Outsourcing Strategy Survey July 2009

Sourcing Transformation

OUTSOURCING STRATEGY SURVEY 2009-2010
A Capgemini Consulting survey on Shared Services and
Outsourcing

July, 2009

Introduction ........................................................................................... 3

Executive summary .............................................................................. 4

Background ........................................................................................... 6

Processes currently outsourced and future plans .......................... 10

Why organisations outsource and which risks they see ................ 16

Business Case ..................................................................................... 21

Select and prepare for the partnership ............................................. 24

Change management .......................................................................... 30

Demand organisation ......................................................................... 35

List of participants .............................................................................. 38

Capgemini Consulting is the strategy and
transformation consulting brand of Capgemini Group Outsourcing Strategy Survey 2009-2010 2

Introduction
As a consequence of the As a full-service consulting
changing business organisation, Capgemini
environment, including the key Consulting wants to understand
impact of the credit crunch, we what is happening in the market
are seeing organisations re- to be able to provide the best
evaluate their sourcing possible advice and support to
strategies. In some cases, this our clients. Many surveys cover
is because of a short term need the specifics of the outsourcing
to save additional costs, in or shared service operation, not
others, because a more many describe how the
favourable deal structure can sourcing strategy was
now be negotiated. developed and what made it
successful.
We are also seeing
organisations postponing the That is why we are pleased to
sourcing strategy decision and share with you the results of our
execution. Sourcing of a survey on sourcing strategy in
business or IT process can help different industries. This report
operations run more efficiently covers a wide spectrum of
and can result in cost savings. perspectives related to the
Despite these benefits, many sourcing strategy approach and
initiatives have been put on we believe it benefits anyone
hold because of economic and every organisation, from
uncertainty. sourcing pioneer to sourcing
expert.
We know that a changing
environment delivers complex We would like to thank all the
challenges in defining the right executives who contributed to
sourcing approach. That is the our survey and provided their
main reason why we valuable insights and time. We
investigated the incentives for trust that you will find this report
sourcing, with a specific focus interesting and useful as you
on the sourcing strategy continue on your journey,
process. defining the right sourcing
Authors: strategy for your organisation.
In writing this report, we
Joost Aarts combined the outcome of Also I would like to thank
Robin Adriaans interviews with our latest Marjorie Powner and Satish
Fleur Baarspul insights in trends and issues in Paul from our BPO practice and
Erik van Daalen different industries. As this Professor Dr. Ir. Andrzej
Marjolein Dijkshoorn survey was executed during the Hajdasinski from Nyenrode
Oedger Meijborg credit crunch, we found some Business University for their
Stefan Westdijk specific effects on sourcing valuable contributions.
strategies. We did not,
however, directly investigate Stefan Westdijk
these effects. Sourcing Strategy Leader
Netherlands


Executive summary
This report highlights the The outcome of our survey
importance of sourcing strategy suggests the following
in the evolution of an recommendations, which
organisation’s development. particularly apply to
Capgemini Consulting captured organisations within our target
the views and experiences of industries (Financial Services,
almost 40 executives from a Energy & Utilities, and
number of large national and Manufacturing):
multi-national companies, with a
view on future decision making o Organisations will benefit
and successful development from considering a
and implementation of sourcing combination of sourcing
strategies for our clients. modes to realise their
sourcing strategy. This can
Our findings below explore the give insight to the benefits
whole cycle of the sourcing and concerns of each
strategy and show that success sourcing mode and may
is particularly dependent on result in ideas to support risk
choosing the right sourcing mitigation.
mode. Capgemini’s Global
Sourcing of Services (GSS) o 54% of the participants will
©
cube has been used to renew the contract with the
distinguish the different existing supplier. The main
sourcing modes, using three reasons for organisations to
dimensions (location, ownership retain their current supplier
and management style). are that the costs related to
changing supplier could be
More information about the prohibitive and the loss of
©
GSS cube can be found in our knowledge or experience
could increase risk or impact
Point of View on Sourcing
quality.
Strategy document.

