IT Sourcing. White Paper IT Advisory

IT Sourcing Sourcing of IT capabilities can result in significant benefits. Besides getting access to market competence and development, BearingPoint s experience is that the actual cost savings typically range between 10 and 30 percent, depending on the existing internal state and the maturity of the services concerned. White Paper IT Advisory

This white paper focuses on IT sourcing from the perspective of the outsourcing of a complete service delivery. It shows how a structured approach to this can realize substantial benefits for organizations. In this white paper The IT Sourcing life cycle...3 The IT sourcing strategy...4 Defining and prioritizing IT sourcing objects...4 The sourcing process...4 Key factors...5 Conclusion and summary...6 The next step...6 About BearingPoint...7

IT sourcing can be defined as activities to ensure access to the right level and amount of competence, when needed, to deliver IT services according to requested quality, quantity and cost. Examples of sourcing include hiring consultants with specific competency, or to outsource day-to-day IT operations or a complete service delivery to an external supplier. Sourcing of IT capabilities can result in significant benefits. Besides getting access to market competence and development, BearingPoint s experience is that the actual cost savings typically range between 10 and 30 percent, depending on the existing internal state and the maturity of the services concerned. The result is however dependent on a structured approach, including detailed analysis and planning, management support for the change and organizational preparations. The IT sourcing life cycle FIGURE: THE BEARINGPOINT IT SOURCING METHODOLOGY AND LIFE CYCLE MODEL 7. Exit management 1. Sourcing strategy 6. External operations 2. Sourcing evaluation 5. Transition 3a. Internal operations 4. Negotiation & contract 3b. Preparations The sourcing of IT services delivery is often a complex process and the expected results can fail to materialize unless the sourcing is properly planned and executed. BearingPoint has developed a structured framework The IT Sourcing Methodology to govern and manage the different phases during an IT sourcing process. Much emphasis is put on analysis and preparation, which are key factors. The sourcing strategy must be clear and well understood, the scope of the outsourcing must be well defined, and the organization must be prepared well in advance. It is equally important that performance and results are continuously followed-up after the transition: Are the service level criteria met? Have we managed to improve quality of service delivery and to reduce costs? The IT sourcing strategy The IT sourcing strategy defines and directs the subsequent work in the sourcing process and is a prerequisite for outsourcing of IT capabilities. The sourcing strategy must be aligned with the overall business and IT strategies and clearly articulate the guiding principles for sourcing decisions. Outsourcing can be performed for a number of reasons. Reduced cost is perhaps the most common key factor, but increased flexibility, better availability of critical competence, and improved quality in service delivery are other common considerations. IT Advisory White Paper 3

Defining and prioritizing IT sourcing objects IT services that will be outsourced should be bundled into logical groups sourcing objects that can be packaged and sourced from an external party. Well-defined IT sourcing objects make the offer more attractive on the market and make it easier to plan and manage the sourcing process. A current state analysis and mapping of current IT costs is the basis for defining the IT sourcing objects. Typical areas to cover are infrastructure, applications, services portfolio, projects, organization, governance model, external contracts, service levels and costs. The sourcing strategy must be aligned with the overall business and IT strategies and clearly articulate the guiding principles for sourcing decisions. Important aspects to consider in the IT sourcing object definition are that they are: Sufficiently extensive for a supplier to realize economies of scale in the service delivery. Logistically delimited in order for a supplier to drive cost rationalizations through synergy effects. Sufficiently few to support the internal IT organization to manage the supplier relationships in terms of service delivery, development and governance. The sourcing object must be clearly delimited and have well defined interfaces to the delivery of other services. When the IT sourcing objects have been defined, they should be evaluated according to Cost savings potential. Complexity and size. Impact on core business as well as on internal IT organization and operations. The principle is to prioritize IT sourcing objects that have a relatively limited impact on the organization, good savings potential and low complexity. Results will thereby be achieved quicker while reducing risk. However, it is important to have a holistic view on IT sourcing and establish a roadmap and longer term plan for all applicable IT services delivery, internal as well as external. The sourcing process The role of the retained IT organization will change and this needs to be well prepared prior to outsourcing. With respect to IT services delivery, the role of the retained organization will shift from produce and deliver to order and supervise. In-depth technical skills will be less important, while understanding of core business needs and formulating technical requirements, as well as supplier relationship management, will become more important. The transition from the current organization to the future organization needs to be carefully analyzed and planned. Before the Request for Quotation (RFQ) is developed, it is important to agree on which evaluation criteria to use during the evaluation of the supplier quotes, as well as the weighting of these criteria. The information provided in the RFQ should be of high quality in order for the suppliers to be able to give proper quotes. The better the RFQ, the less time will be spent on developing the proposal from the suppliers. The need for supplementing information for the RFQ is one main reason for delays in the procurement process. In order to secure a satisfactory end result it is important to appoint a lead negotiator with extensive experience and knowledge from negotiating situations. The lead negotiator should be identified already during the internal preparations phase in order for this person to be able to influence the content of the RFQ. The negotiating team should also possess legal, financial, business and technical competencies. It is strongly recommended that the contract negotiation team representatives have been involved in earlier phases of the sourcing process. 4 White Paper IT Advisory

