Multi-Sourcing Workshop PAUL O HARE ANDY NELSON ANDREW WOODWARD ANDREA WILLIAMS 24 / 9 / 2015
Agenda 1.30 1.50: Introductions and Survey feedback Andy Nelson (Associate, Kemp Little Consulting LLP) 1.50 2.50: Successful Outsourcing and Multi-sourcing: trends, benefits and challenges Paul O Hare (Head of Outsourcing, Kemp Little LLP) Andy Nelson (Associate, Kemp Little Consulting LLP) 2.50 3.00: Coffee and networking break 3.00 4.00: Multi-Sourcing Case Studies Andrew Woodward (Associate, Kemp Little Consulting LLP) Andrea Williams (Associate, Kemp Little Consulting LLP) 4.00 4.10: Coffee and networking break 4.10 5.10: Addressing the Challenges of Multi-Sourcing Andy Nelson (Associate, Kemp Little Consulting LLP) 5.10 5.30: Wrap-up
Maximising Value in the Outsourcing Relationship Outsourcing can be a powerful tool not just to deliver cost efficiencies, but to help drive competitive advantage, improve business performance, and deliver business transformation However, these outcomes are not guaranteed, and achieving success in an outsourcing relationship remains a challenge for many organisations. In this section we will look at the key ingredients, our Top 10 Tips, of a successful outsourcing, from inception to exit
Top 10 Tips for Successful Outsourcing Clear Strategy and Objectives Clear Scope and Business Requirements Understand the Market Effective Procurement Process Get the Pricing Right Incentivising service improvement and cost savings Plan ahead for exit Strong Governance Commercial and Operational Skills are Key Never Forget the Humans _4
In a Digital World do these Top 10 Tips still hold true The answer broadly is YES but let s test that assertion for Could Computing Big Data Agile Development Open Source Software (OSS) Multi-Sourcing _5
Cloud Computing Compute services on demand IaaS, PaaS, SaaS Easy to Buy Simple Pay Per Use Cost Effective Flexibility and Ease of Change Standard service is that what you want Challenges of customer control Service levels; best endeavours Security and data privacy Termination rights Exit assistance and ease of transition Unilateral change of service features IPR ownership/licensing _6
Conclusion The world of digital, commoditised IT, rapid innovation and multi-sourcing is here to stay The Top 10 Tips remain key to successfully buying and managing services in this world They still apply to current technology trends. You still: Need to be clear about what and why you are outsourcing Run an effective procurement process that buys the right service and the right price Must implement relevant yet rigorous governance mechanisms These technology trends place even greater focus customer capabilities and accountabilities Demand different commercial approaches and contractual terms _7
Multi-Sourcing and SIAM trends, benefits and challenges In this section we will share Kemp Little and Kemp Little Consulting perspectives on the trends in Multi-Sourcing and the benefits and challenges of implementing a multi-sourcing model. We will also the address some key contractual considerations and the role of Service Integration and Management (SIAM) in these models and the keys to success in implementation.
Multi-Sourcing what do we mean? Infrastructure and application services provided by many suppliers rather than just one or a few Services provided as a set of service towers such as data centre, networks and desktop support A service tower could be provided by more than one supplier such as in networks separating out the provision of the physical network from telephony and other services (e.g. video-conferencing) Customer owns the contractual relationship with all service tower providers Need for Service Integration and Management (SIAM) to ensure effective end-to-end service is delivered to end users _9
Multi-Sourcing Trends Multi-sourcing not new but more customers moving to this model Big single source deals still being done Other market trends prompting this move Commoditisation of infrastructure services such as networks and data centre services Availability of on demand software services such as Office 365 Cloud computing Competition driving buyers to look to a broader range of IT suppliers to drive innovation UK Government leading the way on large multi-sourcing deals Factors influencing degree of multi-sourcing for customers Business strategy e.g. are you an acquirer of businesses Overall sourcing strategy Capability of the internal IT organisation _10
Multi-Sourcing Benefits Better service quality Post-signature competition Greater flexibility Avoiding margin-on-margin payments _11
Multi-Sourcing challenges No single point of responsibility Increased management overhead Risk of service gaps Supplier collaboration and interdependencies Ensuring alignment to the wider business and IT strategies The degree to which the services are disaggregated The difficulty of transitioning to a multi-sourcing model Managing business risk and stakeholders Building or buying in the capability to manage both the transition to and manage multi-sourced models the place where SIAM plays _12
