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Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

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Page 1: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Research » Strategy » Transformation » Governance

The Future of Outsourcing

Mark ToonChief Executive Officer

February 2011

Page 2: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

CSFB Presentation

2

Page 3: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

3

Page 4: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Macro Global Business Trends

» Population Shifts – Opportunities– By 2050, the world will have 9 billion people, most real growth in developing countries– Dramatic population shift is occurring from rural to urban areas– Cities like Cairo, Dakar and Lagos will have double the population in 20 years– Africa will double but 20% fewer people will live in Europe and 25% less in Russia

» Global Growth Challenges– Global growth equals increasingly fragmented operating teams and business units– Increase in geo-political risk as less-stable countries enter the global economy– Challenges in small countries have a ripple effect economically (i.e. Greece, Hungary,

Ireland) and politically (e.g., Egypt, Susan, Yemen)– Expect a period of increased legislation to help constituents manage increasing risk– Historical cost operating models are too expensive for developing economies

» Mobile Technologies are Impactful– Mobile is becoming commonplace– Technology is breaking down communication barriers and government command and

control capabilities

4

Page 5: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Macro Global Business Trends

» Global Talent Management – training and managing virtual organizations is critical going forward– If you are under 40, you will manage a group of people you may never see and seldom

talk to; if you are over 50 you will likely have a tough time dealing with this– With companies taking advantage of world markets, the need for talent will exceed

capabilities and capacities: high unemployment levels do not equate to excess available adequately-skilled talent

» Social Networks and the Internet – accelerating trend towards weaker, yet broader and potentially more powerful relationships– Lines between social and business communication will continue to blur– Young people have more ‘friends’– Face-to-face communication will require development and become an acquired skill– Governments/corporations struggle to control information flow (i.e., Wikileaks)– Traditional sources of news and insights erode (i.e., Twitter and Twitscoop not NYTimes)

» Trends Converge and Create Integration / Information Management challenges across the enterprise (and globe)

5

Page 6: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Organizations of the Past and Future

6

Past Future

Providers

Clients

Partners

Satellite Offices

Employees

Winners

Page 7: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and outsourcing

» Global Outsourcing Trends– General Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

7

Page 8: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Defining a Service Delivery Model

A Service Delivery Model Answers Four Questions:

What Work Gets Done?

By Whom? Where?. . . and Ultimately

How?

» Function

» Cycle

» Process

» Activity

» Task

» Internally Distributed

» Internally Centralized

» Internal COE

» Internal Shared Services

» BPO

» On Shore

» Near Shore

» Off Shore

» Multi Shore

» Governance

» Organization

» Technology

» Practice

» Policy

» Process

8

“What, Who and Where” addressed in strategy phase to the degree necessary to understand options and select best solution

SequenceSequence

Page 9: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Across Functions, Geographies & Business Units

The Industry is Moving to a Globally Integrated Shared Services

» Over 80% of Large Global Companies Have Adopted Shared Services

» Of these, nearly two-thirds are operating in a model that is multi-functional and globally integrated

High

MediumLow

None

Page 10: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 10

Shared Services is a Proven Model for Support Services

Centralization» Economies of Scale» Economies of Scope» Focus for Improvement

Shared Services» Economies of Scale, Scope & Place » Joint Governance» Customer Relationship Management» Service Levels Aligned with Price» Process Standardization and Best

Practice Deployment» “Run it Like a Business”

Decentralization» Responsiveness

» Service

» Ownership

Shared Services

DecentralizedServices

CentralizedServices

Support Services Pendulum

Page 11: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 11

Evolution and Maturation of the Delivery Model

• Internal Transactional Shared Services• Information Technology Outsourcing

TimeCost, Service, & Quality

Business Results

Va

lue

• “Lift and Shift” Business Process Outsourcing/Offshore

• Global Multi-functional Shared Services

1990’s

2000 - 2005

• Transformational Outsourcing• Platform/Cloud Solutions• Knowledge Services

2005 & Beyond

Page 12: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

2000 – 2005: “Offshoring” 2006: “Business Services Globalization”

Primary Driver Reduce cost Reduce Cost + Improve efficiency and effectiveness

Primary Supply Markets

India India, Eastern Europe, Philippines, Malaysia, Brazil, Argentina, Russia, China, Mexico

Primary Buy Markets

United States, Great Britain North America, Continental Europe, China, Japan, India, Korea, Australia

Processes in scope

Simple, Transactional Complex G&A functions, multiple vertical processes – R&D/Design, Engineering, Business Intelligence, etc.

