SESSION #9 IT TRANSFORMATION/ OUTSOURCING OPTIONSCAPTURING INFORMATION TECHNOLOGY OPPORTUNITIES REQUIRES THE IMPLEMENTATION OF BEST PRACTICES ON A GLOBAL BASISMOST EXECUTIVES SEE HIGH COSTS AND LOW VALUE IN THEIR OWN I/T ORGANIZATIONSI/T IMPROVEMENT OPPORTUNITIESSlide 5Slide 6OUR CLIENT EXPERIENCE TELLS US THAT SIGNIFICANT FINANCIAL IMPROVEMENT IS POSSIBLE -- E.G., 40% REDUCTION IN COSTA COST REDUCTION PROGRAM THAT IMPLEMENTS BEST PRACTICES WILL DELIVER BEST-IN-CLASS COST LEVELSSIMPLIFYING, STANDARDIZING, AND REENGINEERING I/T PROCESSES CAN GENERATE WORLD CLASS EFFICIENCIES AND RELIABLE SERVICECHALLENGING THE VALUE OF APPLICATION MAINTENANCE ACTIVITIES CAN PROVIDE IMMEDIATE SAVINGSDISCRETIONARY PROJECT SPENDING TYPICALLY RESULTS IN LITTLE OR NO MEASURABLE VALUEESTABLISHING AN I/T SHARED SERVICE ORGANIZATION OFFERS A WORKABLE SOLUTION THAT DELIVERS SIGNIFICANT BUSINESS VALUEBUT LOWER COSTS ARE ONLY ONE COMPONENT — AN ADDITIONAL BENEFIT WILL BE RENEWED I/T CAPABILITIES TO SUPPORT STRATEGIC OPPORTUNITIES IN THE BUSINESSSlide 14TRENDS IN BUSINESS PROCESS OUTSOURCINGOUTSOURCING IS AN EMERGING GROWTH INDUSTRY — OVER $50 BILLION AND GROWING 20% P.A.OUTSOURCING HAS EVOLVED FROM A MARKET FOR SMALL/DISTRESSED COMPANIES TO ONE USED BY LARGE COMPANIES TO ACCOMPLISH REENGINEERINGBLUE CHIPS ARE BEGINNING TO USE OUTSOURCING TO MOVE BEYOND REENGINEERING TO ACCOMPLISH STRATEGIC OBJECTIVES THEY CANNOT OTHERWISE ACHIEVETHE CHALLENGE IS UNDERSTANDING THE CURRENT STATE OF MARKET MATURITY AND HOW RAPIDLY THE MARKETS WILL EVOLVEBUSINESS PROCESS OUTSOURCING OFTEN INVOLVES REENGINEERING THE BUSINESS PROCESS ACROSS COMPANY BOUNDARIES — FOR EXAMPLE, LOGISTICSAS A RESULT, A NEW PARADIGM HAS EMERGED — OUTSOURCING END-TO-END BUSINESS PROCESSESWHEN CONSIDERING OUTSOURCING, ASK YOURSELF THESE CRITICAL QUESTIONSLESSONS LEARNED FROM INDUSTRY EXPERIENCES DEFINE THREE CLEAR RULES OF ENGAGEMENTSlide 24STRATEGIC SOURCING IS NEEDED FOR I/S TO SUSTAIN RESPONSIVE, SCALEABLE, AND COST EFFECTIVE SERVICESlide 26A GOOD SOURCING STRATEGY IDENTIFIES APPROPRIATE SOURCES AND MIX OF I/T RESOURCESLATELY, WE HAVE SEEN A SIGNIFICANT INDUSTRY TREND TOWARDS “SELECTIVE SOURCING”A SOURCING FRAMEWORK CAN HELP OPTIMIZE SOURCING DEMANDSSOURCING FRAMEWORKSlide 31FOUR KEY ISSUES DRIVE THE UNDERSTANDING NECESSARY TO MAKE OPTIMAL DECISIONS AROUND SOURCINGSESSION #9IT TRANSFORMATION/OUTSOURCING OPTIONSCAPTURING INFORMATION TECHNOLOGY OPPORTUNITIES REQUIRES THE IMPLEMENTATION OF BEST PRACTICES ON A GLOBAL BASIS•Simplifying I/T operational processes–Separate supply and demand, fixed and variable–Eliminate low value added work and redundant support systems accumulated over years of growth, acquisitions, etc.–Optimize I/T processes for low cost delivery … benchmark to best practices–Develop processes to share expertise and internal best practices•Restructuring I/T delivery model to achieve operational effectiveness–Centralize operations where strong economies exist–Develop service level agreements to create accountability to the line–Balance sourcing of I/T capabilities (insourcing vs. outsourcing)•Leveraging information systems investment–Enforce common technical architecture standards (hardware, software, network)–Implement rigorous cost/benefit standards for new application software investments–Optimize application software maintenance requirements•Reducing headcount costs–Strip out redundant support systems and staff accumulated over years of growth, acquisitions, etc.