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Focus on outsourcing | September 11, 2008
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Canada drives $50 billion in outsourcing agreements
Efficiency and competitive advantage cited as main drivers
Looking at modern outsourcing it is becoming clear that the range of agreements is expanding, becoming more sophisticated and increasingly complex. In fact, according to a research study conducted by the Centre for Outsourcing Research and Education (CORE) in the summer and fall of 2007, at least $50 billion dollars worth of outsourcing contracts were found to exist in the Canadian market. “The industries that are the biggest users of outsourcing as a business mechanism are financial services, telecommunications, government and healthcare, and energy and utilities,” says John Simke, CORE’s Chair. Another key conclusion is the relative increase in the outsourcing of more complex business processes, compared with outsourcing of information technology.
Looking at the numbers, almost half of the $50 billion was comprised of transactions that were individually valued at $1 billion or more. These demonstrated linkages between customers including Bell Canada, CIBC, Hydro One and Bombardier with providers such as CGI, IBM, Telus, EDS, Accenture and Capgemini.
“Organizations are recognizing that, if done well, outsourcing allows for overall improvements in productivity, making them more effective,” Simke explains. “Also, organizations are finding that through outsourcing they can access pools of talent which are often too specialized to retain in-house.” These are now more important drivers of outsourcing than straight cost reduction.
Simke also points out that outsourcing increasingly requires a more complex relationship between the client and service provider. “Unlike buying a service, an outsourcing arrangement lasts for a significant period of time, and there is also an interdependency or collaboration that must exist between the parties.”
According to Simke, the research indicates two related themes: first, that organizations are seeing greater potential than ever from outsourcing; second, that this potential is hard to achieve without a great deal of experience and skill on both sides of the relationship. “Clients, in particular, need to recognize that a new set of skills is needed to manage these relationships, over and above traditional procurement or service management skills.”
CORE represents all players in the outsourcing market, including service providers, customers, consultants, academics and lawyers, and offers them a forum for sharing information, knowledge and expertise. “As these trends continue to develop, key players benefit from the ability to learn best practices from their peers.”
Outsourcing is a developing phenomenon in the marketplace and as a result there are seemingly endless opportunities for business to employ outsourcing as a method for achieving efficiencies and supporting competitive advantage.
Multi-vendor procurement leads to better deals
Competition refines and improves bids: Torys
Outsourcing agreements have historically been concluded following a selection process involving a single vendor, conducted on the basis of a high-level Request for Proposal (RFP). The selection procedure was followed by a one-on-one negotiation, carried out in parallel with a due diligence effort by the vendor. The result was that vendors, for whom such transactions were common and who were skilled at their negotiation, were landing great deals. Conversely, customers, who typically would only infrequently undertake such transactions and who had comparatively little expertise in such deals, found themselves at a competitive disadvantage.
“Today we encourage our clients to enter into multi-vendor, competitive procurement processes,” explains Daniel Logan, Co-Head, Business and Technology Sourcing Practice Group with Torys LLP. “The effect is that you are driving competitive behaviour in the vendors. We believe customers get a better result when they go through a process like this.”
Having decided that your enterprise is going to enter into a new outsourcing arrangement, an important early step involves the accumulation of historical data about the enterprise’s own performance of the business functions being outsourced. “This data would ideally include a good description of the scope of services and service levels that had historically been achieved,” explains Logan. This is essential information required to be included as part of a clear RFP document. “The clearer the information on scope and service level, the greater the likelihood that the vendors will be able to respond to the RFP with precision. In turn, this better enables the customer to undertake an apples-to-apples comparison between vendors,” he explains.
Once the RFP has been prepared and released, and vendor responses have been returned, the customer then undertakes an internal assessment of the responses and usually performs an initial “down select” of the vendors, narrowing the field. With the remaining vendors, the customer will typically set up information sessions with each selected vendor, during which the vendor will be asked to respond to perceived deficiencies in the bid submission materials. “What is important here is that you continue using the benefit of the competitive procurement process to refine and improve the remaining bids,” says Logan.