Performance management

Regional, non standard performance no standard global processes or service levels

Global, standardized performance process standardization and global service levels based on business need and impact

Sourcing Model Captive centers or offshore outsourcing Captive centers plus, multi-country sourcing to best of breed providers

Service Providers Domestic providers or offshore providers, few large captives

More global service providers with domestic capabilities, growth in captive centers, captive center spin-offs

Governance Delegated to service providers – sales and relationship focused

Clients assume responsibility – establish focus on efficiency and effectiveness in multi-provider global sourcing

Mainstream Climate

Negative publicity, political fodder Activist opposition, general acceptance of globalization

Executive Focus Functional Head or Line Management CFO or CEO’s or COO’s

New Orientations for Globalization

Page 13: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Top Global Services Locations

Brazil

Philippines

Canada

Ireland

Russia

China

South Africa

Mexico

Source: EquaTerra

High:

Moderate:

Low:

High:

Moderate:

Low:

BPO Attractiveness ITO Attractiveness

PolandCzech Republic

Romania

Ghana

Malaysia

Costa Rica

Hungary Ukraine

Bulgaria

Vietnam

Argentina

Israel

IndiaThailand

Singapore

13

Page 14: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Global Model Definitions

14

Offshore – Onshore Hybrid

Near shore - Outsourcing

Global Sourcing

Offshoring - Outsourcing

Onshore

Offshore – Onshore Hybrid refers to a delivery model which takes advantage of resources at an “offshore” location (mainly India, China, Philippines…) while these resources are still being managed by the client in Europe. Vendors offering this model are Global and Indian players

Near shore – Outsourcing is a delivery model that takes advantages of resources at a nearshore location. Typical nearshore locations for Europe are Poland, Hungary, Northern Africa… Global players, nearshore local players and some Indian vendors offer this model.

Global Sourcing is the latest evolution all offshore models. It takes advantage of resources at an offshore location as well relevant ones at nearshore or onshore locations. The model is particularly adapted to the European market presenting a cultural/language challenges.

Offshoring – Outsourcing refers to a delivery model using resources at an offshore location (mainly India, China, Philippines…) and where the relationship with the vendor is based on SLAs. This means that the vendor manages offshore resources and is responsible for results.

Onshore outsourcing designates an outsourcing relationship that is done locally based on SLAs. These relationships are most often with Global players (Accenture, IBM…) or regional/local firms

CaptivesCaptives business units of a company functioning offshore as an entity of its own while retaining the work and close operational tie ups within the parent company

Page 15: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Shared Service Value Proposition

15

•Economy of scale – consolidation, skill mix, productivity

•Economy of place – labor arbitrage, labor availability

Administrative Savings

•Simplification, standardization and best practice deployment

•Continuous improvement and service quality management

•Customer satisfaction and demand management

Process & Service Excellence

•Automation, self-service, digitization

•Aggregation/reduction of 3rd party spend; cash management

•Data & information management; analytics

Transformational Impact

•BU focus on business specific activity: revenue generation and production

•SSC focus on leveraging expertise across back-office

Business Focus

•Adaptive to changes in the business model

•Ease of integrating acquisitions; cost variability

Flexibility

•Improved process documentation, visibility and data integrity

•Simplified compliance monitoring, reporting and transparency

•Business continuity and disaster recovery planning

Compliance & Control

Page 16: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

16

Page 17: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Outsource to Outhouse

17

Page 18: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 18

Today’s Outsourcing Market

Sole source or ad hoc contracting Comparative and competitive

>10 years Ago Today’s Market

Deal pricing/one-off pricing; low hanging fruit “Utility pricing” models (and commoditization)

Detail of delivery determined post-contractWell-defined SDMs (e.g., ITIL); Baselines & SLAs negotiated upfront

Service providers looking to acquire processing capability

Service providers trying to fill existing capacity and facilities; some Indian exceptions

Little/no ongoing outsourcing management (OM) capability in clients

Development of more sophisticated outsourcing governance organizations

Provider’s offering ill defined; relied on “as is” client processes (custom)

More standardized offerings; front-end customizations; “platform” BPO and SaaS

Immature market, many service providers, fragmented market

Market is consolidating, fewer legacy global suppliers, offshore providers expand scope

Offshore largely limited to ADM, IndiaGlobal multi-shore opportunities across ITO, BPO and emerging knowledge services

But many challenges remain….• Navigating the options – internal vs. outsource, bundling ITO & BPO, SaaS vs. outsourcing…• Short, mid and long term cloud computing and SaaS implications• Governing and managing multi-sourcing arrangements• Managing global service delivery portfolios• Aligning ITO/BPO capabilities with rapidly shifting business requirements• The economy and global risk…..

