Outsourcing Global Information Technology Resources

1. Outsourcing Global Information Technology Resources

2. Outsourcing relationships fail for many reasons. Chief among them are unrealistic expectations; lack of a formal bid process; so-called relational contracts that assume the vendor will act as a strategic partner but that fail to spell out the details; and failing to manage the relationship once the contract has been signed - “Divorce Your Outsourcer,” Computerworld, August 1996

3. Questions to Consider • Was Information Management (IM) a Core Competency for Xerox? • Was the IM Outsourcing an Appropriate Decision? • Does Outsourcing Give Xerox a Competitive Advantage? • Was the Outsourcing Process Taken By Xerox Appropriate?

4. Key Definitions CIM: Corporate Information Management Legacy System: Transaction Processing System Originally Designed for a Specific Task Proprietary System: System Designed for a Specific Task by an Internal IM Organization Emerging Technology: On-line publishing, digital video, image (as it relates to this case) communication over the internet, digital copying and printing

5. Case Study Team • Jim Bodine • Jeff Muckler • Eric Mendola • Ron Volans • Amy Esposito

6. The Industry

8. Industry Evaluation • Market Analysis • Trends • Key Success Factors • Attractiveness

9. Industry Evaluation • Environmental Analysis • Threats • Opportunities • Uncertainties

10. Industry Sales

11. Overview / History • Image and Positioning • Objectives • Core Competencies / Strengths • Weaknesses

12. Overview / History • Image and Positioning • Objectives • Core Competencies / Strengths • Weaknesses

13. Overview / History • Image and Positioning • Objectives • Core Competencies / Strengths • Weaknesses

14. Overview / History • Image and Positioning • Objectives • Core Competencies / Strengths • Weaknesses

15. Image and Positioning • Objectives • Core Competencies / Strengths • Weaknesses

16. Competitor Strength Grid

17. The Company

18. Company Background Description A global enterprise addressing the worldwide document processing market which develops, markets, services, and finances a complete range of products and services designed to make offices around the world more productive.

19. BackgroundHistory • 1959 - Model 914 Copier Introduced • 1970 - Literal Monopoly on the Market • 1975 - FTC Settlement Occurs • 1976-1982 - Share Decreases to 13% • 1980 - Focus on Leadership Through Quality

20. Xerox Introductions & Market Share New Product & Copier Introductions Market Share

21. Yet, Net Income is Declining

22. Background Corporate Restructuring — 1992 • Decision Making Moved Closer to Customer • Greater Focus on Core Competencies • Focus on Core Business • Focus on Benchmarks • Workforce Reduction

23. Information Management • 1970s - CIM Established • 1987 - General Services Division EstablishedMission of CIM was now to . . . “develop the IT strategy for Xerox and ensure that it was implemented in all the business units.” • $500 Million IT Budget

24. Information ManagementIT Strategy Consulting Firm Finds Problems • No coordination of money spent each year • No Corporate-Wide Management of IM Investment Priorities • A Peripheral Player in IT Management • Narrowly Focused IM Talent Pool • Senior Managers Stingy With IT Infrastructure • Redundant / Overlapping Efforts • No Staff Development Mechanisms

25. Centralizing IMWallington Presents at President’s Council Meeting — April, 1993 • $670 Million spent on IM in 1992 — • Forecast to grow to $1 Billion by 2000 — • . . . Amounts to 3.7% of total revenues!

26. IM 2000 Reengineering ProjectMid-1993 • Identification of IM problem areas • Strategies to address those problem areas • Projects implemented to fix problem areasGoal: Move IM to a new information systems infrastructure.

27. Regional IM Infrastructure

28. Product Line Focus(Many different products per circle)

29. Problems Revealed • Aging applications portfolio • Proprietary technologies from previous structure • Large spending for legacy systems • Autonomous culture allowed for costly duplication

30. IM 2000 - Strategies • Reduce / Redirect • Infrastructure Management • Leverage Worldwide IM Resources • Business Process Driven Solutions

31. IM 2000Internal Obstacles Remain • Conflict between IM problems and IM customers - the business divisions • Little discipline of both time and money • Internal costs of $55 million for hardware • Viewed as an “expense center’ by top executives

32. IM 2000External Forces Create Final Pressures • Increasingly competitive environment • Forced to adapt quickly

33. . . . “Top IM managers began to realize they would not be able to change quickly enough without outside help.”

34. Outsourcing & Xerox:What?Why?How?

35. What was and What is Outsourcing • Outsourcing was looked upon as the business strategy associated with downsizing • Outsourcing now is looked upon as utilizing the best expertise in local laws and business customs.

36. What is Outsourcing? • Is the strategic use of outside resources to perform activities traditionally handled by internal staff and resources. • Mgmt strategy by which and organization outsources major, non-core functions to specialized, efficient services providers. • Wholesale restructuring of the corporation around core competencies and outside relationships.

37. What is Outsourced?

38. Industry Trends in Outsourcing • According to the Outsourcing Institute, 80% of Fortune 500 companies outsourced some or all of their information management function in 1997. • These services accounted for 42 billion dollars in1996, a number expected to grow exponentially in the next decade.

39. Threat of new entrants Porter’s Five Forces Competition among existing firms Bargaining power of existing firms Bargaining power of suppliers Threat of substitute products

40. Reason for Five Forces • Basis of competition • Focus on core competency • Create a competitive advantage • Build barriers to entry • Build switching costs • Change the basis of competition • Balance power in supplier relationships

41. Basis of Competition Competitive Advantage Differentiation Lower Cost Broad Target Cost Leadership Differentiation Competitive Scope Differentiation Focus Narrow Target Cost Focus

42. Need for Outsourcing is driven less by cost than….. • Rapid access to new technologies and skill sets. • Better responsiveness to changing conditions. • Faster IT cycle times.

43. Top Reasons Companies Outsource • Reduce and control operating costs. • Gain access to world class capabilities. • Resources are not available. • Allows you to free up resources (people and capital) to work on your core business (i.e.. focus). • Improves capacity and quality. • Makes new business possible.

44. Reasons Companies do NOT Outsource • Difficult to successfully implement. • Problems regaining knowledge. • Differing company strategies. • Core competency. • Lack of control. • Lack of expertise.

45. IT Outsourcing • Fastest growing area for outsourcing today. • Executives are currently outsourcing: • Maintenance / repair • Training • Applications development • Consulting and reengineering • Mainframe data centers

46. IT Outsourcing • Executives are considering outsourcing: • Client / servers • Networks • Desktop systems • End-user support • Full I/T outsourcing

47. Outsourcing at Xerox • Outsourcing versus integration. • Create win:win relationship. • Share values to create a true partnership. • Develop “spirit of the contract” for senior management to and understand. • Create infrastructure to support companies strategic direction in the 90’s.

48. Outsourcing Process Phase I - Fact Gathering Phase II - Request for Proposal and Data Gathering Phase III - Feasibility and Management Approval Phase IV - Baseline Building and Evaluation Phase V - Due Diligence and Contract Awarded

49. Phase I - Fact Gathering Vendor Selection Benchmarking IT Partner Outsourcing Objectives

50. Phase I - Fact Gathering • Vendor selection team • Cross-functional representatives • Establish outsourcing requirements, objectives, goals, and timeline • Conduct industry benchmarking