©
Outline on the Global Sourcing of Services (GSS) cube

Offshore

Location

Onshore Light
Management
Tight Style
In-house Outsourced
Ownership


o Organisations should update and innovation are important
their business case drivers. The full added value
regularly, this will ensure of innovation by outsourcing
decision-making in future is not yet discovered, but
phases is based on sound this is just a matter of time.
information and also that the
benefits of the original o Organisations experience
decision are realised. difficulties in defining the
relationship with the internal
o Organisations will benefit or external supplier. This is
from working in real explained by the fact that
partnerships with their sourcing is all about the
suppliers, introducing, for involvement of people,
example, bonuses for high entering a partnership and
performance, rather than the transformation of
penalties for low
processes. In our opinion, it
performance, in their
requires specific skills to
contractual terms. Working
formalise these aspects in a
in partnership also ensures
alignment, coordination and contract.
control of both supplier and o Organisations should also
business needs. involve vendors from the
o Organisations should use early phases to provide
benchmarking tools to support with defining
assess the performance of requirements, delivering
their suppliers and use the accurate market information
outcome of that analysis to and managing expectations.
decide, for example, whether
o Organisations should focus
to renew their existing
frequently (at least once
contracts or find a new
every quarter) on the
supplier.
evaluation of service quality.
o Change management and
implementation are the most o Organisations should align
critical elements of the demand and supply within
programme during transition one function to ensure
or migration. The control of both aspects of the
involvement of senior service.
management and
stakeholders of the business There was no significant
should be high, especially in relationship between specific
the early phases. Delaying industries and sourcing
employee involvement can strategies. Our analysis of the
cause problems later in the results does not show a notable
process. preference of any of the
o Due to pressure to industries for IT sourcing or
differentiate from business process sourcing. The
competitors, organisations sourcing maturity level depends
are entering into more on the organisation itself and is
strategic partnerships, for not primarily related to an
which knowledge transfer industry.


Background
About Sourcing Selecting the right sourcing
mode means finding the right
There are many definitions of
combination of ownership
sourcing. For the purpose of
(owned or not owned), location
this survey, sourcing can be
(onshore or offshore) and
defined as delegating business
management style / governance
functions to a separate
model (tight touch or light
business unit or third party. A
touch). These three elements
sourcing strategy is the
have been captured in a cube
definition of what an
of sourcing options or modes.
organisation wants to do with
This cube is called the Global
the tasks, functions or
Sourcing of Services (GSS)
processes that are not ©
cube .
differentiating that organisation
from its competitors.

©
Outline on the Global Sourcing of Services (GSS) cube

Offshore

Location

Onshore Light
Management
Tight Style
In-house Outsourced
Ownership
©
The GSS cube distinguishes eight different sourcing modes divided
over three dimensions: location, ownership and management style.
Location describes where the function is executed (onshore or
offshore)
Ownership demonstrates who executes the function (in-house, e.g.
shared service centre, or outsourced)
Management style depicts the level of management attention that is
required for the process (light or tight management)


Based on the GSS cube’s three Whilst we focussed on all
dimensions, sourcing can take dimensions of the GSS cube in
different forms. The sourcing the survey, the dimension
strategy with the least impact management style was not
from the perspective of explicitly questioned. Aspects
ownership, location change and of management style are,
intensity of management is a however, covered in the
Shared Service Centre (SSC). chapters about partnerships,
risk and change management
Today companies either choose below.
to optimise existing SSC or set
up new SSCs in competitive We interviewed chief
markets. Evaluating the information officers, chief
geographical scope and operation officers, chief
location strategy can be financial officers, SSC
lucrative, whether this is managers, sourcing strategy
outsourcing or cross-border managers and divisional
shared services, as potential managers of 38 large national
sourcing strategies. This could entities or multinationals, mainly
take the organisation in the with a head office located in the
direction of the highest impact Netherlands. The interviews
sourcing strategy from an were held in Q4 of 2008 and Q1
ownership, location and of 2009.
management perspective:
outsourcing to an offshored As mentioned above, we were
third party where management very interested in the
attention is not critical. More differences in approach,
information about the GSS sourced processes and
©
cube can be found in our Point selected sourcing modes
of View on Sourcing Strategy between industries. Figure 1
document. shows the distribution of the
industries participating in the
Why this survey survey. Three organisations
participated who could not be
Most of the surveys conducted
Energy & classified as Energy & Utilities,
Utilities by firms like Gartner, Forrester
Financial Services or
21% and others focus on IT sourcing
Manufacturing.
and in general do not describe
the differences between
Manufacturing
Financial 55% industries. In addition to IT, this
Services survey deals with business
24%
processes, such as Finance &
Administration (F&A), Logistics
and Procurement. We were
also very interested in the
differences between industries.
Figure 1 : Participating industries


We used the sourcing strategy
approach of Capgemini as a
guide to structure our
questionnaire and our survey.
In this five-phase closed loop
process, organisations should
continuously go through the
cycle in order to define and
execute the right sourcing
strategy.

Outline on the Sourcing Strategy Approach

Capgemini’s Sourcing Strategy Approach focuses on the process from
defining potential sourcing strategies to implementing the selected
strategy and managing the delivery. It comprises 5 phases, in a closed
loop, because efficiency and business dynamics may require a change
of sourcing mode.