Because it is not unusual to see an RFP evaluation process take weeks (or longer), there is some risk that vendors who, for example, may believe they have a weak proposal, may withdraw from negotiations. “If too many vendors do this, the competitive side of the process begins to break down,” explains Logan. “Customers, therefore, need to be well-prepared from the onset, and should try to quickly and accurately assess the merits of each proposal.” By remaining responsive, the vendors are kept engaged.
A common mistake on the part of the customer is the tendency to “down select” to a single vendor too quickly. “If you accept the view that the procurement process results in more competitive behaviour by the vendors, then the longer you run that process, within reason, the better the outcome realized by the customer.” As soon as you enter into a sole-source discussion with a single vendor, the balance of negotiating power begins to tip in favour of the vendor. “Our advice: maintain the competitive procurement process for as long as is reasonably possible, but if you decide to enter into discussions with a single party, keep a communication channel open with the other vendor,” says Logan. A customer’s greatest risk here is that it proceeds with the wrong vendor, either because it makes a mistake in interpreting the vendor’s RFP response or because such information is not yet complete. Maintaining open communications with another vendor gives the customer somewhere to go if its sole-source discussions break down.
There is a perception that running a competitive procurement process may take longer and cost the customer more money. But, Logan explains, he’s repeatedly seen this process used effectively to materially improve vendors’ responses to an RFP—significantly improving the quality of the solution while reducing the charge for it. “When you’re looking at such substantial savings, you can form the conclusion that the pros certainly outweigh the cons,” he says.
For more information visit http://www.torys.com/ or call 416.865.0040
Renovate, don’t discard your IT
Historically, companies have installed software applications to serve in a functional manner, supporting standalone applications by department (Human Resources, Finance, Marketing, etc.) rather than utilizing enterprise-wide systems. But as companies continue to grow globally, constantly expanding into new markets, these legacy systems no longer make good business sense. “Within today’s accelerating business cycles, applications are becoming legacy within 18 to 24 months, and the systems that have been in use for the past 20 years now present a barrier to a company’s ability to compete effectively,” says Frank Hart, Vice President and General Manager of EDS Canada. “When you’re running systems today you want them to be relatively open, making it possible for various departments to communicate seamlessly.”
There are two ways to solve the problem of outdated software applications: you could rip out the entire outdated infrastructure and put in an end-to-end enterprise-wide system like SAP or Oracle, or the method Hart prefers: “Instead of knocking down the whole house, renovate!
“There are risks and sometimes unforeseeable costs associated with starting from scratch,” he explains. “The potential exists that data may be lost or that the new system may not work right away, resulting in possible extended periods of downtime.”
With application modernization, EDS employs a process that helps companies transition from the old world to the new, reducing and managing risks while saving money. “It’s a much better business proposition,” explains Hart. The key is to leverage the existing information technology (IT) investments as you transition to the new environment.
The Molson Coors Merger
“This gets even more complicated when two companies get together in the case of a merger or acquisition,” Hart says. That is why Coors and Molson turned to the innovative and reliable services of EDS when they made the decision to merge in 2004. Because the brewer would be doubling in size, it needed to revitalize its technology and bring previously unaligned systems online quickly.
“We converted some of their old applications and the platforms they ran on, to build a more globally integrated package that reduced their overall IT costs and improved productivity.” The goal was an IT systems that functions as a strategic enabler rather than a hindrance or necessary evil.
Molson Canada
With EDS providing the backbone supporting Molson Canada’s continued growth, the company’s supply chain group and IT departments recently adopted a Daily Automated Reporting System to measure customer service, one of the organization’s key performance indicators. Using innovative and efficient technologies coupled with a talented internal IT team, the brewery is able to remain competitive and stay ahead of the curve in the manufacturing sector.
“Use of this daily reporting tool, which went live last year, allows everyone in the company, from VPs to regional managers, access to information based on our ability to meet customer needs and expectations,” explains Serge Fortier, CIO of Molson Canada. “With timely and reliable data, our supply chain team is able to quickly react to any emergent customer service issues and as a result optimize production capacity across the network.
