1. Managing Outsourcing for Sustainable Value- Addressing the Missing Pieces of the Puzzle Chief Executive, Business Catalyst International Chairman, International Association of Outsourcing Professionals, Australia Member of IAOP Research Committee

2. This presentation is in 5 parts… Q & A - Discussion Achieving Sustainable Value By Addressing the Missing Pieces The Missing Pieces of The Puzzle Don’t Change The Game, Fix It The Maturing Outsourcing Framework

3. This presentation is in 5 parts… Q & A - Discussion Achieving Sustainable Value By Addressing the Missing Pieces The Missing Pieces of The Puzzle Don’t Change The Game, Fix It The Maturing Outsourcing Framework

4. Where We’ve Been… Complex contracts - Financial engineering - Asset transfer - Wholesale staff transfer - Large transition cost Bundled service offering – opaque economics Single vendor or prime vendor Long term contracts: 7 to 10 years with some as long as 15 to 20 years Commodity Sourcing – low bidder wins? Great honeymoon, lousy marriage Lost control and flexibility Benefits and value escape 50% restructure contract 30% missed expectations Traditional Outsourcing Model Results

5. Headlines from Previous World Outsourcing Summits… The traditional legacy outsourcing model failed to deliver sustainable value and has been problematic Fantasyland benefits for many have not materialized

6. This presentation is in 5 parts… Q & A - Discussion Achieving Sustainable Value By Addressing the Missing Pieces The Missing Pieces of the Puzzle Don’t Change The Game, Fix It The Maturing Outsourcing Framework

7. Key Elements of The Maturing Outsourcing Management Framework Relationship ManagementContract Management Governance Change Management Service Delivery/ Account Management Performance Management Commercial Mgt Expectation Gaps Issue Management Blame Game Questionable Value

8. Soundness of the Commercial Deal is Fundamental to Success… Proper Due Diligence – deals awarded on sales presentation rather than provider hard evaluation… BHP Billiton’s decision to Cancel a large contract soon after awarding

9. The Deal is Done, the Delivery Team Struggles… Contract Value Miracles Profit Client Satisfaction Bonus? Good people start to leave and the vicious cycle starts…

10. Soundness of the Commercial Deal Develop your own business case independently before starting the biding process Undertake in-depth financial analysis of the deal to assess whether business case is realistic “ No one delivers outstanding value to clients to make a loss for their own business ” The Fairfax Case study

11. The Outsourcing Value Debate Demystified LO Value Cost HI LO Improvement Achieved Outcome Achieved Through Outsourcing In-house Outsourcing Promised Target Expectation Gap destroys the recognition of the value gained / improvement achieved Expectation Gap

12. While expectations have not been met, much real value has been delivered Former CEO Commonwealth Bank of Australia “We are a thousand times better off than our previous in-house function But ……..”

13. Better Off… So we are better off in most cases…but nowhere near optimal…

14. This presentation is in 5 parts… Q & A - Discussion Achieving Sustainable Value By Addressing the Missing Pieces The Missing Pieces Of The Puzzle Don’t Change the Game, Fix It The Maturing Outsourcing Framework

15. The Missing Pieces of the Puzzle Managing Outsourcing For Sustainable Value

16. The Missing Pieces…

17. Power of Alignment Not Fully Harnessed in Outsourcing Company 1 Company 2  Only through alignment can you achieve long term success  Traditionally alignment has not been achieved in most outsourced operations Alignment Strategy People Customers Process 100 - 80 - 60 - 40 - 20 - Gap Analysis 0 : No Gap 100 : Maximum Gap

18. This presentation is in 5 parts… Q & A - Discussion Achieving Sustainable Value By Addressing the Missing Pieces The Missing Pieces of The Puzzle Don’t Change The Game, Fix It The Maturing Outsourcing Framework

19. Lateral Leadership Ability to think strategically Deal making Govern partnerships Change management … internal and external resources and competencies to deliver results / outcomes to internal and external customers

20. Key Attributes of Lateral Leadership Critical for Outsourcing Executives and Managers  Envisioning capabilities  Desire to manage / lead, not to do  Strong communication skills  Strong negotiating skills with a commitment to deliver for all parties  Project management and multidisciplinary team management skills  Marketing / selling ideas  Ability to earn cross-functional credibility and trust  Win-win mentality