1. Analysis and Definition - 2. Scenario Planning and
scoping and evaluating all Business Case - analysing
sourcing modes the most beneficial sourcing
modes in more detail
3. Selection and Preparation 4. Transition or Migration -
- preparing the organisation full implementation of the
for change to the preferred right sourcing strategy
sourcing mode
5. Delivery or Operations -
monitor, control and manage
the sourced process


1. Processes currently outsourced and future plans
1. Functions currently outsourced and future plans

2. Why organisations outsource
2. Why do organisations
outsource and risks risks do
and which what they see
6. Demand organisation they see

3. Business case

5. Change management

4. Select and prepare for the
partnership

Figure 2 : Relation between chapters and approach

We have clustered our results In this survey we sometimes
according to the different use the terminology insourcer
phases of the sourcing strategy and outsourcer. The outsourcer
process. The first chapter will delegates processes and/or
provide an overview of selected tasks to the insourcer. The
sourcing modes and strategies insourcer is also referred to as
in general, which processes supplier or vendor. With
were outsourced, moved into a insourcer we do not mean
SSC and what are the sourcing insourcing which refers to
strategy plans. companies assigning processes
within the company that were
The other chapters each link to outsource d before.
a different phase of the
sourcing strategy:
1. Processes currently
outsourced and future
plans
2. Why organisations
outsource and which
risks they see
3. Business case
4. Select and prepare for
the partnership
5. Change management
6. Demand organisation


Processes In this chapter we provide an Our results show a difference in
overview of the currently time spent between outsourcing
currently outsourced processes and and SSC initiatives and the time
selected sourcing modes which industries spend on average on
outsourced and were revealed by the survey. a sourcing strategy approach.
future plans We provide these results per
industry: Energy & Utilities, IT processes more sourced
Financial Services and than business processes
Manufacturing. We also asked
IT process outsourcing is more
our participants for their future
mature than business process
plans. All the results are shown
outsourcing. IT is perceived as
with a distinction between
a ‘commodity’ which is highly
business processes and IT
available in the market. The
processes.
maturity of the supplier market
is considered high and because
Furthermore, we measured
of competition organisations are
whether and how the activities
convinced pricing is accurate.
of Capgemini’s sourcing
IT is also linked to innovation
strategy approach were
and different IT domains require
executed by our participants.
specific knowledge.
The approach contains generic
activities which many of the
organisations do carry out.
business processes

Facilities
HR
Finance & accounting
Logistics
Production
Procurement
Marketing
Design

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

IT processes

Infrastructure
Application development
Infrastructure management
Desktop management
Testing

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Outsourced onshore
Outsourced of f shore
Figure 3 : Overview of outsourced processes
SSC onshore
and selected sourcing mode
SSC of fshore
Not sourced

Innovation is defined as is limited. Given the maturity of
invention plus cooperation plus the supplier market these
i
coordination plus collaboration . processes tend to be
All variables are predominantly outsourced more than other
present in successful IT business processes.
sourcing projects.
Logistics is also a business
Offshore sourcing modes process which is outsourced in
were less selected than a high number of cases. The
onshore modes ability of suppliers to offer
economies of scale plays an
Many organisations select a
important role in these
combination of sourcing modes
decisions. The least sourced
for one or more of their IT
business processes are design
processes. Most common was
and marketing activities. The
outsourced onshore in
low result can be explained by
combination with offshore. Over
the perceived strategic nature
25% of the organisations
of these processes.
selected this combination of
sourcing modes for application
Maturity determines the
development and testing.
number of sourcing
strategies in place
Onshore sourcing is preferred
to offshore sourcing. Apparently The maturity of the supplier
“Setting up a shared organisations prefer the ability market, and of the organisation
service centre offshore to control above low labour itself, both impact the number of
is a touchy subject costs. In addition, one processes sourced. The more
which we want to participant mentioned that mature the supplier market the
avoid” offshore sourcing modes also higher the chance a sourcing
brought political issues: “setting strategy is already in place for
up an SSC offshore is a touchy this process within the
subject which we want to organisation. The more mature
avoid”. Although costs are the the organisation, the more
main reason for sourcing, sourcing strategies it is likely to
organisations do not strive for have in place or already
the lowest possible costs. replaced with a new strategy.
Organisations are aiming for an
optimum of lowest costs, Adoption of sourcing
political stability and control. strategies per industry
There is no relationship
Facilities, HR and F&A are the
between specific industries and
most mature sourced
sourcing strategies for certain
business processes
processes. Our analysis of the
Facilities, HR and F&A are non- results does not show a notable
differentiating processes. In preference of any one of the
general the long term industries for IT sourcing or
sustainable competitive business process sourcing. All
advantage of these processes industries source all type of


processes. We expected Preferences of the industry
differences between industries for a certain sourcing mode
to be able to distinguish an
Financial Services
early adopter. Since no industry
organisations did not select
shows an evidently higher
SSC as sourcing mode either
average of sourced processes,
for IT nor for business
we have to conclude that
processes. This can be
sourcing maturity level primarily
explained by our belief that
depends on the organisation
Financial Services
itself, and is not related to an
organisations are more mature
industry.
and have redefined sourcing
However, if we break down strategies, resulting in a shift
industries, we can see from SSC to outsourcing.
differences. In addition, if there
are a number of organisations
in an industry which outsource,
the number of suppliers
increases and further cost to
serve decreases, hereby
influencing sourcing maturity.

