running successful outsourcing procurement projects & delivering profitable outsourcing business

Running successful outsourcing procurement projects & delivering profitable outsourcing business

Managed Services & Outsourcing, Lisbon

30th March 2009

[email protected]

+447738648542

© PA Knowledge Limited 2009 Page [email protected] +447738648542

Agenda

The agenda consists of two key sessions:

Session 1 - Understanding the sourcing lifecycle, examining how to run successful outsourcing procurement projects

Session 2 - Winning and delivering profitable outsourcing business


Session 1

Understanding the sourcing lifecycle, examining how to run successful outsourcing procurement projects

Delivering network outsourcing success

• Seven common weaknesses in the sourcing process

• The empirical evidence• Eight actions to improve performance

The PA Sourcing lifecycle model

Define the strategy in 6 stagesTips for optimising the process

The PA portfolio of services



The telecommunications industry is in a mature phase of development, prices are under pressure, margins are shrinking, the market is becoming saturated. As a result operators are keen to identify new revenue streams through innovative value-added services and identify major cost savings to combat margin erosion.

Cost savings are generally achieved in one of three ways:

• Driving delivery excellence within operations

• Partnering with another operator to share investment risk

• Outsourcing key operational areas to third parties



This market is still very much in its infancy, which introduces risk, endangering the likely success of a best-value deal for both parties whilst threatening ISP.

How do you protect against the risks?

We have identified seven common weaknesses in the sourcing process

Seven common weaknesses in the sourcing process


Understanding misunderstandings

This international survey has drawn on the experience of

315 clients as well as 29 suppliers and 17

legal advisors for a complete 360-degree view.

Poor targeting of investment during the process creates a level of misunderstanding and subsequent mistrust by clients of the supplier market

The major findings of the survey are:

• Outsourcing programmes do not deliver the envisaged benefits – usually because the business case was flawed from the outset

• Clients underestimated the scale of the challenge – forecast of resources inadequate

• Clients and suppliers have divergent objectives and expectations – the mismatch usually stems from poorly articulated requirements

• Suppliers deliver against KPIs, but not the right o nes

• Retained organisations are inadequate – clients are not able to manage their supplier to deliver the planned benefits

The empirical evidence


Outsourcing programmes do not deliver the envisaged benefits

Only 51% included costs for the retained organisation, 3 –9% of contract value

42% omitted costs for transition

Only 17% factored in costs for risk

When developing your business case, which of the following cost items did you include?



Clients underestimate the scale of the challenge

Two-thirds found the

early stages the easiest

Yet 50% found benefits

realisation hard

Given your experience at the time, how challenging did you find each of the following stages?



Clients and suppliers have divergent objectives and expectations

Which of the following outcomes did you identify in your strategy and business case as being required from provider?

Only 21% of suppliers thought their clients communicated their objectives clearly to the supplier marketplace



Retained organisations are inadequate


45% of clients underestimated the effort required to manage the supplier

Whilst suppliers put this figure at closer at 65%

44% of suppliers felt their clients retained organisation is immature.

48% of clients rated their skills set as immature.

With hindsight, at the beginning of the procurement process how well did your organisation understand the amount of effort that would be required to manage the relationship with your supplier?


Focusing on these 8 actions will vastly improve your chances of outsourcing successfully

Eight actions to improve performance


The PA Sourcing lifecycle model

The PA Souring lifecycle model


The PA sourcing lifecycle model – the detail

Start the process

Launch Competition

Start Negotiations

Contract Award HandoverLifecycle

management

The PA Souring lifecycle model


Define the Strategy in 5 stages

Understanding the options, their business return, impact on the organisation and risk are all paramount to making an informed decision.

To achieve this PA has constructed an approach to which assists clients to make an informed decision regarding the business case and most appropriate combination of outsourcing and in-house service provision. This approach consists of five key steps:

Understand the desired business outcomes and drivers for change

Define the scope and potential packaging alternatives and their target operating model

Determine the current and future cost baseline of the organisation

Appraise the market’s ability to deliver

Produce an outline business case and key recommendations

1

2

3

5

4

Define the strategy in 5 stages


Typical drivers for sourcing:

• Cost reduction with an acceptable risk profile

• Access to skills or core processes not available in-house

• Speed to Market (build out new product or channels to market more quickly than could be done internally)

• Service Level improvement

• Re-focus management attention from day-to-day operations to concentrate on strategic and customer-facing issues

• Pricing flexibility & certainty of future cost

Understanding the drivers for change

1

Clarity of business intent and drivers for change a re both key to defining the options and framing the analysis