“Coming through the recent merger, this IT tool has put Molson ahead of other breweries, showcasing a different kind of leadership,” says Fortier. Year-over-year growth for Molson Coors has been strongly supported by EDS’s reliable service, showcasing the power of two successful companies working together to achieve outstanding business results.
For more information visit http://www.eds.ca/
Outsourcing delivers world-class IT functions
Understand the value delivered by outsourcing to reap its full benefits
Over the past few years the use of outsourcing has become an increasingly common strategy, as a growing number of companies recognize the value of sourcing services externally. But, according to Warren White, Senior Vice President of CGI’s Global Business Engineering Group, potential clients often confuse sourcing low-cost labor with outsourcing, and the value proposition is entirely different. White believes it is increasingly important that companies’ senior management understand the distinction. “While there is certainly value to be derived through labour arbitrage, that is more appropriately termed ‘out-tasking.’ Outsourcing, by contrast, is outcome based (rather than input based) and is a higher value alternative, and one that is more closely aligned with the objective of creating a world-class IT function.”
For CGI, a global service provider offering IT and business process outsourcing solutions, that means delivering a set of committed, business-linked IT service-level outcomes at a cost lower than can be generally achieved internally. The value proposition to clients is the security of having a world-class IT firm commit to meeting identified service requirements as well as manage all the components of IT services, including labor, and to do so in a ’best cost‘ manner.
As an end-to-end service provider, CGI’s core business is to manage the full IT supply chain, including infrastructure, applications support and development projects. As this is CGI’s core business, CGI invests heavily in productivity tools, processes and a global delivery model which includes both local and remote centers of expertise.
The way CGI differentiates itself, says White, “is in providing the functional ‘know-how’ to manage an IT environment for maximum value and taking on the responsibility for delivering the desired outcomes in terms of service commitments, allowing the CIO the opportunity to focus on strategy development and delivery.”
Out-tasking, by contrast, only provides a low cost input to the process. A value opportunity to be sure—CGI provides many services out of India—but in out-tasking all the responsibility for orchestrating that input, along with others, to deliver commitments remain with the CIO, detracting from what should be his or her focus.
“On the surface, the out-tasking model appears compelling, offering staff at a significantly reduced price. But to the provider, there is less incentive for productivity as they make their money through volume of resources,” says White. By contrast, outsourcers like CGI are highly incented to achieve productivity and operationßal excellence, as the cost and risk of meeting service commitments is all theirs. This is much more aligned with the true objectives of clients: committed services, at a low cost in a highly productive and efficient environment.
Strategy and execution: the right things, the right way
Essentially, a CIO has two objectives:
- Setting the IT strategy - understanding the business objectives and selecting the right initiatives in order to support them
- Executing the IT strategy - delivering these initiatives to meet the business needs, which means on specification, on time and on budget, and running them in a reliable, recoverable and secure way
Outcome-based outsourcing places the responsibility for the second objective primarily in the hands of the service provider, liberating the CIO to focus on the first priority. It is in orchestrating IT direction and activity in-line with the business that the CIO maximizes the value of IT’s contribution to the firm. As Peter Weil says in his book IT Governance, “Top performing enterprises succeed where others fail by implementing effective IT governance to support their strategies.”
For more information email chris.atkins@cgi.com, call 613.566.4617 or visit http://www.cgi.com/
How to build-in change management
Changes happen in any outsourced project, so plan for them now
Notwithstanding the trend towards shorter terms, outsourcing transactions often still have a duration of five to seven years. Thus, one of the greatest challenges in structuring the transaction is to provide for change. “These changes may result from internal developments like a merger, or external developments like a change in the customer’s market,” says John Beardwood, a Partner with Fasken Martineau DuMoulin LLP.
“One of the most important mechanisms to respond to change is pricing,” Beardwood says. He suggests the following to address three significant types of change. The first involves a change in service demand. “Where the customer’s service requirements are very cyclical, the pricing model should reflect demand fluctuations, and include both ‘floor’ and ‘ceiling’ prices, and fixed and variable unit pricing, in order to protect both parties.”
Second, a flexible pricing model should allow for modification in services scope. “To facilitate scope modification, both parties should invest the time, in advance, to break down the fees into their respective components (e.g. by silo, function, software application, etc.). This front-end investment will reap dividends during the contract term.”
