Hosting, Outsourcing & Managed Services 2009 Tuesday 28th April 2009, London Hilton, Park Lane

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1 Hosting, Outsourcing & Managed Services 2009 Tuesday 28th, London Hilton, Park Lane

2 When To Hold And When To Fold: Making The Right Choices For IT Service Sourcing Robin Gardner Chief Technical Officer Avis Europe plc

3 When to Hold and When to Fold: Making the Right Choices for IT Sourcing Robin Gardner, CTO Avis Europe Information Age Spring Forum September 17th, 2008 Handelsblatt, Berlin 3

4 IT Sourcing Right-sourcing as an element of industrialisation Fitness for sourcing Critical factors for long-term success Optimising risk-return in sourcing decisions Sourcing, people management and change management Information Age 4

5 What does "industrialisation" mean? Industrialisation = Transfer of best practices from industry Why would you want to do this? Because industry has been driven over decades, if not centuries to be efficient and professional: Constant competitive pressure and decreasing margins Reliable delivery of goods and services High degrees of process maturity Innovation and management practices to drive productivity boosts Constant re-engineering (sometimes re-invention) of the operating model In basic terms, industrialisation has a lot to do with simply being professional about what we are doing. Information Age 5

6 Arriving at a sourcing decision In order to industrialise IT, the IT value chain must be broken up into services that are well-defined, separately operable and standardised across the various sourcing options. Cost optimised sourcing of services Per service: Benchmarking Standard-isation Consol-idation Sourcing decision Fit for sourcing Typically the internal IT landscape is far from sorted and streamlined. Internal consolidation generally preferable to outsourcing. Ideally fitness for sourcing is achieved prior to the outsourcing decision. There is an incentive for internal organisation to beat the market. The approach can lead to different results for the different services. Information Age 6

7 Fitness for sourcing Standardisation and consolidation work should be done internally otherwise easy margins are handed over to the provider. Succeeding in standardisation and consolidation is mainly a management and implementation issue, rarely one of stating the problem. If both steps can be done internally, risk-return is optimal. An aligned internal organisation is the best consolidation tool. Internal "clean-up" builds the necessary understanding of the outsourcing object. If this is missing, you outsource a mess and get an outsourced mess. If you are forced to outsource an unconsolidated environment, significant attention to the negotiation with the provider is necessary to assure mid-term financial and operational success. Fitness for sourcing implies sufficient internal process maturity to be able to connect efficiently with the provider: Standardisation & consolidation Internal process maturation Full-fledged outsourcing Sourcing pilots & change mgmt Information Age 7

8 For sourcing success, mutual trust is fundamental... Trust and mutual understanding is core for outsourcing success. Relationship building Sufficiently thorough negotiation phase "High fences make good neighbours" Mutual understanding of the economics of the deal for each party Relationship between equals: outsourcing organisation must understand sourcing object in detail (need for expertise does not go away) Partnership between supplier and client quickly breaks down when the pressure is on: anticipation of business environment changes, which can be faster than outsourcing relationships tend to cater for Relationship maintenance Transparency on service provision and service costing Relationship management at all levels (operational, managerial, executive) Information Age 8

9 but long-term sourcing success requires flexibility. It is extremely difficult to construct a system between provider and client that gets itself into the cost-optimal state and stays there. Constant benchmarking is important (against internal and external service provision), but tends not to reveal opportunities due to special market dynamics. Best approach: regular placing of individual services on the market (RFP process) FROM comprehensive (e.g. source data center) one vendor local sourcing long-term sourcing full sourcing mode TO granular (source individual services separately) multi-vendor global sourcing short-term sourcing (3y) strong retained organization You must be in a position of relative independence from the provider. Provider management is at the core of achieving this. Information Age 9

10 In- or Outsourcing? It depends... and it can change Internal service provision Capability enablement Quality of service provision Time-to-market Cost reductions through scale Outsourcing of problems Fast consolidation need Changing business direction Post-merger situations Local outsourcing vs. group-wide consolidation Outsourcing Provider 1 Outsourcing Provider 2 Ability to use competitive market forces Constantly optimise deal economics Information Age 10