During the negotiation and contract preparations, an overall transition plan should also be created. The plan should contain: Overall time schedule. Milestones. Areas of responsibility. Key factors. The plan must be realistic and possible to carry out within the allotted time. It is also important to establish an understanding of the key success factors at an early stage in order to ensure that work is done to reduce the related risks. The plan should reflect a realistic transition plan that contains detailed information on which objects are to be transferred and when this will occur. When the transition has been completed it is important to continuously follow-up quality and expected benefits: SLA (service level agreement) monitoring evaluate if the service delivery meets the defined service levels. Contract monitoring evaluate if the agreed contract is followed. Cost/benefit monitoring evaluate if the new cost levels meet expectations. The plan must be realistic and possible to carry out within the allotted time. Key success factors According to BearingPoint s experience, some key success factors in the outsourcing of IT services delivery include: Ensure commitment and continuous communication. There must be strong management commitment to the change or it will probably fail. Everyone must have a clear understanding of the rationale for outsourcing, what the expected benefits are and what value it brings to the business. The parts of the organization that will be affected by the outsourcing need to be informed at an early stage and the dialogue needs to be maintained throughout the whole transformation process. Set up the retained organization for a different way of working. The consequence of outsourcing the capability to execute an IT service delivery means that the retained IT organization will be different. It is typically a smaller and more strategically-oriented buyer organization, that manages supplier relationships and follows-up on service delivery. This requires different roles and competencies and new ways of working. The retained organization must be defined early in the outsourcing process and the work to establish the new organization should be completed when the first contract is signed with a selected outsourcing vendor. Prepare carefully and be realistic when planning. A significant part of the work is to establish the baseline and to define the sourcing objects. Uncertainties will inevitably lead to delays or compromise the savings potential. The scope must be clearly defined (services, service levels, costs, resources, assets, etc.) and the objectives quantifiable. When planning, it is important to recognize that certain activities, such as vendor negotiations, require lead-time on both sides to be satisfactorily concluded. Outsource mature functions. Begin with the non-core/lowrisk options. Provided that the sourcing objects have been analyzed and properly defined, mature and non-core/low-risk services and functions should preferably be prioritized in the transformation process. Immature services and functions may be challenging to scope or contract effectively. IT Advisory White Paper 5

Conclusion and summary A well-prepared IT outsourcing journey starts with a well-defined IT sourcing strategy. The current and future states of the service delivery and internal IT organization need to be well understood in order to create the plan for the sourcing process. Preparation activities are important for efficient execution of the souring process and agreed metrics should be in place to measure the result. The next step For organizations that lack an IT sourcing strategy, the suggested starting point is to establish the strategic direction for sourcing of IT services, and confirm alignment with the existing business and IT strategies. The next step is then to evaluate the current situation based on the criteria defined in the sourcing strategy, and benchmark with alternatives. If there is a case for change, this is usually clearly shown in this sourcing evaluation process. According to BearingPoint s experience the IT sourcing strategy development typically takes around six to eight weeks, where BearingPoint experts work closely with key stakeholders within business and IT to define the guiding principles and evaluation criteria of the IT sourcing strategy. 6 White Paper IT Advisory

About BearingPoint BearingPoint consultants understand that the world of business changes constantly and that the resulting complexities demand intelligent and adaptive solutions. Our clients, whether in commercial or financial industries or in government, experience real results when they work with us. We combine industry, operational and technology skills with relevant proprietary and other assets in order to tailor solutions for each client s individual challenges. This adaptive approach is at the heart of our culture and has led to long-standing relationships with many of the world s leading companies and organizations. Our 3500 people, together with our global consulting network serve clients in more than 70 countries and engage with them for measurable results and long-lasting success. For more information, visit our website www.bearingpoint.com.