Define the strategy in 5 stages – Stage 1


Understanding the scope - the boundaries of the analysis need to be established

Planning Plan

Acquire & Build

Design & Engineer

Acquire Sites

Construct

Provision & Install

Operations&

Maintenance

Centralised Network Mgt

FLFM

Performance & Optimisation

PlanCS & SE

Acquire & Build

Landlord ManagementEstates

Management General Estates Mgt

Traffic forecasts, coverage and capacity planning

Network design, guidelines and specifications, engineer software specs and engineering tools

Select, acquire and share sites, obtain permissions

Manage the construction of sites with 3rd parties

Installation and commissioning of sites

Monitor, 1st and 2nd level fault management

Onsite planned and unplanned field response

Build and in-life optimisation of the network including drive testing

As above but for corporate solutions and special events

As above but for corporate solutions and special events

In-life management of rents, rates and utilities

General site maintenance

Material Management

Warehouse, SPM and refurbishment management This example covers the plan, build and operate of a mobile operators RAN.

However, a number of scope combinations are visible in the market ranging from a limited scope of first line field maintenance to an expansive scope of RAN, CORE, Service Layer and IT.

It is important at the outset of the options analysis to determine what scope options best fit.

2

Example Scope of work to be explored



Hypothetical example, in-scope services can be divided into 5 packages

Package A

Planning Plan

Acquire & Build

Design & Engineer

Acquire Sites

Construct

Provision & Install

Operations&

Maintenance


FLFM


PlanCS & SE

Acquire & Build



B C D E

The larger the scope of outsourcing the greater the likely savings

Full scope

Partial scope

Optional scope

2 Define the strategy in 5 stages – Stage 2


Current and future cost baseline of the in-scope organisation

Cost of running the in-scope organisation In-scope cost breakdown

FY08/09 FY09/10 FY10/11 FY11/12 FY12/13

Years

$

Capex

Opex

People17%

Property32%Build

39%

Power6%

Tools2%

Maintenance2% 3rd line

3%

3

A significant challenge is to define and analyse the cost baseline against the likely lifetime of a deal, typically 5 years:

• Operators typically forecast capex/opex only three years out with any degree of certainty

• Cost breakdown aligned to in-scope packages is often difficult to achieve due to limited granularity of service – oriented cost tracking



Local market capability

Weak Strong

Str

ong

Wea

k

Operations and Maintenance

Pla

n, A

cqui

re &

Bui

ld

Appraising the markets capability to deliver

Planning Plan

Acquire & Build

Design & Engineer

Acquire Sites

Construct

Provision & Install

Operations&

Maintenance


FLFM


PlanCS & SE

Acquire & Build



No capability evident

Basic capability but limited scale

Competitive capability

4

• Vendor capabilities and fit against packages

• Comparable experience & savings potential

• Value added service / performance KPIs

• Awareness of risks in all sourcing stages, including transition and people issues

• Current and future technology migrations

Assessment based on vendor meetings with structured line of questioning, including:



The outline business case mapped against the packages

• The packages identified show various trade-offs between risk and reward.

• The reward axis represents a conservative estimate of the potential percentage year-on-year saving on the addressable costs.

• The risk axis shows the degree of risk based on our analysis of the identified risks.

• The size of each bubble represents the relative NPV magnitude of the potential saving.

PackageRisk Score

Midpoint reward NPV over 5 years

A Package A - Combined Field Force 29 17% £10,667,655.48B Package B - Operations & Maintenance (exc. 2nd line) 31 19% £29,521,664.59C Package C - Operations and Maintenance 18 19% £31,241,263.40D Package D - Acquire, Build and O&M 49 10% £46,725,177.41E Package E - Full Scope 44 10% £48,382,502.84

5 Define the strategy in 5 stages – Stage 5


Tips for optimising the solution and deliver process stages

• Release a prospectus detailing an overview of the programme scope and timeline

• Develop and output based RFP closely aligned to the contract

• Spend quality time with the bidders

• Create a data-room to help shape the deal

• Employ a rigorous evaluation approach

• Establish clear roles and responsibilities within the team

• Prepare for negotiations

• Competitive tension required until the end

Tips for optimising the process


The PA Portfolio of services

The PA Portfolio of services

• Define the strategy

• Support the procurement process

• Transition and transformation management

• Effective lifecycle management


Session 2

Session 2 - Winning and delivering profitable outsourcing business

• Competitive bidding utilising the “PA bid capability model”• Maturity in service delivery as assessed against the “Services delivery maturity

model”


The PA Bid Capability Model distils the best practice from market leading sourcing organisations

Pre-bid preparation

Bid development

Negotiations

Due diligence

Competitive bidding


The six capabilities Bid programme management:

The bid must be managed using best-practice programme management methodology to ensure consistency and quality across the programme. An effectively run programme significantly influences the quality of the bid deliverables, the effectiveness of the bid process, and equally projects a confident and professional approach to the prospective customer.