21. Integrated Business Planning Framework Outsourcing is often managed as a contract management exercise rather than a business operation(s) requiring unique leadership, management focus and processes The “Outsourcing Business Plan” is key to adopting a true business management approach PURPOSE: Provide means of dealing with the evolving business needs and expectation management between the provider and the client, at strategic and operational levels

22. Outsourcing Business Plan Structure  Strategy  Financials  Operations  Human resource  Communications Objectives, tactics, targets Profitability, ROI, savings Key Projects, timeline, service levels, KPI’s State of the partnership, HR needs Means of communication Bell Canada

23. Create Responsive Business Plans  Plans need to recognise both parties need to maintain profitability over the long term  Align business objectives between parties – integrate these into the strategic business plans  The client needs to be involved in the provider’s business planning cycle – input into scope, timing, review process  Focus the team to pick up change signals early - revise plans as things change

24. Create Responsive Business Plans  Build “improvement initiatives” into planning, ensure customer feedback into planning cycle  Interactive process - as plans change, adjust measures and rewards  The plan is a mechanism to reflect changes in the business context Ensure performance measures & SLAs tightly support each other and are linked to business outcomes

25. The Missing Pieces…

26. Partnership vs Contractual Relationship Both of these are operative at different aspects of an outsourcing relationship

27. Operational / IT Strategies Vision - Solution Design Professional Services Strategic Advice / Innovation CIO / One-team Concept Service Delivery Projects & End-to-End Service Management Professional Services Management Partnerships Contractual Agreements SLA’s In-houseServices Third Party Services OutsourcerServices Managing Outsourcing Integrated Team Approach CEO & Executives Business Partnership Relationship Management Client Outsourcer CEO & Acct Executives Strategic Intent & Value Proposition

28. Some Practical Examples  Integrating IT strategy development process with the business planning process in a major Bank- from 2 separate process to one integrated process  Achieved competitive edge  Business managers engaged in technology decision like never before – revolutionised the way business thought about IT  Outsourcing Account Executives to be part of the company’s leadership team attending CEO weekly meetings – NZ Energy CEO initiative

29. The Missing Pieces…

30. What are the Intangibles that go Missing When You Move to Outsourcing?  Business planning participation is significantly reduced – it’s not the same with outsiders  As relationships move from internal to external the collegial team approach is lost  Two separate cultures that need normalisation  Deep business insights are difficult to gain by the service provider Intangibles still take a lot of organisational time and create hidden costs that are not accounted for, hence not budgeted for in most outsourcing deals

31. What it Takes to Operate an Optimal Business Operation The value of intangible activities is greatly underestimated  In-house Business Unit Operation  Outsourced Operation  Tangible & Intangible Warm & Fuzzy Business Operations Model  Very Tangible Clinical, Service Delivery Model

32. Organisational theory will tell you that clinical, cold operations are not conducive to:  Creating value  Innovation  Bringing out the best in people  Teamwork The impact of the intangibles on the success of outsourcing is great

33. Outsourcing Can Drive Innovation to an Advanced Level “No organisation on its own can out–innovate all of its competitors, potential competitors, suppliers, and external knowledge sources” - Professor James Brian Quinn Outsourcing Innovation – The New Engine of Growth “In an information intensive business environment, constant innovation is the only sustainable competitive advantage.” -Michael Corbett “In an information intensive business environment, constant innovation is the only sustainable competitive advantage.” -Michael Corbett

34. Outsourcing Can Substantially Enhance Your Innovation Capabilities & Outcomes  Innovation does not happen automatically- outsourcing or not  Need to formalise innovation program and engage your service provider(s)  Invest in the program- create a joint vision and agree on a reward structure with your strategic partners (service providers)  Amazing value is being derived from external partners by innovation-smart organisations GM Initiative in outsourcing business support services

35. Critical Success Factors Business Case / Rationale Strategy Vision Alignment

36. This presentation is in 5 parts… Q & A - Discussion Achieving Sustainable Value By Addressing the Missing Pieces The Missing Pieces of The Puzzle Don’t Change The Game, Fix It The Maturing Outsourcing Framework