1994, British Aerospace (BAE) was under pressure to
reduce costs
Management decided to focus on their core competencies, i.e.
aircraft and defense system manufacturing
BAE decided to outsource non-core IT functions which were
not their core business and help them to reduce annual IT
operation costs significantly
Signed a contract with Computer Science Corporation (CSC)
and transferred 1,500 IT professionals over CSC in 1994
Sold its IT infrastructure assets to CSC in 1994
http://www.computerweekly.com/blogs/inside-
outsourcing/2011/11/why-has-cscs-contract-with-bae-reduced-
60-in-value.html
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Case Study : British Petroleum (BP)
(Multi-vendors)
First outsourcing contract established in 1991 and
restructuring the redundant IT units for cost saving
Multi-supplier ecosystem of 7 partners, they are:- IBM, Tata
Consultancy Services (TCS), Infosys, Accenture, Wipro, HP
and T-Systems
Each supplier handles their vertical tower and yet collaborate
as one
Deasy, BP Group CIO said You need to get them together
and set their joint targets
http://hbr.org/1995/05/it-outsourcing-british-petroleums-
competitive-approach/ar/1
http://www.youtube.com/watch?v=OqRuVN3inYg
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Case Study : JP Morgan
(Multi-vendors to Single Vendor to Back-souring)
Started its large scale outsourcing in 1996 to 4 vendors, i.e.
Pinnacle Alliance, consortium comprising CSC, Anderson
Consulting, AT&T and Bell Atlantic
In 2002, JPM signed a 7-year contract with IBM and
transferred 4,000 staff to IBM
In 2004, JPM acquired Bank One, terminated the contract with
IBM and brought back the IT staff transferred to IBM earlier.
But, the human elements, such as lost trust from employee,
caused productivity issues
Its next outsourcing strategy is offshore business process
outsourcing to low cost countries such as India
http://www.cio.com/article/10524/Outsourcing_and_Backsourc
ing_at_JPMorgan_Chase
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Case Study : Proctor & Gamble
(Shared Service Centre to Strategic Outsourcing)
1999 - 2002, consolidated 70 services and basic infrastructure
to a shared service centre called Global Business Services
(GBS) at a central location
In 2001, conducted one year study to outsource 80% of GBS
services
2003-2005, signed a 10-year outsourcing contract with HP and
transferred 2,000 staff to HP, but retained some IT resources
related to business units
Strategic outsourcing,
http://www.informationweek.com/news/services/outsourcing/2
08403237
http://tech.fortune.cnn.com/2008/11/24/what-hp-learned-from-
procter-gamble/
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Case Study : General Motors (GM)
(Single to Multi-sourcing to Standardization)
1984 to 1995, GM acquired EDS and transferred all its
operations to EDS.
1996 to 2001, GM spun off EDS as an independent company
and became EDSs largest clients. GM transferred all its IT
people, system and equipment to EDS.
Didnt have a CIO or an IT department to do vendor
management
2002 to to-date, GM changed from single vendor to multi-
vendors, they are EDS, HP, IBM, WIPRO, Capgemini, and
AT&T
Set up IS department and CIO function

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Case Study : Cathay Pacific (CX)
(Smart-Sourcing)
During 1970s, CX established in-house Information
Management Department to development and manage IT
system.
200 staff and three data centers at three different locations
1991, One of the data centre in Hong Kong caught fire owing to
a nearby explosion and interrupted the following IT systems for
almost 12 hours
Passenger reservation
Engineering, Flight and Crew Operation
Departure and Arrival Control
CX began their smart-sourcing in 1997
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An Overview
Outsourcing Planning and
RFP Development
Planning for Outsourcing

Determining the
outsourcing strategy
Types of sourcing
relationships

Defining Outsourcing
Objectives and Scope

Outsourcing concepts
Strategic business
drivers of outsourcing
Risks associated with
outsourcing
Critical success factors
of outsourcing

Developing the RFP


The RFP process
Forming the outsourcing
project team
Strategies for information
gathering
Definition of outsourcing
scope and requirements
Service provider
evaluation strategy and
process
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Defining Outsourcing Objectives and Scope
Outsourcing Concepts
What is outsourcing?
The models of outsourcing
Strategic Business Drivers of Outsourcing
What are the business drivers?
Risks Associated with Outsourcing
Financial, operational, contractual and technical risks
Allow an organization to take steps to mitigate the risks
Critical Success Factor of Outsourcing
Factors that have the most impact on the successful
outcomes of outsourcing engagement
Allow an organization to determine the feasibility of IT
outsourcing to meet its business needs and to better manage
the outsourcing engagement
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Planning for Outsourcing (1)
Appoint a strong project manager/project director or
outsourcing consultant
Pull firms leadership team together to discuss the firms
present product processes and initial expectation outsourcing
strategy
Conduct a readiness assessment of the organisation to help
determine exactly what kind of work should be outsourced,
what skills the firm already has in-house, what skills are
needed from a third-party entity and cost implication of
outsourcing. This information is used to decide what the
nature of the outsourcing relationship should be and the type
of vendor/service provider the firm needs
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Planning for Outsourcing (2)
Develop a business plan that clearly explains the business
drivers for the initiative and addresses the organisations
readiness to manage the change that will be required when the
outsourcing initiative takes effect
Communicate the goals of the outsourcing initiative directly to
the employees and provide constant flow of information to the
employees
Clearly communicate the human resource plans for the
existing employees early