IT sourcing

Energy & Utilities
Financial Services
Manuf acturing

0% 20% 40% 60% 80% 100%

business process sourcing

Outsourced Energy & Utilities
SSC Financial Services
Not sourced Manuf acturing

0% 20% 40% 60% 80% 100%

Figure 4 : Selected sourcing mode per industry


70,0% referring mainly to HR and F&A,
60,0%
as IT is already moved to
offshore locations in most
50,0%
cases. Some other processes
40,0% (e.g. Cleaning Services) can
30,0% SSC only be executed onshore due
Outsourced to the nature of the process.
20,0%

10,0%

0,0%
Current Future
situation situation

Figure 5 : Future situation

Forecast of the processes to
be sourced within the next
five years
Future sourcing plans indicate
that, whilst the number of
outsourced processes are likely
to increase, the number of SSC
processes will remain
unchanged. This is not because
no new SSCs will be
established. Our results show
that there will be an increase of
new SSC initiatives and
simultaneously a decrease of
SSCs, due to the shift from
SSC to outsource for those
more mature organisations.

With regard to the selection of
the sourcing location, the
percentage of plans for moving
offshore is less than 10%. Two
important remarks should be
made about this. Especially for
IT, the location might appear
onshore to the outsourcer, but
the insourcer might balance
onshore, nearshore and
offshore locations and work with
the client as a unified team.
Those participants, who
mentioned offshore as potential
future sourcing mode, were


Sourcing strategy approach
All organisations perform
activities to define, select,
prepare, implement and
execute their sourcing strategy.
Participants were asked which
activities were executed and
how much time and attention
was spent. Attention was
measured by time spent for
monitoring and supervising
activities.

100%
90%
Strategy approach executred
% activities of Sourcing

80%
70%
60%
Energy & Utilities
50%
Financial Services
40%
Manuf acturing
30%
20%
10%
0%

Figure 6 : Executed activities per phase

Time spent on defining a initiatives (11+ months ). This
sourcing strategy seems to be influenced by the
involvement of Procurement
When we look at the time which leading to long contract
is spent to create a sourcing negotiations. Especially during
strategy, there is a difference the selection and preparation
between outsourcing and SSC. phase, fewer activities are
The average time spent on performed as supplier selection
outsourcing initiatives (20+ and contract negotiation are not
months) is almost twice as necessary for an SSC.
much as the time spent on SSC


Conclusion and our
perspective
IT outsourcing is still more
mature than business process
outsourcing. Also onshore is
more preferred in comparison to
offshore. Organisations are
aiming for an optimum of lowest
costs, political stability and
control.

The sourcing maturity links to
the individual organisation and
does not seem to depend on
the industry. Facilities, HR and
F&A are the most mature
sourced business processes.

Future sourcing plans indicate
the number of outsourced
processes to increase. The
number of SSC processes will
remain unchanged. The
average time spent on
outsourcing initiatives is almost
twice as much as the time spent
on establishing an SSC.

We expect organisations to use
a combination of sourcing
modes to realise their sourcing
strategy. In a multi-mode
sourcing solution, global
resources, cost-efficient
processes and extensive
experience in diverse
geographies, disciplines and
industries, are bundled to
achieve cost reductions,
streamlined processes,
innovation, competitive
advantage and growth. In such
a solution most of the
operational processes are
brought to an offshore location
and the more tactical and
strategic processes are
delivered onshore or nearshore.


Why The long-term impact of the Outsourcing and transforming
credit crunch is uncertain for the processes at the same time
organisations many organisations, but is the is perceived as high risk. One
sudden economic downturn a
outsource and good reason to re-evaluate your
interviewed manufacturer
mentioned “We only outsource
which risks they sourcing strategy? Have the a process if stability of the
reasons and risks for sourcing
see changed due to current events?
process is ensured; don’t
outsource your mess for less”.
Why do organisations choose
outsourcing/SSC? And are Cost reduction remains the
there differences between most important reason for
industries? sourcing. In line with other
surveys this shows that
This chapter provides an organisations still associate
“Don’t outsource your
overview of the reasons and sourcing with cost effectiveness
mess for less”
risks. It also gives insight into As a result of the current
the differences and similarities economic downturn,
between industries. organisations feel the pressure
to reduce costs and reduce
Reasons for sourcing working capital. Many
Reasons for outsourcing are organisations are turning to
similar to those for setting up an sourcing for achieving short
SSC. The differences we found term cost savings or other
are related to the readiness to financial benefits.
outsource.