Finally, a consistent customer complaint is that of excessive “change control” costs, says Beardwood. A customer should (a) issue all customer change requests through one designated person, (b) define the type of change to be referred to change control and thus potentially subject to additional charges, and (c) ensure that where the change is so integrally linked to existing services the customer could not reasonably engage an alternative provider to implement the change, the provider is required to provide such change at a pre-fixed rate.
“It is essential that prior to entering into the outsourcing agreement both parties review each element of the arrangement with the view to answering one question,” says Beardwood. “Will this element respond effectively to change during the term?”
For more information visit www.fasken.com
Level the playing field for outsourcing success
Today outsourcers offer an assortment of services well beyond traditional data centre management. From service provider to strategic partner, choosing the most appropriate outsourcing relationship is becoming increasingly complex. To gain the best results, CIOs need to level the playing field between their own selection teams and the vendors’ response teams.
The outsourcing selection team is responsible for making a decision that will impact the company’s operating environment for the next five or more years. Yet companies often make the mistake of expecting their IT teams to manage the search, selection, and deal processes while running daily operations and delivering on project commitments to business partners. In contrast, the outsourcer will have a dedicated Request for Proposal (RFP) response team focused on moving the deal forward to conclusion as quickly as possible.
The right combination of people must be on the selection team from the beginning, including internal and external resources who can provide a broad range of technology, sourcing, legal, and financial expertise. CIOs and their senior teams are often charged with leading the search and selection process. The CIO must ensure key members of the selection team will be dedicated throughout the selection, deal, contract negotiation and transition phases.
External expertise is often needed to bridge gaps or complement internal skills or experience. The CIO determines what external expertise is required to provide specialized skills and experience or to backfill critical internal resources being seconded to the selection team. Having the appropriate team in place before developing the RFP will contribute significantly to the best outsourcing decision.
Executing an RFP involves management of several moving parts over a short timeline, including the ability to deal quickly and effectively with vendor questions, collect and summarize findings, run financial models, and present results at both a summary and detailed level to different levels within the organization. This is not the time for false economies: the CIO needs to build an internal selection team that is, at a minimum, on par with the outsourcer’s RFP response team.
For more information visit Stratix Consulting at www.stratix.ca
The source for Canadian outsourcing companies
Branham’s Directory of Outsourcing Companies and Capabilities in Canada is a perfect complement to Backbone’s 4th annual 2008 Outsourcing Focus Supplement. The Directory provides the quintessential compendium of information on Canada’s outsourcing industry, providing readers with a broad understanding of the companies offering outsourcing services and how to make outsourcing relationships work.
Contracting out non-core activities to specialists is universally accepted by business leaders as a source of competitive advantage in good economic times and is a source of cost savings in bad. Canada has a robust national market and excels as a critical geographic node for the North American and global multi-national outsourcing industry.
The Directory serves as a rallying point to highlight the key players and organizations in the industry, actively promoting them individually and collectively to the buyers in Canada, North America and abroad.
Canada offers a wealth of competent, competitive outsourcing vendors, spanning the gamut of outsourcing activities from IT & BPO, to all types of IT enabled Services (ITES) from laboratory and engineering to manufacturing and operations support. The Directory contains detailed information on the locations, services offered and verticals served, offering readers a geographically diverse group of companies and organizations.
Contact Branham Group at www.branhamgroup.com for information on how to subscribe or to attain your free hard copy of the Directory. Behind the scenes, the Directory continues to grow in an online form with more expansive information. To view or download an electronic copy please go to www.branhamoutsourcing.com. For further details on the vendors listed or if you wish to be in contact with a senior company representative of these firms, simply email us at info@branhamoutsourcing.com and include the company you are interested in, with your coordinates.