Proposition and collateral:

The vendor must develop compelling value propositions which are clearly presented in high quality, well structured and consistent bid collateral. Value propositions are built on insights leveraged from the organisation’s knowledge base, and supported by track record that demonstrates delivery capability. Market analysis to understand the competitive landscape supports the development of the collateral.

Commercial model:

A robust commercial model is a key driver of the overall bid programme, and will often shape other areas, such as; the proposed solution, the project duration, the profit profile, the internal business case, the requirements, the risk assessment and the negotiation strategy

Capability fulfilment:

The vendor must demonstrate to the customer that it understands the capability required to deliver against the current and future scope of the contract, and that robust plans exists to address any capability gaps.

Customer engagement:

The way that the vendor engages the customer will significantly influence the customer’s perception of the vendor’s proposal. It will also determine the opportunity that the vendor has to understand the customer’s requirements and to explain its own value proposition.

Partnering effectiveness:

The way in which the vendor and customer work together before and during the contract will determine whether the full potential value of the partnership is realised. A collaborative, strategic and cooperative approach to the relationship is likely to realise far greater benefit for both organisations than a confrontational and transactional approach.

Competitive bidding


Performance can be assessed against the model and ranked according to a benchmark scale

Confident & leading the field in this area. Maximised potential, continually innovating, and always seeking to make measured improvement to approach.

Benchmark

Edging ahead of the field in specific areas. In a healthy position to compete with mature competitors.

Competitive

Understands issues and has control over them. Approach is standard and would not stand out from the crowd in a competitive situation. Room for improvement

Basic

Understands issues and has started to put practices in place to start addressing them. Opportunity for significant improvement

Substandard

Nothing exists – no capability evidentNon-existent

DescriptionRank

Competitive bidding


Furthermore, assessing the vendor’s performance against the competition and industry benchmarks can be enlightening

Vendor under review

Lowest competitor

Pre-bid preparation

Bid development

Negotiations

Due diligence

Highest competitor

Competitive bidding


The bid programme is managed using best practice programme management methods

A professionally run programme significantly influences the performance of the bid deliverables, the effectiveness of the bid process, and projects a confident and professional approach to the prospective customer.

The bid organisation is designed to provide the right capability to create a high quality bid. Often a matrix structure of ‘vertical’ functional work streams, joined up by ‘horizontal’ skills teams.

The programme is resourced with the relevant experienced & skilled personnel with strong leadership, and includes both corporate and regional resource.

Best practice programme management processesare implemented to drive the delivery and quality of the bid programme outputs.

IT systems are utilised to capture, store and disseminate information, supporting effective and timely decision making.

Competitive bidding


Value propositions are supported by insight driven collateral which articulates a compelling argument for selecting the vendor

The value propositions are built on insights leveraged from the organisation’s knowledge base, are evidence-based, and demonstrate innovative thinking. They articulate how the vendor will help the customer differentiate in the market place, and deliver real and sustainable competitive advantage.

The bid collateral conveys a compelling argument for selecting the vendor and instils confidence within the customer’s bid evaluators that the capability exists to ensure contract delivery. The quality, clarity and consistency of the bid collateral is instrumental in determining the success of the service provider in the bid process.

Benchmark vendors maximise and exploit their knowledge & intellectual capital , through leveraging track record and integrating contextualised organisation insight throughout the bid collateral to demonstrate their capability to deliver. Market analysis is critical in providing input to value proposition and collateral development.

Competitive bidding


A robust commercial model underpins a successful bid programme and sustainable business case

The internal business case for the contract is robust and sustainable. A set of business case criteria and metrics are defined and rigorously evaluated by senior stakeholders throughout the bid programme. The business case is continually assessed throughout the life-term of the contract.

The cost model is comprehensive, dynamic, inclusive of all cost/volume drivers and capable of flexing according to all variations in project scope. The pricing model takes the cost model outputs and introduces additional details, such as Profit Margins, Risk Adjustments and Payment Profile.