Multi-Sourcing The Keys To Success Target Operating Model - for all IT services internal and outsourced Service Model who does what between corporate IT, SIAM and the tower providers Commercial model the right mechanisms to ensure collaboration Contractual model the right balance between an overarching Master Services Agreement, collaboration agreements, and the individual service tower contracts Technical Architecture model the architecture and technical standards you expect to comply with Programme Delivery model transition is complex and should be treated as a business transformation programme _13
Optimising the Multi-Sourcing Model Reflecting your multi-sourcing requirements in the tender process Strong governance structures, including cross-supplier governance boards with attendance by senior management of the customer and each supplier Key contractual considerations in multi-sourcing The use of collaboration agreements with and between suppliers Inclusion of an appropriate balance of incentives and disincentives in their contracts to ensure supplier co-operation and collaboration SIAM options, role and accountability _14
Contract considerations specific to multi-sourcing Data and information sharing requirements Cross licensing of IP Standardised and integrated contract processes Adherence to common IT standards Fix first, settle later principles Skin in the game on achievement of end-to-end service delivery Acceptance of SIAM provider role _15
Contracting structure: OLAs & collaboration agreements Entered into in parallel to direct agreements Customer Contractualises multi-sourcing principles Risk/reward models to incentivise supplier collaboration Supplier 1 OLA / collaboration Agreement SIAM provider Documents SIAM provider s role Enforcement considerations Supplier 2 Supplier 3 _16
Incentivising supplier collaboration: general principles Balance of practical measures in addition to usual nuclear options of termination/suspension of ability to bid for future work packages Skin in the game against successful performance by other suppliers element of supplier charges linked to achievement of end-to-end service levels Combination of risk/reward may require additional customer funding Combination of hard and soft measurements Role of SIAM provider _17
Incentivising supplier collaboration: Example painshare mechanism Diagnosis of service failures Suppliers required to produce single root cause analysis (one version of the truth) If diagnosis agreed, supplier at fault liable for service credit payment Failure to agree RCA results in all suppliers paying a higher service credit _18
Incentivising supplier collaboration: gainshare Bonus pool linked to achievement of end-to-end service delivery Linked to customer business benefits Service availability Incident resolution Customer satisfaction Supplier collaboration behaviours Allocation/distribution by SIAM provider _19
Service Integration and Management (SIAM) SIAM function can be fulfilled in different ways By the internal IT function By an independent provider By one of the underlying service tower providers Role of the SIAM provider End-to-end service management Provider of some services such as the IT Help Desk, Change Management and Release Management Service provider assurance (including adherence to standards and processes) Service knowledge management Take on some risk and liability for the end-to-end service Dispute resolution support SIAM must be empowered to manage service tower providers _20
Role of SIAM provider: OLA enforcement responsibilities Dispute resolution/implementation of fix first, settle later terms Supplier requirement for easy recovery of rectification costs where not at fault No direct supplier enforcement rights SIAM provider adjudication on cost allocation Administration of service credit and bonus pools (re soft measurement targets) Generally accepted by suppliers, provided: SIAM provider not tower provider Limits on SIAM adjudication rights Right of redress Auditing of supplier compliance with OLA terms _21
SIAM accountability, risk allocation and incentivisation Allocation of legal/commercial risk on supplier performance/delivery Service integration risk Service levels around SIAM operational responsibilities Skin in the game on achievement of end-to-end service metrics Gainshare on SIAM provider cost-savings contribution to funding of bonus pools _22
Agenda 1.30 1.50: Introductions and Survey feedback Andy Nelson (Associate, Kemp Little Consulting LLP) 1.50 2.50: Successful Outsourcing and Multi-sourcing: trends, benefits and challenges Paul O Hare (Head of Outsourcing, Kemp Little LLP) Andy Nelson (Associate, Kemp Little Consulting LLP) 2.50 3.00: Coffee and networking break 3.00 4.00: Multi-Sourcing Case Studies Andrew Woodward (Associate, Kemp Little Consulting LLP) Andrea Williams (Associate, Kemp Little Consulting LLP) 4.00 4.10: Coffee and networking break 4.10 5.10: Addressing the Challenges of Multi-Sourcing Andy Nelson (Associate, Kemp Little Consulting LLP) 5.10 5.30: Wrap-up
Multi-Sourcing and SIAM Case Studies In this section we will share some Kemp Little Consulting experiences from recent Multi-Sourcing programmes, to illustrate some of the benefits and challenges of implementing a multi-sourcing model.
