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Understanding Misunderstanding

Understanding Misunderstanding. Insights from the 2006 Outsourcing Survey John McCord PA Consulting Group. Insight. Clients underestimate the scale of the outsourcing challenge – easy to source, harder to realize value.

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Understanding Misunderstanding

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  1. Understanding Misunderstanding Insights from the 2006 Outsourcing Survey John McCord PA Consulting Group

  2. Insight Clients underestimate the scale of the outsourcing challenge – easy to source, harder to realize value 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

  3. Insight 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 Suppliers?

  4. Insight 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

  5. Insight … 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

  6. Insight … and clients are less interested in cultural fit and strategic alignment 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

  7. ITO Sourcing So how do these insights impact the sourcing lifecycle The Outsourcing Lifecycle Develop Deliver Design Service Management Organization Relationship Management Defining Strategy Negotiation Requirements Definition Business Transformation Solution Design / Service Model Innovation Benefits Delivery Business Case Issue RFP Commercials and Contracts Transition

  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

  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

  10. Executive / Executive / VP VP Company to Company Senior Senior Business Business Management Management Strategy Escalation Path BP Management BP Management Business Management Regional / Regional / Business Business Management Management Operations Operations Performance / Satisfaction Managers Managers Execution Service Service Account Account Senior / VP Senior / VP Executive Executive / / VP VP Managers Managers Management Management Management Management Supplier Supplier Supplier Management Management Management … and designing effective governance structures to make it last • It is important toinsure that the right people arespeaking to eachother in each organization andthroughout the relationship. • This means thatthere must be a goodservice managementstructure on both sidesof the deal

  11. Conclusion 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

  12. PA Consulting Group 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. North AmericaBoulder Cambridge Chicago HoustonLos Angeles MadisonNew York Princeton Washington DC Europe Belgium Irish Republic Czech Republic Netherlands Denmark Norway Finland Russian Federation France Sweden Germany United Kingdom Asia-Pacific Australia India Indonesia Japan Malaysia New Zealand China (including Hong Kong) Singapore South America ArgentinaBrazilPeru

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