Outsourcing Reasons Shared service centre

Cost reduction
Cost reduction

Improve quality
Improve quality

Improve business focus

Headcount reduction
Headcount reduction

Increase flexibility

35% 30% 25% 20% 15% 10% 5% 0% 0% 5% 10% 15% 20% 25% 30% 35%

Figure 7 : Reason (above 5%) for outsourcing and SSC


Outsourcing Reasons Shared service centre

Cost reduction
Cost reduction
Manufacturing
Financial Services Improve quality
Improve quality

E&U
Improve businessfocus

Headcount reduction
Headcount reduction


Obtain knowledge
Obtain knowledge

Increase efficiency
Increase efficiency
Because others
outsource / have a SSC

50% 40% 30% 20% 10% 0% 0% 10% 20% 30% 40% 50%

Figure 8 : Reasons (above 5%) by industry

Reasons - industries
Energy & Utilities organisations
compared
indicated that the most
Manufacturers indicate that they important reason for
use both sourcing strategies to establishing an SSC is to
focus more on their core improve quality. They find this
business, which results in cost more important than cost
reduction and improved reduction and improved
business focus. Products are business focus. The Energy &
tangible and the pressure to set Utilities industry also see
new product standards is high. outsourcing as a gateway to
Some of the Manufacturing knowledge and competence.
organisations even mentioned
they are driven by customer
pressure to improve standards
and, therefore, source
processes.

Financial Services
organisations indicate that cost
reduction and headcount
reduction are important reasons
for sourcing. Headcount
reduction was mentioned as a
reason for an SSC more often
in comparison to other
industries.


Outsourcing Risks Shared service centre

Dependency on
Dependency on
suppliersupplier / SSC
/ SSC

Loss of quality of quality
Loss

Loss of knowledge
Loss of knowledge

Impact on organisation

Loss of business alignment

25% 20% 15% 10% 5% 0% 0% 5% 10% 15% 20% 25%

Figure 9 : Risks (above 5%) for outsourcing and SSC

Risks of sourcing outsourcing was insignificant
compared to the impact of
Overall, the perceived risks of
not delivering to our
outsourcing correspond to
customer on time”.
those of an SSC. We did,
however, find four key o Organisations have a strong
differences. focus on quality when setting
up an SSC. As mentioned
o Organisations choose their
before, organisations see an
sourcing strategy based on
SSC as a vehicle to improve
risk mitigation. The
quality. At the same time,
perceived risks of
they perceive loss of quality
outsourcing are related to
as the highest risk. In the
the commercial relationship
preparation of an SSC the
between the insourcer and
key question is - how do
the outsourcer.
organisations ensure the
Organisations anticipate on
desired quality level?
a possible lock-in with the
supplier. The tangible o Loss of business alignment
benefits of the outsourcing is only perceived as a risk
deal may be outweighed by when establishing an SSC.
the costs and perceived We did expect to find that
risks associated with loss of business alignment
“Cost reduction was outsourcing. was also perceived as a risk
insignificant compared
of outsourcing. This was not
to not delivering to our o By selecting an SSC,
the case. Whilst, by
customer on time” organisations want to ensure
outsourcing a process, the
proximity to the business,
distance between service
avoiding dependency on
provider and customer
external suppliers and loss
increases. It seems that
of knowledge. As a
organisations do not
participant mentioned,
perceive this distance to be
“Speed and flexibility is
a major issue.
crucial to us. In this case,
the cost reduction created by


Outsourcing Risks Shared service centre

Dependency on
Dependency on external supplier
Manufacturing supplier / SSC

Financial Services Loss of quality of quality
Loss
E&U
Loss of Loss of knowledge
knowledge



Loss ofLoss of confidentiality
confidentiality

Loss of control of control
Loss

Increaseof support needed
Increase of support needed

30% 25% 20% 15% 10% 5% 0% 0% 5% 10% 15% 20% 25% 30%

Figure 10 : Risks (above 5%) by industry

Risks - industries compared have to be disentangled which
could cause loss of business
Manufacturing organisations
alignment between the
perceive dependency on the
organisation and the SSC.
supplier and loss of knowledge
as high risks of outsourcing. As
mentioned before, Energy & Utilities organisations
manufacturers have a strong mainly bring in external
drive to reduce costs and suppliers to obtain knowledge,
improve business focus. Loss of not to improve quality. In
knowledge and dependency on comparing the reasons and
the supplier are perceived as risks of sourcing in both the
road blocks to achieving these SSC and the outsourcing
goals. modes, we found a correlation
between the reasons for one
Financial Services sourcing mode and risks of the
organisations perceive the loss other. Improving quality, for
of business alignment as a high example, is the most important
risk of establishing an SSC, far reason for establishing an SSC
higher in comparison to the but the potential for reduced
other industries surveyed. quality is perceived as the
Financial Services highest risk of outsourcing.
organisations are service Gaining knowledge, for
providers and see information example, is an important reason
and employees as valuable for agreeing to outsource
assets. Processes within services but losing knowledge
Financial Services is seen to be a high risk when
organisations are also highly establishing an SSC.
interwoven, in particular HR and
IT processes. These processes