–Staff to “base case” I/T delivery model and streamlined I/T processesMOST EXECUTIVES SEE HIGH COSTS AND LOW VALUE IN THEIR OWN I/T ORGANIZATIONS1988 1989199019911992199319940$/MIPSI/TCostsTechnologyPrice IndexTECHNOLOGY PRICE INDEX VS.CORPORATE I/T EXPENDITURESCEO PERCEPTION OFVALUE OF I/TSource: Computer Economics; BA&H AnalysisSource: BA&H SurveyAverage or BelowAverage81%AboveAverage19%I/T IMPROVEMENT OPPORTUNITIESAREATYPI CALOPPORTUNTI ESI MPROVE-MENTPOTENTI ALCLI ENTEXAMPLESINFRASTRUCTUREMainframeMidrangeDesktopNetwork / TelecomApplications- Consolidate Computing Centers- Outsource Non- Critical DataProcessing- Standardize and Consolidate- Restructure Support- Standardize H/ W and S/ W- Standardize/ Select PreferredVendors- Centralize NetworkManagement- I mplement Common SystemsSelectively- Establish, Buy, Not Build,Guideline40- 50%20- 40%30- 50%10- 30%30- 50%- Consolidated 44 data centersto 6 for a major bankingclient, saving $80M- Achieved 30% cost reductionby eliminating 45 of 141midrange processors of an oiland gas client- Saved $30M by restructuringsupport for 35,000 users- Cut $37M in Telecom costprimarily through redesigningcarrier’s contracts- Achieved 30% employmentreduction by implementingcommon system strategyI/T IMPROVEMENT OPPORTUNITIESAREATYPI CALOPPORTUNTI ESI MPROVE-MENTPOTENTI ALCLI ENTEXAMPLESPROCESSESBusiness SystemsPlanningArchitecture &StandardsApplicationsDevelopmentApplicationsMaintenanceEngineer, Design &I mplementAsset & ContractManagementOperationsEnd User Support- Rigorous Project Value ReturnCriteria- Elimination of DuplicatePlanning Organizations- No Discretionary Developmentof Non- Standard Applications- Strict Project Hurdles andTermination- No Non- StandardDiscretionary- Enhancements- Use of Desktop VendorServices- Use of Automation- Consolidation of ActivitiesShared Services/ Automation40- 60%- Consolidated 24 groupsworking on architecture andstandards to one- Cut I / T cost by 50% thoughimplementation of sharedservices organization- Achieved 33% cost reductionfor a major logisticsoperation by redesigningapplications processes- Redesigned processes toachieve $155M annual savingson infrastructure and $129Mon applicationsI/T IMPROVEMENT OPPORTUNITIESAREATYPI CALOPPORTUNTI ESI MPROVE-MENTPOTENTI ALCLI ENTEXAMPLESORGANIZATIONStructureStafRoles &ResponsibilitiesPerformanceMeasures- I ncrease Span of Control- Eliminate AdditionalAdministrative Staf- Align Processes and Roles- I mplement Strict PerformanceTargets40- 60%- I mplemented shared servicesI / S organization includingmoving from 756 corporatestaf to 0- Developed a detailedtransition plan for 2,000staf in transformedorganizationOUR CLIENT EXPERIENCE TELLS US THAT SIGNIFICANT FINANCIAL IMPROVEMENT IS POSSIBLE -- E.G., 40% REDUCTION IN COSTNetwork/TelecomOtherApplications Development & EnhancementApplication MaintenanceDesktopApplications MaintenanceMidrangeOther15%8%12%22%18%19%5%1%7%17%12%2%22%20%6%14%CLIENTSAMPLEYear 1