Challenges for Infrastructure Outsourcing

1. Challenges for Infrastructure Outsourcing Atul Gupta Vice President , Strategic Outsourcing , IBM July 29, 2011

2. Agenda • Outsourcing Continuum and growth of Infrastructure Outsourcing • Challenges and Pragamatic approach for Infrastructure Outsourcing

3. Evolution of Infrastructure Outsourcing in India 2006 onwards Full Scope Infrastructure Management Capacity Based / Shared Services Business Outcome Based Evolving Cloud Offerings 2000 - 2005 1990s Managed Services Asset Ownership DC Outsourcing Services Maturity Manpower Augmentation On-Site Services No Assets Time

4. Increasing Partner Risk Decreasing Client Risk Outsourcing Business Models Alliance Vendor Partnership Collaborative Partnership Outsourcing • Strategy Integration • Most Supplier Risk • Outcome based • Custom TsandCs • SLA/Shared Risk-Reward • PMO/Governance • Skills and Capacity On Demand • Leverage IBM infrastructure investments • Leverage best practices • Access to expertise, skills and innovations Portfolio Outsourcing • Most Supplier Risk • Outcome based • SLA based • Productivity enhancement / Application portfolio optimization • Access to expertise, skills and innovation • Shared investment in dedicated resources • Option for FTEs to transfer to Supplier Co-Sourcing • Initiative Integration • More Supplier Risk • Knowledge Transfer • Managed Skills • On-Demand • Service Level Agreements (SLAs) • PMO/Governance • End-to-end Mgmt • Some transfer of Management responsibility to Supplier Out-Tasking • Project integration • Less Client Risk • Standard TsandCs • Multi-year, bottom-line contract • Forward Pricing • Outcome Based Benefits Realization Increasing Value Staff Augmentation • Task/RFP Based • Most Client Risk • Statements of Work • Volume Purchase Agreements “What Do I Want?” “How Do I Do It?”

5. However, Outsourcing IT infrastructure comes with its own challenges • Why Outsource • What is to be Outsourced • Who is the Partner of Choice • What is the relationship structure • How to ensure that it creates ongoing value

6. OUTSOURCING IS: - a business strategy - a business relationship OUTSOURCING IS NOT: - a transaction - a quick fix HOW to outsource starts with WHY?

7. Why Outsource? “Classical” Drivers/Goals of Outsourcing Strategic Partnering • Focus on core competencies • Align IT operations with business requirements Growth Enablement / Go to Market • Improve reaction times (Time-to-Market) • Leverage technological innovation for competitive advantage Flexibility and Transparency • Shift fixed capacity to more variable IT services • Adapt quickly to organizational changes (e.g. mergers, acquisitions, sales, etc.) Risk Management • Stability of the IT operation (even when facing future transformation) • Conformance to all legal and regulatory requirements Human Resources • Assure timeliness availability of critical skills • Reduce headcount / increase flexibility of workforce / improve motivation Cost Effects • Decrease cost levels and ensure continuous cost improvement • Conversion of fixed IT costs into variable costs Infrastructure/ Technology • Create operational resilience and address future challenges (space, locations, etc.) • Address IT currency – “state-of-the-art“ technology, process, innovation

8. Soft Factors – Can You Outsource? • Executive sponsorship • Competing business priorities • Ability to absorb and manage change • Availability of resources to support the process • Corporate Culture • Politics (internal/external) What “should be done” versus what “could be done” depends on your company’s strategy and situation

9. What is to be Outsourced • Evaluate In-house Competencies • What needs to be retained • Legal and Data Privacy requirements • Existing In-house problems and issues • Will it make a strong Business Case

10. Selecting the Right Partner • Hygiene Issues – Capabilities, Credentials , ability to deliver , Industry Experience • Cultural Match – Shared Values • Financial Stability • Access/ Impact on Emerging Technologies • Flexibility • Share Information transparently – will lead to solution creativity • Use external help (Consultants) if lack of prior in-house experience in Outsourcing

11. Relationship Structure and Governance • Whats the right Relationship Structure including Financial Structure • Appropriate Risk Reward • Contractual Flexibility to handle business volume changes • How not to get into trap of getting same services cheaper • How will value be created on an ongoing basis • Risk Transference – specially during initial phase • Ongoing Governance Mechanisms

12. As-Is Path Internal Solution Mature Organisation “Spending Bubble” Outsourced Solution • Technology • Skills • Infrastructure Costs As-Is Path Internal Solution Growth Oragnisation “Spending Bubble” Outsourced Solution Meeting the Financial Challenge Time Time

13. Overcoming Outsourcing Challenges DON'T: • Delegate the outsourcing decision • Make it an IT decision • Fail to share outsourcing decision criteria • Limit vendor access to technical and financial data • Expect unrealistic savings • Lengthen the decision process – time kills • Fail to communicate regularly with affected employees

14. Success Factors – “The Do’s” • Clear Goals and Objectives of Outsourcing • Organisational agreement on Expectation from Outsourcing • An Owner for the Initiative • Clear definition of scope, decision process and schedule  who, what, when, how • Jointly developed and accepted "Base Case" (baselines and budget forecast over a 5/7/10-years) • A clear Business Case  why >>> Partnership between Client and Provider

15. Balanced Decision Solution(What & How Good) MAKING THE RIGHT CHOICE Value(Price, Structure & Schedule) Partner(Capabilities & Relationship Fit)

16. Atul Gupta Vice President – Strategic Outsourcing IBM India Ltd. gatul@in.ibm.com +91 9810077983 Thank You!