Conclusion and our entering into more strategic
perspective partnerships, for which
knowledge transfer and
The reasons and risks innovation are important
associated with each sourcing drivers. In our opinion, the full
mode have not been changed added value of innovation by
by current events. Cost outsourcing is not yet
reduction remains the most discovered, but this is just a
important reason for matter of time.
organisations to (out)source.

The survey results show
expected quality from
outsourcing is lower than
moving to an SSC. This might
be perception as outsourcing is
often managed through
performance contracts unlike
SSCs.

Many differences between
organisations are caused by
their business strategy. Do they
have a ‘customer intimacy’,
‘product leadership’ or
‘operational excellence’
strategy? In our opinion, the
right reasons for choosing
whether to use the outsourcing
or SSC mode are those which
best align with your business
strategy. It helps to consider
several sourcing modes, in the
analysis and definition phase,
when identifying the right
sourcing strategy. Some
organisations take multi-
sourcing to the extreme leading
to complex onshore and
offshore multivendor relations.

Although only a small number
of participants mentioned
innovation as a reason for
outsourcing, we expect this
number to increase in the
coming years. Due to pressure
to differentiate from
competitors, organisations are


Business Case The business case is a crucial
Components of the business
deliverable and a milestone
case
document in the scenario
planning and business case 90% of the participants
phase, when the sourcing mentioned cost reduction as the
strategy is translated to a major driver within their
tactical level. The most business case, followed by
beneficial sourcing modes are headcount reduction (58%) and
analysed in more detail both cultural impact (42%).
qualitatively and quantitatively.
Other components mentioned
We asked our participants include:
about their business case and
the required return on o strategic objective
investment. We also questioned o added value of the sourcing
the components within their party
business case. o customer satisfaction
Pay-back period o organisational impact
o synergy advantages
Overall we see that more than
80% of the organisations o quality
surveyed aim for a pay-back
period of less than 4 years. The
majority of the participants are
aiming for a pay-back period of
between 2 and 4 years. In the
Financial Services industry, we
see organisations aiming for
longer term pay-back period.

100%
90%
80%
70% Manufacturing
Percentage

60%
Financial Services
50%
Energy & Utilities
40%
30% Overall
20%
10%
0%
0<->2 2<->4 4<->6

Pay-back period in years

Figure 11 : Pay-back period


In the organisations surveyed,
manufacturers included cultural
impact in the business case
more often than organisations
in other industries. This is in line
with our finding that
Manufacturing organisations
are more concerned about the
risks associated with the impact
on the organisation.

Energy & Utilities
Financial Services
Yes
Manuf acturing
No
Overall

0% 20% 40% 60% 80% 100%

Figure 12 : Business case update

Updating the Business Case It seems that business cases
We asked the participants if are mainly used in the decision-
they update their business case making process. Few
after the decision to source has organisations track the results
been taken. On average less to ensure the right decision has
than 45% of the organisations been made and that the
surveyed updated their estimated benefits are realised.
business case regularly. Given the fact that cost
reduction is the main driver


behind sourcing this seems
inconsistent.

Conclusion and our
perspective
More than 80% of participants
expressed their aim for an pay-
back period of less than 4
years. Cost reduction is the
main driver in the business
case, followed by headcount
reduction and cultural impact.

Few organisations update the
business case regularly. In our
opinion, maintaining and
updating the business case is
important, firstly as a guideline
for making decisions in later
phases (additional requirements
during execution, for example),
secondly because it is important
to measure and compare the
benefits after the decision has
been made. As a consequence
few organisations can tell if they
have achieved their pay-back
period.

We see organisations aiming
for faster pay-back period. The
economic downturn seems to
be contributing to this trend.


Select and This chapter covers our findings Selection process
on the selection and
prepare for the preparation phase of the While selecting a supplier,
sourcing strategy approach. different criteria need to be
partnership Selection and preparation is taken into consideration. The
essentially the execution of the six most mentioned criteria are
‘make’ or ‘buy’ decision. outlined in the figure below.

