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Understanding Misunderstanding Insights from the 2006 Outsourcing Survey John McCord PA Consulting Group
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 2 Clients underestimate the scale of the outsourcing challenge – easy to source, harder to realize value Insight Clients’ assessment of the level of difficulty of various stages of the outsourcing lifecycle Many find the early stages of sourcing the easiest… …but 50% of clients found Benefits Realization hard
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 3 Clients and suppliers have divergent views regarding desired outcomes and benefits of outsourcing deals… Insight Outcomes/benefits identified by clients & suppliers as being required from outsourcing Suppliers?
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 4 Clients and suppliers have divergent views regarding desired outcomes and benefits of outsourcing deals… Outcomes/benefits identified by clients & suppliers as being required from outsourcing It is critical to ensure alignment with potential outsourcing partners on desired outcomes and benefits prior to signing the deal Insight
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 5 … and success is rarely judged on ‘just delivering to defined service requirements’ While 64% of clients’ admit they are happy that their suppliers are meeting SLAs; Less than half (48%) feel they are getting ‘value for money’ Only 22% believe their supplier delivered innovation Client views on outsourcing supplier relationships and value-add Insight
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 6 … and clients are less interested in cultural fit and strategic alignment Insight Figure 6: Key areas where it was felt more focus should be placed when selecting a supplier With hindsight, clients place more emphasis on delivery capability and expertise, and less on culture & commercials
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 7 So how do these insights impact the sourcing lifecycle Defining Strategy Business Case Requirements Definition Issue RFP Negotiation Commercials and Contracts Solution Design / Service Model Relationship Management Service Management Organization Transition Benefits Delivery Innovation Design Deliver Business Transformation The Outsourcing Lifecycle Develop ITO Sourcing
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 8 Expectations are expanding beyond cost … Clients still look to outsourcing to reduce costs and enhance shareholder value, but there are many other reasons to outsource: A driver for change and business transformation Enables cost predictability with a high level of credibility Enables focus on Core business Drives consistency in delivery with reliable outcomes Improves the organization’s ability to address to market changes Encourages innovation Drives the development of new processes Enables access to specialist skills Improves quality of service
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 9 … but emphasis should also be placed on delivery … The outsourcing process is about communicating needs and capabilities to the market. The process requires speed but the needs are complex and changing. How do CIOs quickly but accurately communicate needs? Through a progression of output based written communications and face-to-face meeting. What this means: 1. Tell the vendor “what” you want, let them say “how” it’s delivered 2. RFIs and RFPs are incremental steps - not definitive statements 3. Face-to-face negotiations are the important third stage 4. Push out only as much detail as necessary to get to next step 5. All communications are controlled through a single point 6. Consistent messaging is crucial
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 10 … and designing effective governance structures to make it last It is important to insure that the right people are speaking to each other in each organization and throughout the relationship. This means that there must be a good service management structure on both sides of the deal Company to Company Performance / Satisfaction Executive /VP Service Managers Supplier Management BP Management Account Management Senior / VP Management Executive/VP Operations Managers Senior Business Management Regional / Business Management Execution Executive /VP Service Managers Strategy Supplier Management Supplier Management BP Management Business Management Account Management Senior / VP Management Executive/VP Operations Managers Senior Business Management Regional / Business Management Escalation Path
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 11 The outsourcing market continues to mature Highlights of PA’s 2006 Outsourcing Survey The value of the outsourcing marketplace continues to increase A large percentage of company budgets are spent on outsourced services Client – supplier relationships have become increasingly complex Competent delivery of outsourced services is now considered the ‘norm’ Client expectations have grown beyond simply reducing costs Boundaries are expanding – suppliers now entice clients with promises of business transformation Conclusion
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© PA Knowledge Limited 2006. All rights reserved. JHMc Presentation1 June 29 2006 Page 12 Who is PA Consulting? PA is a leading, global management and technology consulting firm. Founded in 1943, PA today has nearly 3,000 staff operating worldwide in more than 35 countries. PA Consulting Group Europe BelgiumIrish Republic Czech Republic Netherlands DenmarkNorway FinlandRussian Federation FranceSweden GermanyUnited Kingdom Asia-Pacific Australia India Indonesia Japan Malaysia New Zealand China (including Hong Kong) Singapore North America Boulder Cambridge Chicago Houston Los Angeles Madison New York Princeton Washington DC South America Argentina Brazil Peru
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