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Challenges and Risks for the CIO from Outsourcing in the digital era

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Challenges and Risks for the CIO from Outsourcing in the digital era

  1. 1. 1 Challenges and Risks for the CIO from Outsourcing in the digital era Speaker: Adrian Quayle June 2, 2016 adrian.quayle@avasant.com
  2. 2. 2 Discussion Topics • Outsourcing and business Impact of Cloud Services : which trends to watch for in 2016? • How are these trends disrupting traditional outsourcing arrangements going forward? • Should “Everything as a Service” (XaaS) push towards an “Outsource Everything” approach ? • How can managed services in the age of IaaS, SaaS, and BPaaS improve costs and innovation ? • How can governance evolve to address the challenges of digital and transformational outsourcing ?
  3. 3. 3 Digital disruption is impacting across all industry sectors Industry Historic Sources of Lock-in Sources of Disruption Disruptors Media Talent Contracts, Distribution, TV Stations Coverage Digital & social media channels, free media competes with paid content, limitless distribution Consumer Packaged Goods Mass advertising, Shelf Space, Shopper Behavior Ecommerce and mobile distribution, pricing, new channels of awareness and advocacy Retail Location, Store Experience, Trade Advertising Ecommerce, auctions, group buying Airlines Gate real estate, IT Infrastructure, planes and other capital investments Price comparison sites, customers sharing stories, substitution from telepresence Healthcare Insurance companies, Doctor groups and Hospitals lock-in relationships Doctor ratings by consumers, new regulations, cost of service delivery Financial Services Local branch network, scale, reputation Low cost e-substitutes for most transactions
  4. 4. 4 Improving service level and control are key drivers of next shoring 32 Market for 3D Printing to double by 2020 1 Smart Manufacturing is impacting 50% of manufacturing jobs The Facts: Manufacturing $5.2 Bn $2.2 Bn 2020 2012 2.3 X Analytics Automation & Robotics Process improvement Traditional Labor 77% 55% 43% 37% 35% Improving Service Levels by bringing production… Improving control over quality and intellectual… Diversification of manufacturing due to natural… Cost benefit to r low cost manufacturing… Skills or technology limitations Improved SLAs Superior Quality Diverse Risk of Traditional Approach Offshoring less financially attractive Better technology Continuing Overall Cost Reductions
  5. 5. 5 The Facts: Travel & Transportation 35% Travel Research 24% Promotion Search 21% Hotel Reservations 20% Ticket Purchases 1 2 Travel activities performed on mobile 3 Interactive mobile apps Self Service Technologies Assisted Bag Technologies Self Boarding Technologies 95% 86% 74% 52% Airports are improving traveler experiences Increased investments in facial recognition tech
  6. 6. 6 Global CIO: Technology – Change – Unpredictability rapid Demand and change becoming unpredictable: One of the primary fears that global CIOs have is to invest in a technology or sign a contract which might become redundant even before implementation. This is yielding to shorter and more flexible sourcing contracts. New Technology, New Assets: CIO has a sense of losing control due to trends like BYOD, platform and cloud. Meaning of IT assets has significantly been altered over the years along with the traditional IT policies which no longer stand valid with the new technology developments. Change new Technology technology Demand Business Demands New Technology: Customers of new age businesses expect completely integrated sales, operations, customer service and information. This creates significant challenges for the CIO to offer information in multiple platforms, languages, devices and integrate data bases across marketing, operations & support. A global CIO has his hands full with unpredictability and dynamism both in terms of technology demand and rapid changes in business requirements Impact of Economic Uncertainties: Outsourcing has become a strategic function since the world economy is going through volatility. Avasant has observed a trend towards a more integrated approach to sourcing. strategic Sourcing
  7. 7. 7 Growing role of Technology Industry is going through a paradigm shift with technology driven business models and is steadily moving away from viewing technology as a “cost center” Organisations need to define and execute digital business strategies that leverage technology disruptions to drive sustainable value and competitive advantage Key Technology Disruptors • Cloud and Hybrid IT • Mobility, Unified Communications and Productivity • Social Media • Big Data and Advanced Analytics • Internet of Things and Connected Enterprise Key Business Dimensions • Products and Services: Digital products/services, Customer value propositions • Sales and Marketing: e- and m- commerce, Sales Force Automation • Digital Customer Experience: Omnichannel, Interactive, Customer Operations • Digital Workforce: Communications, Messaging, Collaboration, Productivity • Operations Autonomics and Integration: Smart Sensors, Autonomous Processing, Edge Computing • Digital Ecosystem Integration Text?
