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Outsourcing Commercial Structure

Outsourcing Commercial Structure. International Outsourcing Federation Conference Prague 2 nd February 2008 Harry Keegan & Paul Robb. Paul Robb. Public Sector Lead, MBPS 19 years in outsourcing Delivery, business development, commercial roles EDS, PwCC, IBM (since acquisition in 2002 )

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Outsourcing Commercial Structure

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  1. Outsourcing Commercial Structure International Outsourcing Federation Conference Prague 2nd February 2008 Harry Keegan & Paul Robb

  2. Paul Robb • Public Sector Lead, MBPS • 19 years in outsourcing • Delivery, business development, commercial roles • EDS, PwCC, IBM (since acquisition in 2002) • HMRC (IT), BP (F&A), Standard Chartered Bank (Proc), Virgin Media (CRM), TfL (Road Charging), SouthwestOne (all processes)

  3. Agenda • Overview of IBM Managed Business Process Services • Client Requirements & Business Models • Examples of Commercial Structures in Practice • Closing Remarks

  4. 1. Managed Business Process Services Responsibility for the management and transformation of business processes through an outsourcing model that delivers key client business outcomes • Established a strong global presence - USA / Europe / AP - 30,000 + staff worldwide • European revenues of $750m in 2007 • European signings of excess of $1bn in 2007 • Rapid growth over the last 2 years with YtY growth of 25%

  5. Core MBPS Services in Europe IBM has an extensive MBPS service portfolio …..in Europe we focus on 6 key services for our clients • Finance and Accounting services • Human Resource Services • Procurement Services • Customer Relationship Management Services • Road User Charging Services • Vertical Services

  6. MBPS has strong European credentials for its core services Human Resources Procurement CRM Multi-Service Road User Charging Finance & Accounting Verticals

  7. Services are delivered using a Tiered Delivery Model Regional Global Local Onsite Process Services Delivery from a location in the same continent Delivery from a location not in the same continent • Delivery a location in the same country • Delivery from a physical presence at the client location Common Applications and Tools Common Infrastructure and Technology

  8. Leveraging our Global Process Delivery Centres Krakow Stockholm Rotterdam Greenock Montreal Markham Newcastle upon Tyne Toronto Dublin Edmonton St. John Dalian Calgary Bratislava Endicott Lenexa Lisbon Tokyo Lexington Tulsa Budapest Okinawa Durham Greenville Dallas Sofia Atlanta Shanghai Nashville Houston Athens Calcutta Costa Rica Manila Chandigarh Bogotá Pune Bangalore Brisbane Delhi/Mumbai Finance and administration Procurement Human resources Customer relationship management Industry-specific Hortolandia Americas > 5000 fte Asia >25000 fte Europe > 5000 fte Buenos Aires

  9. 2. Client Requirements & Business Models IBM’s experience suggests that client requirements fit into 3 broad categories and we have developed a capability to respond with arrangements which meet these requirements BPO BtO BTO Transformation Value Creation Risk Profile Process Improvements Cost Optimisation Gain Efficiency Gain Advantage Gain Control

  10. Client Requirement - Gaining Control IBM will typically leverage • own process delivery centres – economies of scale, capabilities and tools • client’s core applications and technology • own continuous improvement resources Clients seeking… • increased focus on their core service • leverage supplier capabilities to get tactical service improvement • reduced costs for similar service • short payback for any investment (mths) • increase service flexibility and variabilise costs Typical commercial constructs • flexible contracts that buy capacity - simple volume request processes • simple but very granular charging regimes with lower operational costs from transfer (often input based) • client typically invests in the establishment of services and retains some key risks (e.g. volume variance)

  11. Client Requirement - Gaining Control • Example (anonymous) • Client pays for upfront costs (6 mth payback) • Service ramps into a IBM delivery centres • Use of client’s processes & applications through Citrix and IBM network • Short notice contract • Limited SLAs (but background termination sanction) • FTE pricing with savings from start date with agreed rates for skill/experience • Month-ahead forecasts of volume requirements • Billing/Payment in month of service • Allowances for currency and inflation changes • Low risk deal for both client and IBM

  12. Client Requirement - Gaining Efficiency Gaining Control IBM will typically leverage • 4 tiered delivery model – usually including some staff transfer / secondment • additional applications, tools and technology as required • company P&L and Balance sheet Clients seeking … • significant operational improvements to align with / exceed client competition • further value-add from supplier e.g. decision support, analytics • significant reduced costs to align with / exceed competition • shared investment with supplier - short payback (1-2 years) • risk/reward arrangements with supplier – particularly for enhancements Typical commercial constructs • increased risk transfer from client to supplier – “skin in the game” • more sophisticated complex charging mechanisms to address increased risk/investment (usually output-based) • comprehensive SLAs linked to IBM’s service performance

  13. Client Requirement - Gaining Efficiency • Example (anonymous) • IBM took over entire service on day 1 with full staff transfer • IBM responsible for establishing a global delivery model • Service transfers into IBM delivery centres - Tier 2 / 3 / 4 • Upfront and “one off” costs borne by supplier amortised through charges • Deployment of key tools and assets to improve overall service performance • Comprehensive SLAs based on our service performance – with penalty regime • Some fixed revenues and termination clauses reflecting use of balance sheet • Output pricing based on volume delivered • Overall charges provide for savings from day 1 and then further savings over time • Monthly forecasts of volume requirements – supplier to provide capacity to meet variability • Element of delayed payment terms

  14. Client Requirement - Gaining Advantage Leveraging Gaining Control Leveraging Gaining Efficiency IBM will typically leverage • resources to deploy major transformation to process, applications and technology • other partners & cross-IBM expertise for specific skills • financing options Clients seeking • step change in organisational performance to gain competitive advantage • transfer significant operational outcome risk to supplier • requires significant investment from supplier • step change in costs to gain competitive advantage • risk/reward arrangements with supplier for business outcomes – incentives & penalties Typical commercial constructs • Significant risk transfer from client to supplier • More robust charging mechanisms to address increased risk/investment • Comprehensive outcome based SLAs

  15. Client Requirement - Gaining Advantage • Example (anonymous) • IBM will take over entire service from incumbent • IBM responsible for establishing new process, applications and technology for operations go-live • Service transfers into an IBM delivery centre - Tier 2 • Significant upfront investment shared with client – but payment based on delivery • Comprehensive SLAs based on business outcomes achieved by client • Some fixed revenues and termination clauses reflecting use of balance sheet • Business-driven pricing regime based on a business transaction – volume risk with supplier • Delayed payment terms

  16. IBM Continually Addressing Markets Requirements IBM has had to innovate its service and commercial arrangements in order to stay ahead of the market • Offering a porfolio of business models • Transparency – bid and operations • Pricing based on client business volumes • Risk / reward share • Established Joint Ventures with clients • Partnering for the more complex deals • Regional and Global flexibility • Framework deals

  17. Closing Remarks Key features we seek to deliver .... • Accountability • Payments based on client volumes / outcomes • Risk transfer – development / build & delivery risk • Service Level regimes • Certainty • Cost • Governance • Flexibity • Scalable operations • Supplier investment • Global delivery capabiity • There are no “standard” MBPS deals • The deals are driven off customer requirements - suppliers need to innovate to keep up with changing requirements

  18. Thank You…Any Questions

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