Outsourcing: Maintaining the Business Case. IEEE Technology Management Council, Bonn Peter Snowdon April 11, 2008

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1 Outsourcing: Maintaining the Business Case IEEE Technology Management Council, Bonn

2 An Introduction... Electrical Engineer, 1993 Full time MBA (HEC Paris), : Vodafone Management & advisory functions in new product development and process re-engineering at VF- Group 2007: Manager, Commercial Control for network outsourcing at VF-Netherlands Contact: peter.snowdon@vodafone.com Mobile: IEEE TMC Bonn 2008

& advisory functions in new product development and process re-engineering at VF- Group

3 Content 1. About Vodafone Why outsourcing? 3. How we do it Choosing the Models Managing for Outcomes 4. The 2 outsourcing levers 5. Next Steps? 3 IEEE TMC Bonn 2008

4 About Vodafone Ownership in 25 countries, Partners in over 40 4 IEEE TMC Bonn 2008

5 Vodafone s Business Environment Strategy needs to align with the nature of the market Continuously rising & shifting expectations in the mobile market Enable strong entrance into new lines of business offering a broad communications experience Stimulation of revenue growth and focus on cost reduction in Europe 5 IEEE TMC Bonn 2008

strong entrance into new lines of business offering a broad communications

6 How Outsourcing Enables our Strategy It s about making choices on how to compete Three key methods of competition: Lowering costs and delivering the right product through efficiencies Do this... by outsourcing Creating new products and opening new markets To put focus here... Achieving higher levels of value with existing or niche customers 6 IEEE TMC Bonn 2008

7 The Business Model Finding the desired combination of ownership & control Relationship Continuum Level of Accountability & Asset Transfer People - Processes - Tools - Equipment Supplier/ Buyer Outsourcing Strategic Alliance Joint Venture Level of Control Technical outcomes Operational outcomes Business outcomes Graphic adapted from: Michael F. Corbett, The Outsourcing Revolution,Dearborn Trade Publishing, IEEE TMC Bonn 2008

Alliance Joint Venture Level of Control Technical outcomes Operational outcomes Business outcomes Graphic

8 Contractual Model Business Partner Agreement Business outcomes Defines roles of each party Captures intent of the deal BPA Service Agreement Functions, service outcomes Defines SLAs, KPIs, PIs & baselines Captures objects of service, pricing & other complimentary services SA Plan SA Build SA Operate SA Pricing Working Level Agreement Working level processes Defines reports & schedules Captures daily activities & interfaces WLA WLA WLA WLA WLA 8 IEEE TMC Bonn 2008

service, pricing & other complimentary services SA Plan SA Build SA Operate SA Pricing Working Level Agreement

9 Operational Model Access Transmission Core Demand & Architecture Planning Plan Design & Optimize Fixed/Wireless Planning Fixed/Wireless Design Fixed/Wireless Optimization Transmission Planning Transmission Optimization Core Planning Core Optimization Carrier & Traffic Design & Optimization Relationship Management Process Management Service Delivery Management Build Site Acquisition & Civil Works Material Planning, Procurement, Warehousing Installation & Testing Integration Financial Management Contract Management Service Level Management & Operate Fault Management Configuration Management Performance Management Release Management Service Assurance Maintain Spare Parts Management Field Service Technical Support Table Adapted from: Capgemini TME Strategy Lab analysis 9 IEEE TMC Bonn 2008

Civil Works Material Planning, Procurement, Warehousing Installation & Testing Integration Financial Management Contract Management Service Level Management & Operate Fault Management Configuration

10 What did it Bring Us? An operational trade-off optimized for our strategy Benefits: Management focus on implementing the business strategy A more business focused organization Ability to react quicker to technical developments Cost leadership Improved KPIs Challenges: Less operational control of the network New skills needed to govern the contract & relationship Dependency on service provider Cost creep Appropriate level of insight on network quality & performance 10 IEEE TMC Bonn 2008

more business focused organization Ability to react quicker to technical developments Cost leadership Improved KPIs

11 Does outsourcing solve all problems? The perfect setup isn t enough to be a success... What happened to the motivation? How do we get improvements? Do we still need to do this?... and isn t there a better way? (with a partner) The partner can only deliver what it s capable of. What did they promise? What did we choose to believe? Does: new scope + same provider = higher costs? 11 IEEE TMC Bonn 2008

... and isn t there a better way? (with a partner) The partner can only deliver what it s capable of.

12 How we maintain value in outsourcing It takes skillful management of: The Contract & The Relationship Contract Governance Technology change Scope change requests Future-proofing pricing models Targets for delivery Definitions Business transition Incentivising management Relationship Escalation Technology evolution Continuous improvements Pricing transparency & flexibility Need to feel responsible for outcomes Interpretation of definitions Business transformation Motivating the individual 12 IEEE TMC Bonn 2008

Incentivising management Relationship Escalation Technology evolution Continuous improvements Pricing transparency & flexibility

13 Conclusion The success of the business case lies in our management of the relationship as well as the contract Focus of Partner Management 1. Controlling the cost of change 2. Making use of the strengths of our partner technologies, processes, skills, scale 3. Ensuring flexibility is available and used Modular services, dynamic supply of resources 4. Pursuing innovation & continuous improvement 5. Engaging & motivating the extended team 13 IEEE TMC Bonn 2008

Making use of the strengths of our partner technologies, processes, skills, scale 3.

14 Next Steps in Outsourcing? Should we move to a new place in the relationship continuum? Can we define relationship success factors enough to put metrics in the contract? When are our assets not longer an asset? How much can the partner help us to compete in new ways? At what point does the term Mobile Network Operator no longer apply? 14 IEEE TMC Bonn 2008

When are our assets not longer an asset?

15 Dank u! 15 IEEE TMC Bonn 2008

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