  8. 8. 8 Digital Customer “Research shows that the customer journey is no longer linear. Our business customers spend more time doing their own research online through communities and websites, before coming to our sellers. ” – Stella Goulet, CMO, Avanade
  9. 9. 9 Consumers are becoming increasingly digital, requiring companies to be digital to remain relevant Follows Rituals Seeks Immediacy Stays Connected Is Value Conscious Opines & Shares it Seeks Authenticity Digital Customer 75% Millennials are disconnected for an hour or less per day 50% check their phones before they sleep and after they wake up 34% go online to share their feelings about a company 26% express dissatisfaction 23% express positive feelings 46% feel they can be brutally honest online 51% aim to influence others with their opinions 41% online users practice showrooming >50% millennials use 4 or more sources to help them make a purchase decision 89% affirm that real-time product availability would influence their buying behavior >50% Walmart online buyers choose site to store pickup 92% find online information more trust-worthy than other sources 75% do not find company ads trust-worthy 70% consult online reviews before a purchase 89% rely on the same brands for their daily needs 75% get disappointed when their brand of choice is not available Source: Avasant Research
  10. 10. 10 Digital Customer’s buying behavior is changing 74% Of all customers rely on social networks to guide their buying decisions 74%42% 39% B2B decision makers increasingly consult social media before making purchase decisions Social Media – Positioning among peers Online Research – Knowing without asking 94% of B2B buyers conduct online research before purchasing a business product 83% 34% 77% 11% 42% 9% Supplier Website Google Product User Reviews 3rd Party Websites Blogs Social Media Mobile – Right here right now B2B products researched on mobile devices 44% 18-25 yr old buyers doing research on mobile 55% Buyers doing research for busines goods on tablets 37% Corporate purchase on tablets 25% Source: Avasant Research
  11. 11. 11 11 Value Leakage is a Reality ! Over 51% of contracts are renegotiated before term Over 75% of organizations and third party providers are not in compliance with their contract terms and conditions Lack of business alignment, service expectation misses, and operational disarray leads to about 12-15% deterioration of the business case Contract amendments lead to a further 6-10% reduction in the business case Organizations typically spend over 12% of contract value on governance yet do not achieve the expected benefits 30-60% of the estimated business case value for sourcing is lost due to ineffective governance
  12. 12. 12 The Sourcing Governance Challenge: Relationships Operations Performance • Too many points of contact create confusion • Not enough business involvement • Limited understanding of contractual responsibility and lack of transparency at operational levels • Lack of accountability resulting in duplication and gaps • SLAs are met but client expectations are missed • Metrics are not aligned with business outcomes • Performance and financial performance incentives not appropriately managed Ineffective Governance due to limited capability, lack of operational transparency and misalignment with business needs is a key cause of poor sourcing outcomes Business Strategy • Limited alignment with the business strategy • Inability to see the big picture for proper decision making • Limited tracking of actual vs. perceived financial benefit of sourcing Analytics Staff Services SLAs Providers Targets Finances Projects Portfolios Scorecard Compliance
  13. 13. 13 As the managed services landscape matures, some organisations are turning to governance - provided as-a-service - to meet the challenges faced by outsourcing customers and providers alike Financial Management Relationship Managemen t Performance Management Financial Management Relationship Managemen t Performance Management Outsourcing Lifecycle Model - ISO 37500
  14. 14. 14 Avasant sees a quantum shift in sourcing models driven by rapid changes in Market, Technology and Vendor Landscape…. Requiring a more Innovative approach to Sourcing! The sourcing market is transforming • Accelerated adoption of Cloud, Analytics, Automation, IOT, Mobility create a hybrid IT environment • XaaS adoption driven by business, sometimes without involvement of IT/Procurement • Blurring of lines between Software, Platform and Services vendors • Service Providers rapidly acquiring software, Cloud and platform capabilities New Technology Platforms and XaaS Unprecedented Velocity of Change Drives Sourcing Innovation • Rapid shifts in business cycles drive scalable and flexible IT and Operating model • Rise of the Connected Enterprise and Big Data driving need for Analytics and business predictive models • Technology is impacting all functions in businesses. Every company is a Tech company today • Increased global competition predicates need for more Innovation in business services and engagement models Market is Changing Rapidly • Powershift from Procurement to CIO as Services become more strategic and linked to Tech and Digital platforms • Business Agility powered by Technology, Services and Operations Transformation is becoming the key driver • Multi-tower constructs converging into multi-sourcing deals based on domain and technology prowess • Rapid change in Technology and Services landscape means that 5 to 10 year contracts are history! Shifting Sourcing Dynamics and Business Drivers
  15. 15. 15 About Greater Toronto Airports Authority (GTAA) #EmpoweringBeyond@Avasant The Greater Toronto Airports Authority (GTAA) manages, operates and maintains Toronto Pearson International Airport, the major airport serving the Greater Toronto Area (GTAA). Toronto Pearson is by far Canada's largest airport facility with a traffic of 38 million passengers, and is the second-busiest international airport in North America. The GTAA’s corporate vision is to be the best airport in the world, making a difference, connecting the world.