Legend for chart (PDF version of chart - 400KB)
Contact Branham Group at http://www.branhamgroup.com/ for more information
Supplements Archive
Canada drives $50 billion in outsourcing agreements
Efficiency and competitive advantage cited as main drivers
Looking at modern outsourcing it is becoming clear that the range of agreements is expanding, becoming more sophisticated and increasingly complex. In fact, according to a research study conducted by the Centre for Outsourcing Research and Education (CORE) in the summer and fall of 2007, at least $50 billion dollars worth of outsourcing contracts were found to exist in the Canadian market. “The industries that are the biggest users of outsourcing as a business mechanism are financial services, telecommunications, government and healthcare, and energy and utilities,” says John Simke, CORE’s Chair. Another key conclusion is the relative increase in the outsourcing of more complex business processes, compared with outsourcing of information technology.
Looking at the numbers, almost half of the $50 billion was comprised of transactions that were individually valued at $1 billion or more. These demonstrated linkages between customers including Bell Canada, CIBC, Hydro One and Bombardier with providers such as CGI, IBM, Telus, EDS, Accenture and Capgemini. “Organizations are recognizing that, if done well, outsourcing allows for overall improvements in productivity, making them more effective,” Simke explains. “Also, organizations are finding that through outsourcing they can access pools of talent which are often too specialized to retain in-house.” These are now more important drivers of outsourcing than straight cost reduction.
Simke also points out that outsourcing increasingly requires a more complex relationship between the client and service provider. “Unlike buying a service, an outsourcing arrangement lasts for a significant period of time, and there is also an interdependency or collaboration that must exist between the parties.”
According to Simke, the research indicates two related themes: first, that organizations are seeing greater potential than ever from outsourcing; second, that this potential is hard to achieve without a great deal of experience and skill on both sides of the relationship. “Clients, in particular, need to recognize that a new set of skills is needed to manage these relationships, over and above traditional procurement or service management skills.”
CORE represents all players in the outsourcing market, including service providers, customers, consultants, academics and lawyers, and offers them a forum for sharing information, knowledge and expertise. “As these trends continue to develop, key players benefit from the ability to learn best practices from their peers.”
Outsourcing is a developing phenomenon in the marketplace and as a result there are seemingly endless opportunities for business to employ outsourcing as a method for achieving efficiencies and supporting competitive advantage.
Multi-vendor procurement leads to better deals Competition refines and improves bids: Torys
Outsourcing agreements have historically been concluded following a selection process involving a single vendor, conducted on the basis of a high-level Request for Proposal (RFP). The selection procedure was followed by a one-on-one negotiation, carried out in parallel with a due diligence effort by the vendor. The result was that vendors, for whom such transactions were common and who were skilled at their negotiation, were landing great deals. Conversely, customers, who typically would only infrequently undertake such transactions and who had comparatively little expertise in such deals, found themselves at a competitive disadvantage.
“Today we encourage our clients to enter into multi-vendor, competitive procurement processes,” explains Daniel Logan, Co-Head, Business and Technology Sourcing Practice Group with Torys LLP. “The effect is that you are driving competitive behaviour in the vendors. We believe customers get a better result when they go through a process like this.”
Having decided that your enterprise is going to enter into a new outsourcing arrangement, an important early step involves the accumulation of historical data about the enterprise’s own performance of the business functions being outsourced. “This data would ideally include a good description of the scope of services and service levels that had historically been achieved,” explains Logan. This is essential information required to be included as part of a clear RFP document. “The clearer the information on scope and service level, the greater the likelihood that the vendors will be able to respond to the RFP with precision. In turn, this better enables the customer to undertake an apples-to-apples comparison between vendors,” he explains.
Once the RFP has been prepared and released, and vendor responses have been returned, the customer then undertakes an internal assessment of the responses and usually performs an initial “down select” of the vendors, narrowing the field. With the remaining vendors, the customer will typically set up information sessions with each selected vendor, during which the vendor will be asked to respond to perceived deficiencies in the bid submission materials. “What is important here is that you continue using the benefit of the competitive procurement process to refine and improve the remaining bids,” says Logan.
Because it is not unusual to see an RFP evaluation process take weeks (or longer), there is some risk that vendors who, for example, may believe they have a weak proposal, may withdraw from negotiations. “If too many vendors do this, the competitive side of the process begins to break down,” explains Logan. “Customers, therefore, need to be well-prepared from the onset, and should try to quickly and accurately assess the merits of each proposal.” By remaining responsive, the vendors are kept engaged.