Page 19: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 19

Key Near Term Trends – Buy Side

» Everything is in scope for consideration with deeper outsourcing

» Greater focus on immediate cost savings – transformation and innovation have not disappeared, but emphasis is about driving savings

» Less fully bundled deals, more targeted bundling and multi-sourcing

» Smaller deals with a progressive rollout over time of increased scope

» All change agents – internal improvement, shared service centers, outsourcing, cloud computing, under consideration

» Greater renegotiations

» Increased due diligence, governance/risk management focus

» Emergence of enterprise-wide sourcing governance

19

Page 20: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 20

Key Near Term Trends – Supply Side

» Expanding global delivery footprint

» Ongoing consolidation

» Hyping, embracing, co-opting cloud computing

» Move more work offshore for most activities, though select push to increase onshore footprint for certain activities

» More process, technology, and location standardization including platform based solutions

» Increased willingness to take on smaller deals

» Focus on price, financial engineering, and asset purchases to gain market share in economic downturn and force out weaker players

20

Page 21: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Business Services Market Trends - 2011

21

» Cloud computing overall and in lieu of traditional outsourcing

» Expanding global service delivery models and continued globalization

» Economic conditions continuing to fuel demand for third party services

» Challenges with buyer sourcing capabilities keeping up with ambitions

» Challenges for service providers to delivery quality services profitably Source: EquaTerra 4Q10 Pulse Survey

Offshore captives

Protectionism/less outsourcing

Poor econ. conditions, debt crisis, etc. driving LESS outsourcing

Social media/networks used for business purposes

Share service centers

Remote Infrastructure Management (RIM)

Poor econ. conditions, debt crisis, etc. driving MORE outsourcing

Cloud computing in lieu of outsourcing

Global sourcing/globalization

"Cloud" computing overall

1.00 2.00 3.00 4.00 5.00

Advisors

Service Providers

1=Cold/little market impact, 5=Hot/major market impact

Page 22: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Economic Conditions Still Weighing on Demand

» Deal flow and decision making disruption continues though lessening

» Lots of activity

» Buyers cautious and scrutinizing anything requiring upfront investments

» Buyers more actively exploring other change options: cloud computing, internal transformation, shared services centers

» Strong emphasis on short term ROI’s and cost reduction in outsourcing efforts

» High risk aversion to deal failure shaping efforts

» Economic and geopolitical conditions are not materially impacting global sourcing

47%58%

42% 42% 45%58% 59% 60%

46% 49% 50% 50%

22%

24%

38%

54% 51%

39% 36% 33%

40% 39%45%

35%

32%18% 20%

4% 5% 3% 5% 7%

15% 12%

5%

15%

Driving more outsourcing Slowing/rethinking outsourcing plans

Little/no impact

Economy’s Impact on Outsourcing Demand

22

Source: EquaTerra 4Q10 Pulse Survey

Page 23: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Questions and Answers

23

Page 24: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

24

Page 25: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 25

State of the ITO Market

» Mature market with increasingly commoditized pricing / service standards

» Current hot topics:– Cloud computing– Virtualization– Data and network security; IP protection– ERP and managed services bundling to free up dollars for investment

Source: EquaTerra 4Q10 Pulse Survey

Other

Packaged Apps Svcs

Desktop Services

ADM

Infrastructure/Ops

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Service Providers: ITO Demand

4Q104Q094Q08

Page 26: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

26

Data Center Outsourcing

36%

Application Outsourcing

25%

Network Outsourcing

27%

Desktop Outsourcing

12%

IT Outsourcing Spend: 2008-2012

Data Center Outsourcing

33%

Desktop Outsourcing

12%

Network Outsourcing

29%

Application Outsourcing

26%

2008$284.3B

2012$332.4B

CAGR 2008-2012: IT Outsourcing: 5%Datacenter: 4%Desktop: 4%Network: 6%Enterprise Apps Outsourcing: 6%

Source: Gartner Group, EQ, Corp Exec Board, 2010

Page 27: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 27

Key Benefits of Cloud Computing

27

Reduced dependence on costly

retained resource

Avoids Capital Investment

Scalable Speed to access

Transparent unitary pricing

Easier implementation with less disruption

BENEFITS OF CLOUD

Induces standardization

This really is too good to be true. Why aren’t we all on the cloud now?