Case Study 1: Customer Large public sector body, providing national Business Area A Business Area B Business Area C front-line public services Formed from 3-way merger in 2007 3 separate IT organizations, serving total 100,000 staff/users in 2000+ locations 3 separate IT, long-term outsource arrangements with large systems integrators specific to each of the 3 business areas. 3 separate networks, 3 service desks, 300+ line of business applications; every conceivable piece of technology legacy IT consolidation strategy in 2 stages: (1) In house IT functions merged into single corporate function in 2010 / (2) Multi-source programme: contract re-competition for a new TOM...RUN COST SAVINGS OF 30-40% per year _25
Case Study 1: Situation Target Operating Model: Business Area A Business Area B Business Area C In-house retained functions include Strategy, Enterprise Architecture, Project/Programme Delivery, Service Assurance. Outsourced SIAM service provider Tower suppliers providing common technical services across all business areas Data Centre, Hosting, Security, EUC, Networks-1 (Voice/Video), Networks-2 (WAN/LAN), Print Services, Apps Mgmt-1 & 2 Suppliers to be procured primarily via OJEU Contract structure: 2 parts 1. Suppliers have direct contract with the Authority _26 2. All Suppliers + Authority sign up to a Master Services Agreement & deferred shareholder fund
Case Study 1: Key Challenges & Recommendations Our Keys to Success Target Operating Model Service Model Commercial / Contractual Model Programme Delivery Model Technical Architecture Model Issue TOM, governance, roles, & retained org not defined before going to market. Service management processes and handoffs not defined up front SIAM not contracted to be the Systems Integrator given control but no accountability Project delivery governance standards and processes for transition/transformation not defined. To-be architecture defined but transition sequence not defined before going to market. Recommendation TOM, governance, roles, & retained org -define before going to market. Service management processes and hand-offs define these prior to procuring the Towers. Keep SIAM in-house or manage very carefully. Define project delivery governance standards and processes for transition/transformation up front. Orchestrate the procurement sequence to deliver services in the order you need them! _27
Operating Model: The Golden Thread The commercial / service model, operating model and the technology landscape are all intrinsically linked and must be delivered as an integrated bundle to be successful Multi-sourcing drives the need for a more mature and integrated approach _28
Case Study 1: Observations Benefits: Multi-sourcing forces IT function to take accountability; not just blame suppliers this will drive maturity of in-house IT; to the benefit of the business. Underlying factors primarily cultural: 10-15 years of managing large outsource contracts meant few in-house IT skills left little understanding of what it takes to deliver large technology programmes. Programme treated as a sourcing programme. We don t need to understand IT; suppliers do that. Regarded as a re-procurement of the as-is ; managed by the service management organisation. Little focus on the transformation delivery capabilities that would be needed to manage delivery of complex change in a complex environment. Little recognition that disaggregation to a multi-sourced model is different from a traditional like-forlike contract replacement - when many suppliers are involved, Authority has to take the lead; you cannot rely on incoming suppliers to magically collaborate. _29
Case Study 2: IT Supplier Large Systems Integrator, bidding for and delivering a tower contract in a multi-sourced programme Accustomed to providing integrated end to end services, i.e. Accustomed to taking on associated project and service delivery risk Expect to have flexibility to apply own people, process/methodologies, and tools in order to mitigate those risks. Their objective: aim to deliver the contracted service, whilst managing those risks in order to generate an acceptable margin (i.e. make money). _30
Case Study 2: Situation Supplier bid for and won a significant contract within a multi-sourced transformation programme. Contracted to build and run a large private cloud hosting environment to replace legacy contracted hosting arrangements Contract included the migration of the applications from the legacy environments Deal-shape: supplier makes the investment in the platform and makes money from service charges should incentivise supplier to deliver and go-live. Example: Accessing an Application Desktop PC LAN WAN DC Core Network Application Server Application EUC Supplier WAN/LAN Supplier WAN/LAN Supplier VVI Supplier Hosting Supplier AMS Supplier _31
Case Study 2: Situation Many dependencies on other supply contracts, including: Data Centre space in which to build the platforms Network connectivity & gateways to securely connect the platforms to the network Applications providers to assist migration; make any required application changes End User Compute to make any required infrastructure changes; assist with e2e test SIAM to put in Procurement Project place support arrangements Tower1 Supplier s Mgmt Functions Tower1 Service 1 Tower2 Supplier s Mgmt Functions Tower2 Service 1 Tower3 Supplier s Mgmt Functions Tower3 Service 1 Tower1 Service 2 Tower1 Service 3 Tower2 Service 2 Tower2 Service 3 Tower3 Service 2 Tower3 Service 3 Implementation Project Ongoing Service Mgmt _32 Ongoing Supplier Mgmt = Lead Supplier