A common mistake on the part of the customer is the tendency to “down select” to a single vendor too quickly. “If you accept the view that the procurement process results in more competitive behaviour by the vendors, then the longer you run that process, within reason, the better the outcome realized by the customer.” As soon as you enter into a sole-source discussion with a single vendor, the balance of negotiating power begins to tip in favour of the vendor. “Our advice: maintain the competitive procurement process for as long as is reasonably possible, but if you decide to enter into discussions with a single party, keep a communication channel open with the other vendor,” says Logan. A customer’s greatest risk here is that it proceeds with the wrong vendor, either because it makes a mistake in interpreting the vendor’s RFP response or because such information is not yet complete. Maintaining open communications with another vendor gives the customer somewhere to go if its sole-source discussions break down.
There is a perception that running a competitive procurement process may take longer and cost the customer more money. But, Logan explains, he’s repeatedly seen this process used effectively to materially improve vendors’ responses to an RFP—significantly improving the quality of the solution while reducing the charge for it. “When you’re looking at such substantial savings, you can form the conclusion that the pros certainly outweigh the cons,” he says.
For more information visit http://www.torys.com/ or call 416.865.0040
Renovate, don’t discard your IT Historically, companies have installed software applications to serve in a functional manner, supporting standalone applications by department (Human Resources, Finance, Marketing, etc.) rather than utilizing enterprise-wide systems. But as companies continue to grow globally, constantly expanding into new markets, these legacy systems no longer make good business sense. “Within today’s accelerating business cycles, applications are becoming legacy within 18 to 24 months, and the systems that have been in use for the past 20 years now present a barrier to a company’s ability to compete effectively,” says Frank Hart, Vice President and General Manager of EDS Canada. “When you’re running systems today you want them to be relatively open, making it possible for various departments to communicate seamlessly.”
There are two ways to solve the problem of outdated software applications: you could rip out the entire outdated infrastructure and put in an end-to-end enterprise-wide system like SAP or Oracle, or the method Hart prefers: “Instead of knocking down the whole house, renovate!
“There are risks and sometimes unforeseeable costs associated with starting from scratch,” he explains. “The potential exists that data may be lost or that the new system may not work right away, resulting in possible extended periods of downtime.”
With application modernization, EDS employs a process that helps companies transition from the old world to the new, reducing and managing risks while saving money. “It’s a much better business proposition,” explains Hart. The key is to leverage the existing information technology (IT) investments as you transition to the new environment.
The Molson Coors Merger
“This gets even more complicated when two companies get together in the case of a merger or acquisition,” Hart says. That is why Coors and Molson turned to the innovative and reliable services of EDS when they made the decision to merge in 2004. Because the brewer would be doubling in size, it needed to revitalize its technology and bring previously unaligned systems online quickly.
“We converted some of their old applications and the platforms they ran on, to build a more globally integrated package that reduced their overall IT costs and improved productivity.” The goal was an IT systems that functions as a strategic enabler rather than a hindrance or necessary evil.
Molson Canada
With EDS providing the backbone supporting Molson Canada’s continued growth, the company’s supply chain group and IT departments recently adopted a Daily Automated Reporting System to measure customer service, one of the organization’s key performance indicators. Using innovative and efficient technologies coupled with a talented internal IT team, the brewery is able to remain competitive and stay ahead of the curve in the manufacturing sector.
“Use of this daily reporting tool, which went live last year, allows everyone in the company, from VPs to regional managers, access to information based on our ability to meet customer needs and expectations,” explains Serge Fortier, CIO of Molson Canada. “With timely and reliable data, our supply chain team is able to quickly react to any emergent customer service issues and as a result optimize production capacity across the network.
“Coming through the recent merger, this IT tool has put Molson ahead of other breweries, showcasing a different kind of leadership,” says Fortier. Year-over-year growth for Molson Coors has been strongly supported by EDS’s reliable service, showcasing the power of two successful companies working together to achieve outstanding business results.
