IBM Global Services - Strategic Outsourcing
IBM Strategic Outsourcing © 2003 IBM Corporation
IBM Strategic Outsourcing
Emily Wright
Business Consulting Services
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
The Market Environment
Strategic Outsourcing
IBM's Capabilities
On Demand
Agenda
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
Slow economic growth and pressures to improve earnings are combining to make
cost cutting the primary agenda item for a large majority (78%) of companies
Growth is emerging as an important issue as economic recovery has been postponed
(and may be slow to return).
IT continues to be an important lever in achieving the cost saving objective for most
companies in two very different ways
ƒ IT is being tasked to enable business process efficiency
ƒ IT spending is also a source of savings as budgets for all functions are being trimmed.
In general, IT budget pressure is in line with the overall business, however 30% of
respondents indicate that IT spending has been cut more than other functions while
10% state that IT has been protected from cuts
Source: 2003 SO Market Insights study of 300 senior executives, Mercer Management Consulting
Companies are taking actions to improve their bottom line
rather than waiting for “the recovery” to solve problems
In a weak global economy, companies face
uncertainty about their economic and strategic future
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
Today’s Economy is Forcing Companies to Address
Complex Needs to Enhance Shareholder Value
Shareholder
Value
Management Needs
Real-time decision
support analytics and
tools
Operating model
flexibility
Financial Needs
Reduce and control
operating costs
Improve cash flow
Improve return on capital
Strategic Needs
Improved core business focus
Transformed business design
Additional dollars invested in
higher-value projects
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
"Strategic outsourcing positively impacts
shareholder value. Our research suggests
the difference is in the order of % above
the individual sector average and %
above the overall FTSE 100."
- Source: Morgan Chambers,
"Outsourcing in the FTSE 100: The Definitive Study"
"Evidence shows that IT outsourcing has a
discernible positive impact on share prices.
A study of 27 companies undertaking large
IT outsourcing initiatives indicates an
average gain in shareholder value of %
over and above the general market trend."
- Source: Stern Stewart,
"IT Outsourcing and Shareholder Value"
Why outsource? To increase shareholder value...
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
Cost Revenue Customer
Efficiency Growth Satisfaction
Source: 2003 SO Market Insights study, Mercer Management Consulting -- 300 interviews with senior executives
Senior Executive Priorities
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
Substantial market growth over last five years; growth anticipated at 9% through
2007. IBM is a market share leader.
Source: GMV 2H03
The MarketplaceThe MarketplaceMarket OpportunityMarket Opportunity
Customers
Top two business priorities - cost efficiency
and revenue growth
Services-savvy customers; increasing 3rd
party involvement
Sophisticated marketplace (customers,
suppliers)
CIOs playing a strong role in outsourcing
decision making
Increasing interest in On Demand
Growing interest/expectation of a collaborative
relationship
Deals
Price pressure – offshore acceptance
Competition is fierce
More complex deal structures
SO is a Mainstream IT Solution
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
SO as percentage
of IBM revenue
19%
SO as percentage
of IBM PTI
28%
Other IBM
SO
SO as percentage
of IBM employees
21%
Strategic Outsourcing represents a major source of
revenue and profit for IBM
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
The strategic (transformational) and constraint (necessary evil) segments
are becoming less prevalent.
Customers are tending to view IT as a support or enabler
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
Percent of the Fortune X that Outsourced from 1997 - 2002
60% of Fortune 100 firms have their outsourcing business strategies in place
Source: IDC – Contracts Database 1997-2002
80%
64%
60%
36%
23%
Fortune 10
Fortune 25
Fortune 100
Fortune 500
Fortune 1000
Outsourcing has become a common business strategy
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
Strategic Outsourcing :
What is the Value for the Customer ?
Cost reduction
Ability to focus on core competencies
Increase availability of specific skills and resources
Improve stability, effectiveness and service levels of IT
Enable rapid business change / expansion
Obtain access to advanced technologies & research, and to industry,
business and technology experts
Predictable expense management
Gain contractually committed service levels
Flexibility to transition to the next generation of infrastructure and
applications
Build a long term strategic relationship ... for competitive advantage
Increase shareholder value
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
Understand your core competencies in light of your business strategy
Determine what portions of your portfolio to outsource
ƒ IBM can partner with your company in a variety of ways -- from out-tasking,
to selective outsourcing of one of more IT functions, to full-scale outsourcing
Select an outsourcing provider who will build a strong relationship with
your company
ƒ IBM takes a relationship approach that ensures clear expectations, allows
for flexibility, collaborative planning and mutual accountability
A Roadmap to Successful Outsourcing
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IBM Global Services - Strategic Outsourcing
© 2003 IBM CorporationIBM Strategic Outsourcing
A successful outsourcing relationship focuses on:
Setting clear expectations for the relationship at the outset
Establishing appropriate governance protocols to guide joint action that
can deliver on the promise of the relationship
Recognizing the need to adjust the relationship over time
Shared risk and return
Meeting service level expectations --not just SLAs
Contract flexibility -- the ability to change the scale and content of what is
being delivered as the business environment changes
Keys to a Successful Outsourcing Relationship
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