Page 28: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 28

Key Risks of Cloud Computing

28

Immature service offerings

Evolving commercial models

Limited track record Regulatory compliance

Complex pricing structures

Unclear exit processes

RISKS OF CLOUD

Security

The art of risk management is managing them. This shouldn’t stop decisions being made

Page 29: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Top 2011 Cloud Computing Adoption Areas

29

Analytics, business intelligence

BPaaS/cloud based "platform BPO"

E-commerce, customer support

Back-office enterprise apps

CRM

Infrastructure (e.g., IaaS/PaaS)

Desktop applications

0% 10% 20% 30% 40% 50% 60% 70% 80%

Advisors

Service Providers

Source: EquaTerra 4Q10 Pulse Survey

Page 30: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Cloud Computing Adoption Trends

Advisors Service Providers

30

IaaS PaaS SaaS BPaaS0%

10%20%30%40%50%60%70%80%90%

100%

20% 26%6%

32%

51%53%

42%

57%

24%17%

32%

9%

5% 4%

19%

2%

No significant interest/no near term (<12 months) in-vestment plans

Interest but no significant near term investment plans

Interest, launching efforts within 12 months

Interest & active deployment efforts already undertaken

IaaS PaaS SaaS BPaaS0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

13% 20% 6% 17%

25%27%

24%17%

25%

33%

18%28%

38%20%

53%39%

No significant interest/no near term (<12 months) in-vestment plans

Interest but no significant near term investment plans

Interest, launching efforts within 12 months

Interest & active deployment efforts already undertaken

Source: EquaTerra 2Q10 Pulse Survey

Page 31: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Outsourcing Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

31

Page 32: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 32

State of the FAO Market

» The overall market in FAO is beginning to mature

» Service providers are making major investments to move up the value chain

» Buyers that have had success with outsourcing the traditional transaction processes are now pushing into other accounting (e.g. statutory compliance, external reporting, taxes, internal audit)

» Most buyers indicate FAO is achieving the drivers sought, are satisfied with their service provider’s performance, and plan to expand FAO efforts

» Buyers have legitimate concerns about FAO risks (e.g., loss of control), but risks are being mitigated through better governance efforts, processes and procedures

Page 33: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Defining the CFO’s AgendaTop F&A Issues

Source: EquaTerra Research 2009-10

Making the F&A cost structure more variable

Improving F&A talent

Reducing the overall spend on F&A operations

Shifting to more core / strategic business issues

Enhancing customer relations

Improving F&A service quality

Addressing / dealing with regulations

Supporting the overall corporate strategic agenda

Driving corporate cost cutting efforts

Achieving overall F&A transformation

Improving the internal controls environment

Preparing for the upturn

33%

50%

52%

40%

56%

29%

42%

21%

26%

19%

20%

34%

50%

28%

23%

32%

11%

38%

24%

43%

38%

43%

35%

19%

17%

22%

25%

28%

33%

33%

34%

36%

36%

38%

45%

47%

Third most critical Second most critical Most critical

Page 34: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Addressing the CFO’s Agenda

34

1=Least Important, 5=Most Important

3.13

3.23

3.38

3.46

3.54

3.62

3.67

3.71

Introduce / expand quality programs

Undertake / expand ITO

Undertake / expand BPO for strategic F&A processes

Undertake / expand BPO of core F&A processes

Deploy new / improved IT software applications

Upgrade F&A staff / talent pool

Deploy / expand shared service centers

Undertake internal process improvement efforts

Importance Of Various Change Efforts In Addressing CFO’s Agenda

Source: EquaTerra Research 2009-10

Page 35: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 35

Current FAO LevelsEquaTerra 2010 Global FAO Studies*

  Process outsourced

  Plans to outsource

  Not outsourced, no plans

85%

3%

12%

Procure to Pay

69%

9%

22%

Order to Cash

69%

8%

23%

Record to Report

* Source: EquaTerra European FAO Service Provider Performance and Satisfaction Studies • 100+contracts analyzed 2010• Minimum $1M ACV• Local, regional and global FAO deals

Page 36: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Outsourcing Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

36

Page 37: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Defining the CPO’s AgendaTop Source to Pay Issues

» Spend reduction goals remain paramount

» Ensuring quality also important

» Current economic conditions heavily impact CPO agenda

» Emerging need to balance expense reduction with shift to “prepare for the upturn”