For more information visit http://www.eds.ca/
Outsourcing delivers world-class IT functions Understand the value delivered by outsourcing to reap its full benefits
Over the past few years the use of outsourcing has become an increasingly common strategy, as a growing number of companies recognize the value of sourcing services externally. But, according to Warren White, Senior Vice President of CGI’s Global Business Engineering Group, potential clients often confuse sourcing low-cost labor with outsourcing, and the value proposition is entirely different. White believes it is increasingly important that companies’ senior management understand the distinction. “While there is certainly value to be derived through labour arbitrage, that is more appropriately termed ‘out-tasking.’ Outsourcing, by contrast, is outcome based (rather than input based) and is a higher value alternative, and one that is more closely aligned with the objective of creating a world-class IT function.”
For CGI, a global service provider offering IT and business process outsourcing solutions, that means delivering a set of committed, business-linked IT service-level outcomes at a cost lower than can be generally achieved internally. The value proposition to clients is the security of having a world-class IT firm commit to meeting identified service requirements as well as manage all the components of IT services, including labor, and to do so in a ’best cost‘ manner. As an end-to-end service provider, CGI’s core business is to manage the full IT supply chain, including infrastructure, applications support and development projects. As this is CGI’s core business, CGI invests heavily in productivity tools, processes and a global delivery model which includes both local and remote centers of expertise.
The way CGI differentiates itself, says White, “is in providing the functional ‘know-how’ to manage an IT environment for maximum value and taking on the responsibility for delivering the desired outcomes in terms of service commitments, allowing the CIO the opportunity to focus on strategy development and delivery.”
Out-tasking, by contrast, only provides a low cost input to the process. A value opportunity to be sure—CGI provides many services out of India—but in out-tasking all the responsibility for orchestrating that input, along with others, to deliver commitments remain with the CIO, detracting from what should be his or her focus.
“On the surface, the out-tasking model appears compelling, offering staff at a significantly reduced price. But to the provider, there is less incentive for productivity as they make their money through volume of resources,” says White. By contrast, outsourcers like CGI are highly incented to achieve productivity and operationßal excellence, as the cost and risk of meeting service commitments is all theirs. This is much more aligned with the true objectives of clients: committed services, at a low cost in a highly productive and efficient environment.
Strategy and execution: the right things, the right way
Essentially, a CIO has two objectives:
- Setting the IT strategy - understanding the business objectives and selecting the right initiatives in order to support them
- Executing the IT strategy - delivering these initiatives to meet the business needs, which means on specification, on time and on budget, and running them in a reliable, recoverable and secure way
Outcome-based outsourcing places the responsibility for the second objective primarily in the hands of the service provider, liberating the CIO to focus on the first priority. It is in orchestrating IT direction and activity in-line with the business that the CIO maximizes the value of IT’s contribution to the firm. As Peter Weil says in his book IT Governance, “Top performing enterprises succeed where others fail by implementing effective IT governance to support their strategies.”
For more information email chris.atkins@cgi.com, call 613.566.4617 or visit http://www.cgi.com/
How to build-in change management Changes happen in any outsourced project, so plan for them now
Notwithstanding the trend towards shorter terms, outsourcing transactions often still have a duration of five to seven years. Thus, one of the greatest challenges in structuring the transaction is to provide for change. “These changes may result from internal developments like a merger, or external developments like a change in the customer’s market,” says John Beardwood, a Partner with Fasken Martineau DuMoulin LLP.
“One of the most important mechanisms to respond to change is pricing,” Beardwood says. He suggests the following to address three significant types of change. The first involves a change in service demand. “Where the customer’s service requirements are very cyclical, the pricing model should reflect demand fluctuations, and include both ‘floor’ and ‘ceiling’ prices, and fixed and variable unit pricing, in order to protect both parties.”
Second, a flexible pricing model should allow for modification in services scope. “To facilitate scope modification, both parties should invest the time, in advance, to break down the fees into their respective components (e.g. by silo, function, software application, etc.). This front-end investment will reap dividends during the contract term.”
