Offshore Outsourcing

1. Offshore Outsourcing DePaul University October 18, 2004 Richard Howe

2. Topics SAIC Why Consider How Recap • 60 seconds about SAIC • Why outsource to offshore • Considerations • How to make it work • What did you say

3. SAIC Overview SAIC Why Consider How Recap Technology/Capabilities That Contribute to Our Competitive Advantage

4. Government Business Areas SAIC Why Consider How Recap Core Competencies • Information technology systems • Professional services • Engineering services • Telecommunications systems IT Outsourcing 2.9% Other 14.7% National Security 67.1% Energy 1.4% Telecommunications 2.4% Health Care 4.9% Environment 6.6%

5. Commercial Business Areas SAIC Why Consider How Recap Core Competencies • Telecommunications systems • Information technology systems and outsourcing Other 10.9% Environment 1.6% Telecommunications 58.9% Health Care 2.4% Energy 4.9% IT Outsourcing 21.3%

6. Sustainable Competitive AdvantageLeading to 35 Years of Growth SAIC Why Consider How Recap

7. Why outsource?

8. Business Drivers SAIC Why Consider How Recap Internal • Work force constraints • User dissatisfaction • Inefficient operations • Escalating budgets • Attrition • Redirect internal staff • Mission critical services • Complex services External • Tight labor market • Global competition • Rapid change in technology • Technology complexity • Cost pressures • Integration needs • Business process change • Partners are competitors Today, irrelevancy may carry larger risks than inefficiency

9. Why Outsource? Joint Ventures Alliances Outsourced Operating Partners Core value 70’s - 80’s 90’s SAIC Why Consider How Recap • Create flexibility • Focus on core business • Improve quality • Realize cost reductions Through 70’s

10. Why outsource to offshore? SAIC Why Consider How Recap Some Macro Drivers: • Large highly educated labor force • Wage Arbitrage • Relative political stability: post-cold war period permits capital & labor mobility Some Business Drivers: • Depressed global demand (Overcapacity) – Need to Cut Costs • Maturation of offshore service delivery platforms – Initial driver was unmet labor demands • Emergence of Information Technology Enabled Services – Back Office and Call Center • Standardization of IT software platforms Source: Information Policy Institute January 14, 2004

11. Considerations

12. Offshore adds a third dimension to outsourcing • Insource • Outsource Business Process Call Center • Offshore Information Technology • On-shore SAIC Why Consider How Recap Control • Cost structure • Economies of scale • Financial engineering • Service requirements • Process expertise/ capabilities Service Categories Location • Vendor capabilities and availability • Labor pool projections/economics/skills • Deal types/relationship structure (e.g., subsidiary; JV; consortium) • Location/geographic considerations • Risk management Source: Society for Information Management, SIMposium 2004

13. Considerations SAIC Why Consider How Recap • Culture • Coordination • Cost • Complexity • Constancy/Stability • Core/Strategic process • Confidentiality

14. Onshore v. Offshore Delivery comparisons Project selection done through diagnostics study SAIC Why Consider How Recap High Proportion Offshore Low High High Core/Strategic Application Development Application Support Project selection Project selection Complexity Medium Medium done through done through diagnostics study diagnostics study Non-core Application Development Offshore Offshore Legacy maintenance & enhancements Legacy Legacy High maintenance & maintenance & Low Low Medium Medium High Low Constancy/Stability (e.g. Requirements)

15. Facts about India SAIC Why Consider How Recap • Government: Democratic & Secular. • Religion: Hindu, Muslim, Christian, Sikh, Jain, Buddhist, Parsies etc., • Calendar: Christian Calendar for Business; Indian for Ceremonies/Festivals • Food and costumes: Distinct regional food & costumes. Besides regional song and dances. Predominantly Vegetarian. • Language: • National Language: HINDI (30%) • 25 different regional languages and numerous dialects • Governments do business in English.

16. Behaviors SAIC Why Consider How Recap • Shy, soft spoken, reserved & low voice • Polite, humble & respect for elders • Superior makes decisions; subordinate carries them out • Mutual dependence and interdependence - family bonds • Waving of palm and hands • Nodding of head/shaking head for ‘yes’ or ‘no’ • Hesitate to disagree and contradict others • Hesitant to shake hands especially with opposite gender • Eye contact with female colleagues is low • Public display of emotions/affections is discouraged

17. Schedule = S(k)edule Route (Root) = Route (Raut) Half = Half Fast = Fast Z (Zed) = Z (Zee) Zero = ‘O’ Organisation = Organization Colour = Color One Lakh = Hundred Thousand One Crore = Ten Million Hello = Hi Phone is engaged = Busy Disconnect a Phone = Hang-up Petrol Pump = Gas Station Lift = Elevator Bill = Check Note = Bill Too = Very/Lot Repair = Fix Fix = Assemble Asian Indian vs. American English SAIC Why Consider How Recap Differences • Yes = I heard you (not I agree)

18. How to make it work

19. Short-term Transition Project SAIC Why Consider How Recap • Define the “win” for employees and the firm • Communicate, recognizing culture differences “Tain't what a man don't know that hurts him, tis what a man knows that just ain't so.” Kim Hubbard • Process must be more rigorous than you’ve ever used and address time zone differences • Infrastructure • Duplicate of test/QA environment • Robust communication network • Knowledge transfer – use phased approach and test to assure success • Risk management • Establish service level agreement at start (e.g. bug fixes, problem resolve time, “lights on” tasks, etc.) • Allow for 6 week gap in travel (acquire visa’s, etc.) • Clarify when support/development occurs during business day • Clarify who pays for equipment/infrastructure at start • Begin reporting progress against plan from week 1 Objective: Enable daily (or hourly) handoff and return of tasks

20. Offshore mix progression SAIC Why Consider How Recap

21. Division of responsibilities SAIC Why Consider How Recap

22. Process Detail SAIC Why Consider How Recap

23. Risk Assessment Methodology (critical risk) R6 R4 High R5 R1 R3 R8 R2 Medium Risk Magnitude (Probability x Impact) (minimal risk) Low R7 Low Medium High Outside Influence Within Influence Within Control Manageability SAIC Why Consider How Recap

24. Governance SAIC Why Consider How Recap • Oversight • Steering Board – Annual • Management Committee – Quarterly • Operations Group – Monthly • Pricing • Real competition with internal and external suppliers • Agreed Service Level Descriptions • Measurement • Key performance indicators (monthly/quarterly) • Benchmarking

25. What did you say?

26. Results Outsourcing Can Create SAIC Why Consider How Recap Assure performance with actions rather than promises. • Business can adapt, with a focus on growth, competitive response, new opportunities, etc. • IT becomes focused on its own business (clarity in customers and competitors) and therefore, growth, competitive response, new opportunities, etc. • Manage to performance goals and mitigate risks (likely impacts to performance) • Focus around survival of a business (not a function) • Flexibility to respond to business needs in any direction • Assure access to best quality (service meets requirements) for price • Variablize costs – pay according to use versus maximizing consumption of resources