» Address compliance requirements

» Gain greater leverage

37

Increase access to suppliers in low-cost countries

Improve financial/process controls

Increase total spend under management

Improve/automate spend mgmnt processes

Improve compliance

Supplier rationalization

Improve supplier performance

Maximize purchasing/negotiating power

Ensure supply of quality goods/services

Reduce direct expenses

Reduce indirect expenses

11%

15%

17%

20%

20%

28%

30%

33%

46%

54%

54%

Source: EquaTerra Research 2009

Page 38: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Procurement Outsourcing Market

» High growth, but still maturing market

» Traditionally dominated by North American and European providers, but Indian providers making inroads

38

Procurement outsourcing deals have risen steadily . . .

. . . with a recent trend towards broadening scope

Percent of Deals That include Sourcing

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 2009

Page 39: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 39

The Business Case for Transforming Indirect Procurement is Significant

Direct Goods & Services, Other COGS, Interest, Taxes, Profit (75% of Revenue)

Indirect Goods & Services

IT, HR & Finance

Function

Avg. Function Cost as % of

Revenue

% Impacted by Change in

SDM

Savings Range (% of Impacted

Costs)

% of Revenue

SavedIT 3.0% 80% 10-15% .2-.4%Finance 1.4% 40% 20-35% .1-.2%HR 0.5% 50% 15-30% .04-.1%

Total 4.9% 66% .4-.6%

Traditional functional outsourcing/shared services delivers 10% Savings against 5% of Revenue . . .

. . . While changing the Indirect Procurement SDM delivers 7-10% savings against 10-20% of Revenue

FunctionAvg. Spend as % of Revenue

% Impacted by Change in

SDM

Savings Range (% of Impacted

Costs)

% of Revenue

SavedIndirect Goods & Services

10-20% 75-85% 8-13% 1.0 - 1.9%

In high revenue to employee industries the percent of revenue saved is significantly less, but the ratio of opportunity between Indirect Procurement and other Staff Function SDM improvement is similar

Page 40: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Most companies are leaving millions on the table in indirect procurement

Spend Managed of spend is not professionally managed

Sourcing Results lower due to lack of supply market intelligence

Savings Realized of savings that are “identified” never hit the bottom-line

Continuous Improvement of incremental savingsis lost

49%

35%

39%

2-3%

*Statistics based upon EquaTerra and ICG Commerce spend analysis and performance benchmarks

40

Page 41: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Outsourcing Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

41

Page 42: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

HRO Demand by Process Area

42

Source: EquaTerra 4Q10 Pulse Survey

Workforce Eff.

Compensation

Learning/Training

Recruit/Tal. Mgmnt

HR IT

Benefits

Payroll

0% 10% 20% 30% 40% 50% 60% 70% 80%

4Q104Q094Q08

Page 43: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

The Rise and Fall of Multi-Process HRO

43

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

10

20

30

40

47

14

23

30 32

38

25

1215

1

5

Multi-process HRO Contract Trend (2000 - 2010)# contracts

Source: EquaTerra

Page 44: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 44

Use of Alternative HR Service Delivery Models

Source: EquaTerra Research, 2008

Page 45: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Outsourcing Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

45

Page 46: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

State of the REFM Market

» Integrated facilities management quickly replacing out-tasking

» Heavy supplier consolidation and global capability expansion and technical capability expansion

» Outsourcing contracts becoming more sophisticated – moving from out-tasked models to BPO models

» Increased emphasis on impacting non-operational cost improvements– Workplace of the Future– Energy– Sustainability– Lifecycle Asset Management

46

Real Estate and Facilities Management Services/Properties Bundling

Individual Services/Property Types

Full RE/FM/Projects

Local

Regional

Global

Geo

gra

ph

ic I

nte

gra

tio

n

BMSAZ

Merck

Agilent

Novartis

IBM

Nestle

InBev

Shell

Motorola

HP

Kraft

HSBC

BP

Page 47: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

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Evolution of Real Estate & FM Sourcing

47

Pre-1980s ’80s to mid-’90s Mid-’90s to 2000 Early 2000s to mid-2000s

Mid-2000s and onward

Self-perform

Out-tasking Outsourcing Integrated Facilities Management

Global Integrated Business Services

Most, if not all, activities are performed in-house.

Low-tech servicessuch as cleaning,security, food servicesand landscaping are individually sourced by different locations to external providers.

A combination oflow-tech and high-tech services such as electrical, mechanicaland environmentalare outsourced inservice bundles.

