Agenda. Purpose and Scope of the State of Canadian Outsourcing Report. Approach and Methodology. The Outsourcing Market

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2 Agenda Purpose and Scope of the State of Canadian Outsourcing Report Approach and Methodology The Outsourcing Market Management Practices and Outcomes Conclusion

3 Purpose and Scope of the State of Canadian Outsourcing Report Purpose To provide insight into: the size of the outsourcing market in Canada; trends in the outsourcing market; the results being achieved from outsourcing relationships; and how Canadian organizations make outsourcing decisions and manage outsourcing relationships.

4 Purpose and Scope of the State of Canadian Outsourcing Report Scope To provide insight into: outsourcing across all industry sectors, and covers the five-and-a-halfyear period between January 1, 2002, and June 30, 2007 the larger end of the outsourcing market (outsourcing transactions with a total contract value in excess of $10 million) publicly reported outsourcing transactions and outsourcing transactions reported to CORE through our primary data gathering The quantitative data in this report is indicative of the size and scope of the outsourcing market in Canada, but should not be seen as definitive.

5 Approach and Methodology Scope For quantitative data in this report: CORE hired the research support services of Evalueserve, a leading Knowledge Process Outsourcing (KPO) company Evalueserve data is based on public announcements of outsourcing transactions and direct requests for data from major outsourcing service providers and advisors For qualitative information: the result of four research projects conducted by CORE in 2006 and 2007 interviews held with large outsourcing client organizations, large outsourcing service providers, and leading outsourcing business and legal advisors

6 The Outsourcing Market Market Size about $50 billion worth of deal transactions were announced in Canada in the past five-and-a-half years, representing 250 deals average total contract value of all reported deals is about $200 million approximately 300 deals in total (40 with TCV unavailable) deals of more than $1 billion make up approximately 49% of the total dollar value of all deals

7 The Outsourcing Market Types of Outsourcing Information Technology Outsourcing (ITO): the outsourcing of IT and related activities. The breakdown of key ITO areas are: Application Development & Maintenance (ADM): the outsourcing of the development and maintenance of software applications Business Process Outsourcing (BPO): the outsourcing of entire business processing ITO and ADM are often done in combination. BPO and ADM are also done in combination, although less frequently.

8 The Outsourcing Market

9 The Outsourcing Market Types of Outsourcing Information Technology Outsourcing (ITO): 102 ITO deals with total value of approximately $21.6 billion (44% of market) average deal size about $220 million Application Development & Maintenance (ADM): 69 ADM deals for total value of $7.2 billion (15% of market) average deal size about $114 million Business Process Outsourcing (BPO): 45 BPO deals BPO deals 17% of the market; total value $8.1 billion average deal size $312 million ADM and ITO: combined ADM and ITO made up 19% of deals and 20% of total market value (at $9.7 billion) average deal size of about $206 million

10 The Outsourcing Market Industry Analysis

11 The Outsourcing Market Market Leaders Leading Client Organizations

12 The Outsourcing Market Service Providers

13 The Outsourcing Market Top 10 Deals

14 The Outsourcing Market Deal Database

15 Management Practices and Outcomes Why are organizations outsourcing? larger organizations increasingly adopting outsourcing as a core operational strategy primary reason for outsourcing is to access expertise and additional capabilities rather than cost reduction larger organizations increasingly view outsourcing as a strategic response to the difficulty experienced in accessing skills in a wide range of operational and administrative areas organizations more prepared to have work performed offshore

16 Management Practices and Outcomes What is being outsourced? nearly 70% of large organizations outsourcing IT or business processes 69% outsourcing some aspect of IT infrastructure 66% outsourcing ADM Smaller percentage outsourcing business processes including: 41% some aspects of HR 28% customer contact 25% parts of finance and accounting just over half outsourcing some form of BPO

17 Management Practices and Outcomes What results are being achieved from outsourcing? Results and satisfaction levels mixed and depend on type of outsourcing: ITO and ADM outsourcing the satisfaction rate in terms of value creation in the range of 75% to 80% BPO is about 50% low BPO satisfaction reflects relative immaturity and complexity of BPO

18 Management Practices and Outcomes What results are being achieved from outsourcing? Organizations learning how to make outsourcing work effectively, particularly for BPO: outsourcing initiatives are transformational in nature; requiring change management to deal with impact of outsourcing on people nearly 70% of large organizations outsourcing IT or business processes requires non-traditional relationship between client and service provider, with higher levels of trust and sharing of risks special management skills needed to achieve targeted outcomes

19 Management Practices and Outcomes What results are being achieved from outsourcing? Most important factor for success effective definition of scope and requirements during deal negotiation and ongoing scope management: vagueness in scope and requirements leads to difficulties trouble if the scope is too ambitious or entails excessive interdependence between the client and provider other important factors are change management and the effectiveness of leadership within client and provider organizations

20 Management Practices and Outcomes What results are being achieved from outsourcing? Despite varying degrees of satisfaction, most organizations plan to outsource more to achieve benefits across a broader range of non-core activities: over 70% surveyed in 2007 plan to increase level of outsourcing in the next three years have a greater level of maturity and confidence recognize the benefits of working collaboratively with providers rather than conducting non-core activities with scarce internal resources

21 Management Practices and Outcomes How is outsourcing being managed? Client organizations becoming more savvy outsourcing managers clients becoming better at managing their outsourcing initiatives and more confident in their relationships with service providers until recently, outsourcing market provider-driven; providers had deeper outsourcing experience and capability clients now prepared to call the shots and outsourcing being driven more by clients than by providers

22 Management Practices and Outcomes How is outsourcing being managed? Client organizations selecting outsourcing providers based on areas of expertise, rather than working with a single provider clients prepared to select best provider for a given scope of work rather than rely on a single provider choosing a provider with expertise rated as more important than the existence of a previous relationship requires the client to integrate the efforts of various providers, but diversifies risk and gives the client more leverage

23 Management Practices and Outcomes How is outsourcing being managed? Clients realizing outsourcing about managing outcomes rather than managing service-level agreements: clients see outsourcing as a business transformation requiring the management of many factors within the client organization means managing the soft issues like building trusting relationships between client and provider, and managing impact of outsourcing arrangement within the client organization management of soft factors help determine the success of outsourcing initiative

24 Management Practices and Outcomes How is outsourcing being managed? Client organizations investing in management of outsourcing relationships by: establishing professional outsourcing centres of expertise establishing robust governance processes and structures building deeper capability into stay back teams managing outsourcing relationships establishing networks of external business and legal advisors involved in outsourcing transactions and to help client avoid pitfalls

25 Conclusion Thank you Any questions? Centre for Outsourcing Research & Education (CORE) Suite 3000, Box 82 Royal Trust Tower, TD Centre Toronto, Ontario M5K 1G8 Toll free: CORE (2673)

26 References Organizations Surveyed for Market Information Accenture Blakes Deloitte Fujitsu Hewitt Associates IBM Infosys KPMG PwC RBC Dexia Satyam

27 References Organizations Interviewed for Information on Practices Accenture BC Transmission BMO Financial Group Bombardier Calgary Health Region CGI CIBC Cisco Systems CMHC Deloitte Government of British Columbia, ASD Secretariat Hamilton Health Service Hydro One Inco KPMG Manulife Financial Osler Hoskin & Harcourt Petro-Canada 45 PwC TD Bank Financial Group