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Planning for Outsourcing
Determine the outsourcing strategy
Processes and Systems
Potential risks and management issues
Budget and schedule
Total or selective outsourcing, onshore or offshore
Risks and benefits
Types of Sourcing Relationship
Single sourcing/traditional
Co-sourcing
Multi-sourcing
Alliance
Joint Venture
Information gathered is used as inputs for developing the
requirements for proposals
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Roles of Project Management Team
(Planning Stage)
Project manager or project director is the internal
leader of the firms outsourcing initiative
The required skills:- objectivity, investigative ability,
preciseness, discretion and diplomacy skills
Conduct outsourcing readiness assessment
Develop the business plan
Establish the communication strategies
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Jargons (1)
RFI- Request for Information
A document requesting information from potential
outsourcing service providers demonstrating their
capabilities, resources, experiences, and overall approach to
providing services
RFP Request for Proposal
A document detailing a customers outsourcing
requirements and the evaluation criteria that will be used
for selecting the ultimate provider.
Service Provider
A company that provides outsourcing services. Terms such
as provider, vendor and partner are often used
interchangeably each carrying a slightly different
connotation intended by the user
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Jargons (2)
Scope of Services
The services provided under an outsourcing agreement
SLA Service Level Agreement
Outsourcing is a service. The service level agreement
defines the intended or expected level of service. For
example, how quickly a service will be performed, what
availability, quality and cost targets will be met, which
level of customer satisfaction will be achieved. In essence,
every outsourcing agreement is made up of three basic
elements: a description of the services to be performed; a
scorecard or SLA defining in objective, measurable terms
of the standards for the delivery of each service, and the
prices or quotations for the services and/or products
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Defining Business Requirements (1)
One underlying problem in outsourcing is that organizations
are not process-driven
Firms must first develop a clear understanding of their own
goals and requirements
It is important to define the current process in detail and to
gain a clear understanding of the results required
Who should be involved:- business leaders, process
experts/subject matter specialists, users/customers,
procurement personnel, representatives from finance, human
resources and legal
Identify in-scope and out-of-scope activities
Capture the current costs for each activity, including people,
supplies, equipment, overheads and capital costs


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Defining Business Requirements (2)
Identify the critical success factors (CSF) and key performance
indicators (KPIs) for the current process quality, customer
satisfaction, timeliness, financial performance (i.e. costs,
revenue), conformance to requirements (i.e. regulations, audit
requirements), speed, flexibility and innovation
Identify the future process requirements
Gain a clear understanding of the types of competencies and
capabilities an outside organization taking over the process
must have to be successful
Baseline current costs
An accurate and complete baseline of current costs and
performance levels as well as a gap analysis between these
and best-in-class performance levels is required

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Defining Business Requirements (3)
Defining desired results in clear, complete, and measurable
terms is key to managing any business process, whether its
outsourced or not. Service level agreements (SLAs) are often
used to define process measures, while balanced scorecards are
typically used to define business outcomes
CSFs and KPIs are best determined by the current
environment, objectives and strategies of an organization.
CSFs and KPIs must be measurable, comparable and
reportable. It is critical to measure the right things
Select the CSFs and KPIs that are most relevant to the
outsourcing deals
Utilities efficiency focused make it cheaper
Enhancement effectiveness focused make it better
Transformational competitive advantage make me money

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CSFs and KPIs for Outsourcing
Critical Success Factors (CSFs)
Financial
Customer
Employee
Process & product innovation
Program/project innovation
Service level innovation
Key Performance Indicators (KPIs)
Financial
Customer satisfaction
Performance SLAs
Program/Project management
Skills, competencies, training
Service/facility scalability, readiness & redundancy
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Reality Check
Do the CSFs and KPIs
Translate into specific actions?
Provide strategic or tactical benefits?
Provide leverage to institute change?
Manage end-to-end results across the enterprise?
Drive performance and process improvements?
Allow for benchmarking to compare best practice
performance?
Enhance firms ability to compete in the future?
Drive learning and innovation?
Predictors of future performance?
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Developing the RFP (1)
Clients Roles and Responsibilities Service Providers Roles and
Responsibilities
a. Define the RFP process and project
schedule
b. Define the outsourcing project team
organisation and its role and
responsibility
c. Determine criteria for selecting members
of the project team
d. Determine strategies for information
gathering
e. Define outsourcing scope and
requirements
f. Write the RFP - Clearly establish service
definitions, service levels, expectation,
requirements and service level agreement
(SLA)
g. Develop service provider evaluation
strategy and criteria
a. Establish scope of outsourcing
b. Provide information to support client to
develop the right requirements and
service level agreement (SLA)
c. Determine if scope is within its core
competencies
d. Establish value proposition and a sales
strategy
e. Identify potential key partners and
alliances
f. Identify high-level risks
g. Determine competitive position
h. Estimate the total cost required to
support the project (during presales and
delivery)
i. Evaluate if the project should be pursued
j. Identify team members with the right
expertise to respond to the RFP, when
issued
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Developing the RFP (2)
The RFP Process
Setting up the project organization
Develop the project schedule
Identifying relevant technology options and potential services providers
Estimate the project budget
Perform a cost and benefit analysis
Developing evaluation criteria
Developing the RFP
Defining strategies for service provider due diligence
Reviewing and approving the RFP for release to the service providers
Forming the Outsourcing Project team
Business operations
Information Technology
Finance and Legal
Human Resource
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Developing the RFP (3)
Strategies for Information Gathering
Request for Information (RFI)
Engaging a Consultant
Definition of Outsourcing Scope and Requirements
Performance requirements
Operational requirements
Maintainability requirements
Portability requirements
Security requirements
Usability requirements
Look and feel requirements
Technology requirements
Service Provider Evaluation Strategy and Process
Evaluation framework and criteria

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Take-Away From This Lecture
Outsourcing planning and RFP Development
References :
Singapore Computer Society, Body of Knowledge, COMIT





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Thank You
kwongyw@comp.nus.edu.sg
diskyw@nus.edu.sg