Facilitiesmanagement andreal estate servicesare outsourced to a single serviceprovider, whichmanagessubcontractors.

Facilities management andreal estate services are organizationally aligned with other support services, such as finance, HR,procurement and IT, and outsourced in a global bundle across business units.Bundled business process outsourcing (BPO) across multiple functions is emerging as an option.

Page 48: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Outsourcing Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)– Global Sourcing

» Conclusion

48

Page 49: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 4949

LPO Adoption and Growth

» Legal Process Outsourcing (LPO)– reduce cost and increase capacity

» Although the LPO is still a nascent industry, the idea of offshoring legal processes is not new:– Bickel & Brewer was the first firm in

1995 with its office– In 2001, GE was the first company

to offshore its in-house legal work in India.

» The industry is expected to experience rapid growth in employees and revenue

2005 2010

1300

24000

Employees

2006 2014

60

4,000

Revenue

Source: Forrester and EquaTerra 2010

Page 50: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

LPO Supplier Landscape

Units of Publishing

Firms

Joint Ventures/ Liaison

GlobalLaw Firm Captives

BPO Players Offering

LPO

Arms of Indian Law

Firms

Corporate Legal Dept Captives

NichePlayers

Other Third Party Suppliers

LPO Models

50

Page 51: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Outsourcing Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

51

Page 52: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 52

KPO Market Overview

» Knowledge Process Outsourcing (KPO) are fundamentally different from business processes:– Differences in process complexity, skill sets and scalability. – Often are the traditional “core competencies” of many clients

» Nuances differentiate KPO from BPO– BPO is about size and volume and efficiency. – KPO is about depth of knowledge, experience and judgment. – KPO is about “intellectual arbitrage” not cost arbitrage.

» KPO is an “industry” in the process of evolution. – Perceived to be on high growth “tipping point”

Page 53: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

KPO Covers a Full Range of Evolving Services

Business Consulting

Market Assessment and Demand

Analysis

New Products Research

Risk assessment

Market Sizing

Information Management

Database Creation

Quantitative/Financial Statement Analysis

Data/Information Synthesis

Business Research

Business Intelligence

Company and Industry Research

Best Practices framework

Documentation & Library Services

Investment Research

Corporate Finance

Financial Modeling and Analysis

Investment Banking Support

Valuation

Funding options

IP Research

Patent Research

Patent Preparation and Filing

Other Patent Management -Trademarks, Copyrights, Designs, Brand Names

Market Research

Questionnaire/survey

KOL opinion

Brand perception study

Product launch

Pharma Research

Patent/regulatory study

Pricing

Sales force effectiveness

Drug discovery

Representative promotions

Data Analytics

Data Acquisition and Data Entry

Data Processing

Statistical analysis

Quantitative modeling

Documents

Drafting of internal documents

Presentations/ Graphics

Sales Documents

Page 54: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Table of Contents

» Macro Global Business Trends

» Service Delivery Trends – Evaluation of Shared Services and Outsourcing

» Global Outsourcing Trends– General Outsourcing Market Trends– Information Technology Outsourcing (ITO) – Finance & Accounting Outsourcing (FAO)– Source to Pay/Procurement Outsourcing (PO)– Human Resources Outsourcing (HRO)– Real Estate & Facilities Management (REFM)– Legal Process Outsourcing (LPO)– Knowledge Process Outsourcing (KPO)

» Conclusion

54

Page 55: Research » Strategy » Transformation » Governance The Future of Outsourcing Mark Toon Chief Executive Officer February 2011

Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential

Conclusions

» Dynamic - The world may be flat, but it is shifting greatly

» Accessible - Companies of any size now have access to global talent, delivery models and flexible technical architecture – such as cloud-based applications

» Results - Organizations utilizing the right delivery model and technical architecture record meaningful cost savings and often improve delivery of services

» Complex - Advisors like EquaTerra continue to help clients sort through this complexity so they can focus on what matters most to their business

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Copyright © EquaTerra 2011. All rights are reserved. EquaTerra Confidential 56

About EquaTerraEquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported over 2000 transformation and outsourcing projects across more than 60 countries.

Supporting clients throughout the Americas, Europe, and Asia Pacific, we have deep functional knowledge in Finance and Accounting, HR, IT, Procurement and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions.

Contact UsEurope/Asia Pacific+44 (0) 845 838 [email protected]

Americas+1 713 470 [email protected]

Questions and Answers