Case Study 2: Challenges Supplier not able to deliver their contracted scope Not in their gift to deliver it on their own Other suppliers not ready/not able to support the transition plan - since not working to same methods, timescales, assumptions different tower contracts awarded at different times Supplier based their plan on the best information provided by the authority but become victims to the fact that the quality of that plan was inadequate Supplier not able to enforce the contracted dependencies during transition/build/migrate phase. Contracting authority had no ability to manage and enforce transition and transformation to the multi-supplier model because they did not define or build the multi suppler model adequately. Supplier did not have the contractual relationship with the other suppliers & therefore entirely dependent on the capabilities in organisations not under their control. Anticipated revenue from deal did not materialise. How could supplier succeed? _33
Case Study 2: Mitigations Mechanisms which helped to address these issues and provide suppliers with a level of protection: Standardised governance structure across the supply chain Standardised programme & project management methods, processes and gated delivery lifecycle Defined opportunity in the lifecycle post contract award to call out and conform inter-supplier dependencies, and adjust solutions and transition plans accordingly. Ongoing process for dependency management; to manage complexity across multiple different suppliers. Enabled suppliers to call out and manage lower-level dependencies between parties on an ongoing basis. _34
Case Study 2: Observations Lessons learnt: Reliance only on collaboration is mis-placed collaboration breaks down when involved. Strong governance, structure and processes are a pre-cursor to collaboration. Different suppliers have different levels of competence. Collaboration requires equivalent levels of competence. Benefits: When good structures are in place, suppliers realise they can only succeed if all others succeed. Suppliers start to share their best practices with other suppliers, to the benefit of the client best of all worlds. _35
Agenda 1.30 1.50: Introductions and Survey feedback Andy Nelson (Associate, Kemp Little Consulting LLP) 1.50 2.50: Successful Outsourcing and Multi-sourcing: trends, benefits and challenges Paul O Hare (Head of Outsourcing, Kemp Little LLP) Andy Nelson (Associate, Kemp Little Consulting LLP) 2.50 3.00: Coffee and networking break 3.00 4.00: Multi-Sourcing Case Studies Andrew Woodward (Associate, Kemp Little Consulting LLP Andrea Williams (Associate, Kemp Little Consulting LLP) 4.00 4.10: Coffee and networking break 4.10 5.10: Addressing the Challenges of Multi-Sourcing Andy Nelson (Associate, Kemp Little Consulting LLP) 5.10 5.30: Wrap-up
Multi-Sourcing challenges No single point of responsibility Increased management overhead Risk of service gaps Supplier collaboration and interdependencies Ensuring alignment to the wider business and IT strategies The degree to which the services are disaggregated The difficulty of transitioning to a multi-sourcing model Managing business risk and stakeholders Building or buying in the capability to manage both the transition to and manage multi-sourced models the place where SIAM plays _37
Wrap-up and Conclusions You should actively consider multi-sourcing models These models can lead to greater savings and better levels of service BUT Lots of challenges to be addressed to be successful Challenges can be addressed with the right external support and internal capability The multi-sourcing model must be defined from a number of perspectives operating, service, commercial, contractual and technology Implementing a multi-sourcing model is a significant change programme The right contractual arrangements and SIAM provision need to be in place to underpin the model and ensure its effectiveness _38
Contact info AUTHOR NAME Paul O Hare, Andy Nelson, Andrew Woodward and Andrea Williams KEMP LITTLE & KEMP LITTLE CONSULTING Cheapside House 138 Cheapside London EC2V 6BJ TEL +44 (0) 20 7600 8080 FAX +44 (0) 20 7600 7878 kemplittle.com kemplittleconsulting.com Kemp Little LLP is a limited liability partnership registered in England and Wales (registered number: OC300242) and is authorised and regulated by the Solicitors Regulation Authority. Its registered office is Cheapside House, 138 Cheapside, London EC2V 6BJ. A list of members is open to inspection at the registered office. Kemp Little Consulting LLP is a limited liability partnership registered in England and Wales (registered number: OC387154). It is not authorised or regulated by the Solicitors Regulation Authority. Its registered office is Cheapside House, 138 Cheapside, London EC2V 6BJ. A list of members is open to inspection at the registered office _39