In the case of outsourcing, the Price is the most important
selection and negotiation with selection criteria for choosing
one or multiple service the outsourcing supplier. This is
providers needs to be carried an expected outcome because
out. In general, this selection the major reason for sourcing is
process takes a lot of time and cost reduction. Price was
“Price was one of our
effort. This is because the followed by quality (15%) and
least important
outsourcer needs to make sure cultural fit (15%). In addition to
selection criteria. We
that the insourcer is capable of being one of the key selection
were more focussed
fulfilling the outsourced process criteria, improving quality is also
on the added value of
or function with at least the one of the most important
the supplier to bring
same (but preferably even reasons for sourcing
our organisation to the
next level.” higher) quality.
Organisations have, on
When an in-house sourcing average, five potential
mode is chosen, the outsourcing suppliers. Many
organisation needs to be organisations stated that they
prepared for the movement of quickly reduce the long list to a
workload. This might involve the short list or only use a short list.
transfer of duties from one This reduction is mainly done
department to another, or based on market knowledge
building a new SSC to take over and experience.
the workload in scope.

Price 22%
Cultural f it 15%
Quality 15%
Process Experience 9%
Proof of concept 8%
Reputation 8%

0% 5% 10% 15% 20% 25%

Figure 13 : Selection criteria (above 5%)


Overall, the organisations
surveyed agreed a contract for
four years. Based on earlier
surveys we expected the
contract time period to be
“We know, based on
longer. Avoiding lock-in and
our experience, which
increasing flexibility are reasons
suppliers we can
for this relatively low average of
remove from the short
four years.
list”

Combination f ixed & variable 34%
Transaction based f ee 31%
Fixed price 21%
Gain share 7%

0% 10% 20% 30% 40%

Figure 14 : Deal construction (above 5%)

Financial arrangement are not able to allocate costs to
cost drivers. For organisations
Variable financial arrangements
that already have a good
are more often used than fixed
process in place and only focus
price arrangements. Most
on cost reduction as their main
variable arrangements include a
priority, fixed price could be an
fixed and variable element. 30%
optimal solution.
of the organisations surveyed
agreed upon a fully variable
Most organisations mention that
arrangement, a transaction
they do not use gain share as
based fee. The high percentage
part of their financial
of variable arrangements can
arrangements. Gain share is an
be explained by the need for
optimal approach to create ‘win-
flexibility regarding volumes or
win’ situations for both
workload. One participant
organisations, which is
stated “We chose a variable
“When we use less we expected of strategic
financial arrangement because
want to pay less.” partnerships. Due to the need
the financial flexibility was
for transparency in strategic
important to us. When we use
relationships, we expect the
less, we want to pay less”.
number of organisations using
this approach to increase in the
20% of the sourcing deals are
coming years.
based on fixed price. It seems
that these organisations do not
strive for financial flexibility or

Construction of the sourcing More than 60% of the
deal processes are transformed or
reorganised, either before
For the purpose of this survey,
sourcing the process or after
we have identified four main
sourcing the process. The
sourcing deal types:
approach taken depends on the
level of maturity of the
o Lift: the process is handed
processes in scope. Almost
over in the current condition
20% of processes are
to the supplier or SSC
transferred as-is.
o Shift & lift: the process is first
When outsourcing, our
transformed before it is
participants preferred the ‘lift &
handed over to the supplier
shift’ approach. Where SSCs
or SSC
were established, there was a
preference for ‘shift & lift’. When
o Lift & shift: the process is
outsourcing was agreed, the
first handed over to supplier
organisations surveyed
or SSC, whereupon
preferred to outsource the
transformation commences
transformation to the supplier.
In some cases organisations
o Combination: two or three of
used an SSC to transform the
the above construction
processes before outsourcing
methods are combined for
them to an external supplier.
different part of the process

Transformation is defined as
follows: activities required for
aligning and improving the work
of the outsourced and retained
processes with the goal to
Combination improve productivity, reduce
16% costs or improve speed to
Lift & shift
market.
36%
Lift
19% Transformational Outsourcing is
the way to add value to the
organisation as well as gaining
Shift & lift additional domain and
29% technology expertise. It is about
making use of skilled labour
and technology to create
corporate growth, rather than
Figure 15 : Sourcing deal viewing outsourcing as merely a
construction way to cut costs via, for
instance, taking advantages of
ii
low wages abroad .