Finally, a consistent customer complaint is that of excessive “change control” costs, says Beardwood. A customer should (a) issue all customer change requests through one designated person, (b) define the type of change to be referred to change control and thus potentially subject to additional charges, and (c) ensure that where the change is so integrally linked to existing services the customer could not reasonably engage an alternative provider to implement the change, the provider is required to provide such change at a pre-fixed rate.
“It is essential that prior to entering into the outsourcing agreement both parties review each element of the arrangement with the view to answering one question,” says Beardwood. “Will this element respond effectively to change during the term?”
For more information visit www.fasken.com
Level the playing field for outsourcing success Today outsourcers offer an assortment of services well beyond traditional data centre management. From service provider to strategic partner, choosing the most appropriate outsourcing relationship is becoming increasingly complex. To gain the best results, CIOs need to level the playing field between their own selection teams and the vendors’ response teams.
The outsourcing selection team is responsible for making a decision that will impact the company’s operating environment for the next five or more years. Yet companies often make the mistake of expecting their IT teams to manage the search, selection, and deal processes while running daily operations and delivering on project commitments to business partners. In contrast, the outsourcer will have a dedicated Request for Proposal (RFP) response team focused on moving the deal forward to conclusion as quickly as possible.
The right combination of people must be on the selection team from the beginning, including internal and external resources who can provide a broad range of technology, sourcing, legal, and financial expertise. CIOs and their senior teams are often charged with leading the search and selection process. The CIO must ensure key members of the selection team will be dedicated throughout the selection, deal, contract negotiation and transition phases.
External expertise is often needed to bridge gaps or complement internal skills or experience. The CIO determines what external expertise is required to provide specialized skills and experience or to backfill critical internal resources being seconded to the selection team. Having the appropriate team in place before developing the RFP will contribute significantly to the best outsourcing decision.
Executing an RFP involves management of several moving parts over a short timeline, including the ability to deal quickly and effectively with vendor questions, collect and summarize findings, run financial models, and present results at both a summary and detailed level to different levels within the organization. This is not the time for false economies: the CIO needs to build an internal selection team that is, at a minimum, on par with the outsourcer’s RFP response team.
For more information visit Stratix Consulting at www.stratix.ca
The source for Canadian outsourcing companies Branham’s Directory of Outsourcing Companies and Capabilities in Canada is a perfect complement to Backbone’s 4th annual 2008 Outsourcing Focus Supplement. The Directory provides the quintessential compendium of information on Canada’s outsourcing industry, providing readers with a broad understanding of the companies offering outsourcing services and how to make outsourcing relationships work.
Contracting out non-core activities to specialists is universally accepted by business leaders as a source of competitive advantage in good economic times and is a source of cost savings in bad. Canada has a robust national market and excels as a critical geographic node for the North American and global multi-national outsourcing industry.
The Directory serves as a rallying point to highlight the key players and organizations in the industry, actively promoting them individually and collectively to the buyers in Canada, North America and abroad.
Canada offers a wealth of competent, competitive outsourcing vendors, spanning the gamut of outsourcing activities from IT & BPO, to all types of IT enabled Services (ITES) from laboratory and engineering to manufacturing and operations support. The Directory contains detailed information on the locations, services offered and verticals served, offering readers a geographically diverse group of companies and organizations.
Contact Branham Group at www.branhamgroup.com for information on how to subscribe or to attain your free hard copy of the Directory. Behind the scenes, the Directory continues to grow in an online form with more expansive information. To view or download an electronic copy please go to www.branhamoutsourcing.com. For further details on the vendors listed or if you wish to be in contact with a senior company representative of these firms, simply email us at info@branhamoutsourcing.com and include the company you are interested in, with your coordinates.
Legend for chart (PDF version of chart - 400KB)
| ITO: | Information Technology Outsourcing |
| BPO: | Business Process Outsourcing |
| BBO: | Banking Back Office |
| HR: | Human Resources |
| F&A: | Finance & Administration |
| CRM: | Customer Relationship Management |
| SCM: | Supply Chain Management |
| MDLAB: | Medical Diagnostics & Laboratory Services |
| MFG: | Manufacturing |
| PRO: | Professional Services |
| OPS: | Operations Support Services |
Contact Branham Group at http://www.branhamgroup.com/ for more information
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