  16. 16. 16 #EmpoweringBeyond@Avasant Key Lessons Learned Decisions are made at the CIO, CEO and Board level, not by mid-level IT/Procurement Business involvement and buy in is key Need to develop governance model for joint decision making with IT and business Significant change in current IT organization, to focus away from technical outcomes Fragmented IT services do not meet enterprise needs Automation is yesterday’s news, clients need integration and transformation Operations excellence and global delivery is a given, need to demonstrate strategic leadership Sales excellence may drive good proposals and presentations, but delivery leadership is critical Ensure C-level sponsorship, and strong business involvement in all stages of the relationship Focus on business-IT alignment and IT restructuring Focus on driving business improvements and integrated technical capabilities Ensure strong local resources with transformation and execution experience
  17. 17. 17 Governance case study: client adopted managed services governance support resulting in value leakage recovery and substantial savings in less than 18 months  Client recovered > $Ms in credits due to lost value and has realized approximately $Ks in annual cost savings from the outcomes of sourcing governance services  Client is realizing the outcomes they expected as well as significant added value from the Governance As a Service approach Company The client governance organization’s mission is to be an industry leader in the use of managed services to help the business excel in a future competitive market – including it’s own governance services function • Implemented managed governance services for over 12 sourcing relationships contracts • Client established ‘best practice’ governance capabilities alongside managed service • Implemented regular Value Leakage Management, Performance Governance, and Demand & Consumption Analytics and Reporting Challenge BFSI industry client recognized they lacked adequate competencies to effectively manage and govern their IT managed services sourcing contracts. Client strategy was to outsource transactional, analytical, and operational governance support services to address the requirements of their new governance organization Solution Impact
  18. 18. 18 The CIO championing the New Digital stack: Enabling an Agile and Responsive Organization Business Processes BPaaS, Automation, BI/Analytics Enterprise Software SaaS, PaaS, (Artificial Intelligence AI) Cloud, IaaS Systems Infrastructure, Connectivity, Security Content, Commerce & Social Media Apps & Services Connected Enterprise IoT, Wearables, Components End User Devices Workstations, Mobile, Tablets
  19. 19. 19 #EmpoweringBeyond@Avasant Service Delivery Effectiveness Operations Efficiency & Effectiveness Digital Business Strategies • Support the definition of new business models powered by digital technologies, and execute and integrate specific digital solutions to enable these models • Migrate to and leverage enterprise class application platforms, information and business processes for efficient, scalable business operations • Migrate to enterprise-class cloud infrastructure for core IT services to provide hyperscale capabilities and future-proof the foundation • Digital business models • Digital technology integration • Management of Digital Ecosystem • Application modernization • Software as a Service • Open architecture • Business Process orchestration • Hybrid Cloud infrastructure • Lifecycle management • Service analytics/automation • End-to-end IT service orchestration Execution Objective Key Characteristics New Sourcing Model - Digital Ecosystem PartnershipsTM driving business effectiveness.
  20. 20. 20 “Once we rid ourselves of traditional thinking we can get on with creating the future” -J. Bertrand @kevinparikh #empoweringbeyond
  21. 21. #Avasant GET CONNECTED 1960 East Grand Avenue Suite 1050 El Segundo California 90245 www.Avasant.com Washington DC New YorkDallas Los Angeles (Headquarters) Houston Austin Toronto London Trinidad & Tobago Düsseldorf Bangalore Mumbai Beijing Tokyo Delhi Dubai Hanoi Principal, France Fouad Bitar fouad.bitar@avasant.com +33 6 32 56 62 85 Managing Partner, Europe Adrian Quayle adrian.quayle@avasant.com +44 7770 431 409
  22. 22. 22 Representative Client list 1. Insurance Services Media & Technology National government Local government Telecom
  23. 23. 23 Representative Client list 2. Healthcare Financial Services Energy & Utilities Retail & Manufacturing Donor agencies

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