Information Systems Backsourcing

1. Tampa Bay Technology Leadership Association May 8, 2008 Information Systems Backsourcing

2. Speaker • Natasha Veltri, Ph.D. • Assistant Professor at UT • Researching backsourcing for 6 years • Reasons for backsourcing • Outsourcing vs Backsourcing • Success factors in backsourcing

3. Panelists Frank Edwards Knowledge Quest Education resident Professor and Director of Education 32 year background working for Equifax, EDS, and Washington Mutual/Citigroup holding VP/CIO positions specializes in soft skill training that includes Business Administration, Customer Service, Team Leadership, Executive Leadership, Organizational Psychology, Diversity, Customer Service, Team Building, and Project Management Methodology

4. Panelists James Garoutsos leads the technology direction for all the departments under the Board of County Commissioners in Pinellas County since 2005 previously served as Director of Architecture and Store Systems for the Eckerd Corporation and was in charge of the Enterprise Architecture and Business to Business Centers of Excellence

5. Panelists Eileen Peitsch technology executive specializing in Pharmacy, Governmental Healthcare Programs and Project Management 27 years of experience in various IT roles at WellCare, Eckerd, IBM Global Services and most recently held the CIO position at Eliant has extensive experience with onshore and offshore vendor management

6. JPMorgan Chase Story • December 20, 2002 signs outsourcing agreement with IBM • $U.S. 5 billion 7-year deal • Largest outsourcing contract at the time • September 15, 2004 backsources IBM agreement • Merged with Bank One on July 1, 2004

7. JPMorgan Chase Story OUTSOURCING REASONS BACKSOURCING REASONS • Technology as a key competitive advantage • Create capacity for efficient growth • Accelerate the pace of innovation • Reducing costs • Increase quality • Best for the long-term growth and success of the company • Competitive advantages • Accelerate innovation • Become more streamlined and efficient

8. IS Backsourcing • Outsourcing: BIG Global Industry • 70% of outsourcing clients have negative experiences with outsourcing; 25% of them backsourced (Deloitte Consulting, 2005) • 96% of 70 surveyed N. American companies would consider outsourcing (Compass, 2006) • Almost one-third of the canceled contracts are eventually brought back in-house (Lacity and Willcocks, 2001)

9. IS Backsourcing • Business practice in which a company takes back in-house assets, activities, and skills that are part of its information systems operations and were previously outsourced to one or more outside information service suppliers

10. Companies that backsourced Xerox Washington Mutual UMass Memorial Health Care UBS Sears Prudential Karolinska Hospital in Stockholm Halifax Bank of Scotland Gateway Farmers Group Continental Airlines Bank One Amtrak Express Parcels, UK ABB Power

11. REASONS FOR BACKSOURCING • Reaction to problems • Higher than expected costs • Poor service quality • Loss of control over outsourced services • Response to opportunities • Recognition of a new role for IS • Changes in executive management • External pressures or changes

12. Higher than expected costs • Outsourcing cost savings are often overestimated • Cost savings may be short lived (18 months) • Additional costs: • Employee time coordinating provider activities and transition period • Disruption of current work processes • Increased turnover of IT employees • Lowered employee morale

13. Poor service quality • Companies that backsource experience lower service and product quality than those that switch providers or continue outsourcing • 70% of outsourcing clients have negative experiences with outsourcing

14. Loss of control • 25% of companies that backsourced had originally mislabeled IT functions as non-strategic • Critical success factors • Client and provider incentives do not align and the power shifts to the provider • Client-facing vs core

15. New role for is • Business strategy undergoes modifications • Impact on IS strategy • Happens at the executive level • Core vs non-core • Need for innovation

16. Leadership changes • New executives are three times more likely to trigger a radical change in their new organization • Shifts in corporate power • New hire to lead the change • Executive sponsorship

17. Executive leadership Well understood processes Documentation of outsourcing Detailed plan Support of in-house personnel Successful backsourcing

18. Outsourcing arrangements are not forever Backsourcing is costly and difficult Poor morale, loss of employee trust IT projects slow down Keep your customer in mind Lessons learned

19. Does your company outsource? Yes, IT outsourcing Yes, BPO outsourcing Both IT and BPO No

20. If your company outsources, what was the main reason for outsourcing? Cost Access to expertise and resources Outsourced non-core activities Streamline operations New executive leadership Pressure from another company Merger, spin off, acquisition etc.

21. Have you experienced backsourcing? Yes No, we are continuing to outsource No, we never outsourced

22. If your company backsourced, what was the main reason? Cost Problems with outsourcing contract Redefinition of the role of outsourced services New executive leadership Merger, spin off, acquisition etc. Pressure from another company