11 Invest in strong Provider Management as part of the Retained Organisation An effective retained organization is mandatory to manage and continuously benchmark the provider. Sourcing governance eyes on, hands off" Functions of provider management Strategic Operational Sourcing governance ensure the strategic and tactical goals are defined and achieved Contract management manage providers in terms of finances and services (finance, contract and order management) Product management plan and manage service requirements (endto-end service level management). Technology management plan and manage the technology cycles and requirements (technology lifecycle management). Service management operational management of the productive operation (service support and service delivery) Definition of a uniform provider management team with roles, tasks and processes Provider management is embedded in sourcing & contracts Provider management comprises a core team with the following roles: Sourcing manager IT contract manager Provider manager Product manager IT controller Service manager Information Age 11

12 Similar principles hold for the consolidation into Shared Service Centers in a Group Retain the principle to prefer internal consolidation to straight outsourcing Build shared service centers around centers of competence Group-internal sourcing with similar complexity as external option Qualitatively new issue: internal cross-unit governance Various transition steps possible to minimize implementation risk: Internal market-place for services Forced consolidation into shared service centers Independent business units BU 1 BU 2... BU n Internal sourcing networks BU 1 BU 2... BU n SSC1 SSC2 SSCn Information Age 12

13 Sourcing at Avis Europe Applications Core rental/reservation system Wizard provided by Avis Budget Group (ASP service) Maintenance of Wizard outsourced Shared Service Centre for Enterprise Applications at HQ, Bracknell, UK Near-shore internal Shared Service Centre in Budapest Contracting of individual skills; projectbased co-operation with implementation partners Various application maintenance relationships for individual solutions; in the process of in-sourcing some to Budapest Infrastructure Wizard ISP services provided by IBM, Denver European data centre in Heathrow and Frankfurt; server hosting arrangement; operation internal WAN outsourced Selective sourcing relationships with local providers for local infrastructure services in countries Information Age 13

14 Whatever the sourcing decision you need the internal organisation to fit in and execute it Before you achieve fitness for sourcing, you need to guide your internal organisation through an efficiency program. You might need to (re-) build the necessary skills. During the outsourcing process, your organisation goes through tremendous change. You need to retain and motivate an effective provider management team driving the outsourcing provider. In-sourcing sounds simpler, but you need to build the necessary skills and professionalism in the internal organisation in order to be competitive with the market. In any case, you must lead your people through change. The associated risk needs to be carefully understood and managed. Information Age 14

15 People management and change management Managing the steady state: People Management Managing the exception: Change Management Advanced HR Job position planning Recruitment Induction management Career management Performance management Personal development Leadership support Communication Engagement Employee feedback Personal Leadership Motivation Forming opinions Presence Approachability Openness Authenticity Understanding beyond work life Compassion Walk the Talk Information Age 15

16 All management is change management. External influences on IT drive Change in IT requires Change Management has Tools & Methods Implement change comprehensively Be honest about it. Communicate, communicate, communicate. Be present and close to the employees during the whole change process. Engage. Give it highest priority. Don t even think about delegating it. Be open and allow employees to challenge you. Information Age 16

17 A broader context: running IT as a business skill domains beyond technology Business Business understanding Governance enables Industrialisation drive People Effectivity of delivery Efficiency of delivery Delivery Relationship Mutual understanding Information Age 17

18 To Conclude Right-sourcing as an element of industrialisation What are the objectives driving the sourcing decision? Fitness for sourcing Is the IT landscape in the best state for delivering benefits? Critical factors for long-term success Has the relationship with the sourcing partner been structured for success beyond contract signature? Optimising risk-return in sourcing decisions Are there High Fences and strong provider management in place? Sourcing, people management and change management Is there strong organisational support to ensure successful transition? Information Age 18

19 Thank you very much for your attention