Outsourcing Opportunity: “Strategic and Operational Level” H. Srikrishnan Executive Director January 31, 2006

Contents Outsourcing – “Strategic or Operational” Outsourcing Drivers Risk Factors - Inhibitors Key Considerations for Outsourcing YES BANK Case Study

Strategic ?

Or Operational ?

Strategic or Operational Business Value = Relationship Management The Utility relationship focuses primarily on cost reduction, with the goal of maintaining consistency in the delivery of services ~ Operational A Transformational relationship is characterised by a partnership focused on innovation and new business, changing the very nature of the basis on which an enterprise competes ~ Strategic Operational Strategic Enhancement Utility Transformation Relationship Impact Key: = Contractual Management = The Partnership The Contract The Contract The Contract Effectiveness Focused Efficiency Focused Competitive-Advantage- Focused Adaptation of Gartner’s Model on Sourcing

Opportunity – Both Strategic & Operational Reasons for Outsourcing Reasons for Outsourcing Source: Outsourcing Institute

Outsourcing Drivers Drivers Focus “IPR” ? CostRiskCareerCapital Focus attention and efforts on those activities that will give a distinctive advantage – Protect your IPR Take advantage of efficiencies of scale, procurement leverage and capital appetite to improve price performance Manage the risks by employing the specialist technical skills Improve the career opportunities, People Management Better manage IT investment by moving to variable operating expense-based structure

Risk Factors - Inhibitors Outsourcing has the potential to transfer risk, management and compliance to third parties who may not be regulated and who may operate offshore Risk Spectrum StrategicReputation ComplianceOperational ExitCounterparty CountryContractual AccessConcentration & Systematic BASEL Committee on Banking Supervision

Key Considerations for Outsourcing C ollaboration  Collaborative & Competitive Evaluation  Fair & Just C ontracting  Technology, Business, Regulators, Legal, SoW, Living Agreement  Provide for Business Dynamicity C ommunication  Key for successful implementation C amaraderie  Balance of Relationship & Contractual Management  Partnership Spirit C ontinuance  Not a transaction but it’s a lifecycle

Current internal cost of Providing IT Services (annual) Annual Real Cost of the deal Annual Face Price of the deal Economies of Scale Economies of Scope Economies of Specialization Other Factors Vendor Margin Savings Delivered by the vendor Setup Cost Parallel Operating Costs Severance Costs Asset write- downs Governance Cost Retained in- house capabilities Innovation & Evolution Contract Negotiation Penalties Vendor Capital recovery costs Re- evaluation, Selection, and negotiation costs Transition Costs Management Costs Termination Costs Perceived Value Real Value Consider All Costs When Making Outsourcing Decisions Source: BCG Analysis Costs Consideration

Defining Sourcing Strategy Identification of Drivers for Outsourcing Core Competence Analysis Outsourcing Risk Analysis Scanning the Market Deal Type Assessment YES BANK – WIPRO CASE STUDY Strategic Total Outsourcing IT Investment Portfolio Strategic Alliances Technology Framework and Relationships Evaluation Framework Managed Services Capabilities Hardware & Equipments Strategic Fit Assessment Financial Decision Making Soft Factors Deal Recognition Rated among India’s Most Wired 20 Companies (Business Today) Exclusive Gartner Case-Study On IBM Infrastructure-on-Demand Model Networking Case Study by CISCO

Core Competence & Business Drivers Analysis Competence in Banking, Relationship & Building Human Capital Retention of Intellectual Property related to Application Development Technology Decision making driven internally Caters to Branch Expansion and Growth Plans Dynamic Business Environment ~ Vendor Commitments YES BANK – WIPRO CASE STUDY Deal Uniqueness (USP) First-of-its Kind in Indian Banking Sector Unique Pay-per-use pricing model: Branch Expansion based Complete Asset Based Outsourcing: Conservation of Capital Access of World-Class Partners: IBM, CISCO, Intel Stringent but flexible Service Level Agreements Continuous Improvement on Service Delivery