The vendor has a clear and aligned negotiation strategy and approach , supported throughout the organisation. The vendor defines negotiating points including requisite trade space and negotiating tolerance.

Competitive bidding


The vendor demonstrates the capability required to deliver against the current and future scope of the contract

The vendor demonstrates a clear awareness of its own capability, and an understanding of any gaps to fill to deliver the scope of the contract.

Through an in-depth Capability Analysis the vendor identifies the full scope of contract requirements and the capability required to deliver these requirements.

The vendor develops and implements robustCapability Actualisation plans to deliver the services according to the scope of the contract (Transition and Transformation). Throughout this process the vendor identifies risks and quantifies these in the commercial model.

Competitive bidding


The way the vendor engages the customer significantly influence the perception of the vendor’s ability to deliver

The vendor develops a customer managementstrategy that includes a full analysis of the relevant key stakeholders in the customer organisation, existing relationships with all customer stakeholders, and a plan to leverage these relationships. The vendor leverages its relationships with customer stakeholders to understand the customer organisation (e.g. structure, culture, strategy, bid evaluation criteria), and thus develop bid collateral that is more specifically tailored to meet the customer requirements.

The vendor is aware of both its own strategy and culture and how this fits with that of the customer organisation. Alignment between the vendor and customer underpins the development of a positive and trusting relationship.

The vendor selects its bid team to best align with the customer programme.

Competitive bidding


The way the Vendor and Customer work together determines whether the full potential value of the partnership is realised

The vendor demonstrates its commitment to delivering a high level of service through a well structured, stretching but realistic performance mechanism . Benchmark performance models encompass both leading and lagging indicators, align to the customer’s values and priorities, and cover the full scope of the contract.

The vendor develops a contract governanceapproach that is aligned to the values of the partnership to support the relationship throughout the full lifecycle of the contract. The governance model is tuned to enable rapid escalation of issues and management of change.

The most effective partnerships are those where effort is exerted to align the engagement styles of the customer and the vendor, and to the requirements of the contract, through an appropriate partnering model.

Competitive bidding


The PA Service Delivery Maturity Model distils the best practice from market leading Managed Service organisations

The Service Delivery Maturity Model defines 4 overarching capabilities that group together a set of characteristics all representing the key elements of a successful benchmark MS delivery organisation.

PA has worked with clients across a number of industry sectors helping them to move from a product to a service centric operation.

We understand the factors that make these organisations successful, for example, the approach to managing their organisation’stalent; the mechanisms for tracking cost base & profitability; their organisation structure; and their ability to forecast demand.

This model can be used to assess the maturity of the MS service provider, highlight

Services Delivery Maturity Model


The four capabilities High Performance Organisation

The basic foundation for any organisation is how it is structured, the processes which it employs to manage its operations, and the approach to nurturing talent and culture. Often greater focus is given to the delivery processes of the organisation and insufficient effort in getting the basics right. Compromises made in this area are proven to disable the organisation to operationally deliver.

Delivery Operations

Streamlined business processes, minimal number of handoffs, standardisation/best practice across delivery operations and automation are but a few examples of areas where cost reduction and innovation can be achieved.

Shared services and sourcing strategies are imperative to attain economies of scale and scope. The strategy and implementation approach for off-shoring, build up of centre's of excellence and local contract presence are all important factors.

Underpinning these elements are IT systems and tools which satisfy both client and service provider requirements.

Implementation

The capability for the service provider to successfully deliver projects, whether that be internal transformation or customer initiated implementation impacts profitability. A significant number of projects fail to deliver their expected outcome which has a major cost implication. Sharing of knowledge across operations is often desired but never realised.

Partnering effectiveness

The way in which the MS services provider and customer work together before and during the contract will determine whether the full potential value of the partnership is realised. A collaborative, strategic and cooperative approach to the relationship is likely to realise far greater benefit for both organisations than a confrontational and transactional approach.

Broadening the scope of services delivered beyond the contract through cross and up-selling are a must. Demand management and forecasting has a direct influence on cost base utilisation. Managing the supplier base is key to deliver best value: both strategic and operational supplier management is necessary.

Services Delivery Maturity Model

Running successful outsourcing procurement projects & delivering profitable outsourcing business

Managed Services & Outsourcing, Lisbon

30th March 2009

[email protected]

+447738648542

running successful outsourcing procurement projects & delivering profitable outsourcing business

Documents

easiest pa knowledge

empirical evidence clients

outset clients

sourcing processwe

experience of suppliers

right ones315 clients

procurement process

empirical evidenceclients