Quality of service 27%

Rates f or service 17%

Budget during transition 12%

Legal Conditions and Liability 10%
“There were too
many sales at the Planning 10%
table and too little
0% 5% 10% 15% 20% 25% 30%
content”

Figure 16 : Top 5 challenges

Challenges in sourcing The outcome of negotiations
contracts with the supplier, internal or
external, will be secured in a
During the contracting phase,
contract. The contract will
organisations face many
contain different terms to be
challenges, including those
discussed and agreed upon by
identified by the participants in
the insourcer and outsourcer. It
our survey. The five most
is interesting to see which of the
significant challenges are
elements in the contract lead to
shown in figure 16.
the most discussion after
signing the contract. The figure
During the contracting phase
below shows the four most
the main discussion points are
discussed elements according
about defining and agreeing the
to our participants.
quality and rates for in-scope
services. Several participants
Processes for dissolution and
mentioned that content was
non-performance penalties are
missing.
the subjects discussed most
One participant responded: often. Other topics for
“there were too many sales at discussion are rate and
the table and too little content”. compensation details, service

Process f or dissolution and non-
20%
perf ormance penalties

Rate and compensation details 16%

Service standards and perf ormance
13%
requirements (KPIs)
Key perf ormance indicators (KPIs)
11%
to determine compensation

0% 5% 10% 15% 20% 25%

Figure 17 : Four most discussed topic


levels, wage inflation, attrition 54% of the participants will
and key performance indicators. renew the contract with the
All topics are related to the type existing supplier. The main
of relationship between the reasons for organisations to
insourcer/supplier and the retain their current supplier are
outsourcer. that the costs related to
changing supplier could be
Is the supplier treated as a prohibitive and the loss of
contractor or as a business knowledge or experience could
partner? In the latter, a bonus increase risk or impact quality.
for high performance would
probably be a better 16% of the participants have
mechanism, than penalties for concrete plans to end the
low performance. relationship with their current
supplier, either by selecting a
Satisfaction with current new supplier (8%) or by
supplier insourcing (8%). For the
The contract will be in place for remaining percentage (30%)
a specific time period. At the other solutions are mentioned,
end of the contract period a such as insourcing a part of the
decision needs to be taken process, analysing a multi
whether to extend the contract vendor construction.
or to look for another supplier.
We asked the participants what
they normally do at the end of a
contract.

renew the contract using existing
vendor

other....

insourcing

new vendor

0% 10% 20% 30% 40% 50% 60%

Figure 18 : What if the contract ends


Conclusion and our is the bonus for high
perspective performance, instead of the
penalty for low performance.
Selection and Preparation is the
We still, however, see many
execution of the ‘make’ or ‘buy’
organisations using non-
decision as part of the sourcing
performance penalties to
strategy approach. Price is the
manage such a relationship.
most important selection
criterion, followed by quality and
More than half of the
cultural fit.
participants pointed out that
they would renew the contract
Organisations identify, on
with their current supplier if the
average, five potential
contract ended today. In our
outsourcing suppliers.
opinion, organisations should
Suppliers are eliminated from
benchmark the performance of
the list on the basis of market
the supplier and use the
knowledge and experience. To
outcome of that analysis to
avoid lock-in and to increase
decide whether to renew the
flexibility, the organisations
contract or to find a new
participating in the survey aim
supplier. From the
for contracts with a lifespan of
organisations we have
four years.
interviewed, very few do use
benchmarking tools to
It seems that organisations
substantiate their decisions.
experience difficulties in
defining the relationship with
the internal or external supplier.
This is explained by the fact
that sourcing is all about the
involvement of people, entering
a partnership and the
transformation of processes. In
our opinion, it requires specific
skills to formalise these aspects
in a contract.

As more than 60% of the
processes are transformed or
reorganised before outsourcing
we are not surprised that
processes for dissolution and
non-performance are the topics
discussed most often. Given the
complexity of these outsourcing
arrangements, a business
partnership is the preferred
relationship choice. One of the
indicators of such a relationship


Change In this chapter we describe the
Change management is a
change management aspects
critical part of the sourcing
management strategy approach which
during transition and migration,
including those associated with
involves skills and knowledge
transformation.
that will enable people to accept
new procedures, technologies,
Critical elements of transition
systems, structures and values.
During the transition and
To ensure successful migration phase there are
organisational transformation, elements which determine
establishment of new policies, success. Change management
procedures, systems and is the most mentioned critical
processes is not enough. When element to support transition.
people are not fully informed, Effective change management
they deny or resist change. It is and good communication
vital to understand, plan and reduces the risks and potential
implement appropriate activities costs, while increasing the
to provide assistance to people likelihood of success and
through the transition and improving the connection
transformation. between outsourcer and
insourcer.

Change management 45%
Project management 21%
Planning 10%
Continuity of business 10%
Quality of service 7%
Cultural f it 3%
Interf aces 3%

0% 10% 20% 30% 40% 50%

Figure 19 : Critical elements


Stakeholder management Limited supplier involvement
was found in the analysis and
The graph below shows which
definition phase and in the
stakeholders were involved in
scenario planning and business
the different phases of the
case phase. Participants want
sourcing strategy approach.
to avoid early influence by, and
Senior Management is highly
dependency on, suppliers.
involved at the start of the
sourcing strategy approach.
Employees are involved from
The stakeholders of the
the selection and preparation
business (middle management)
phase onwards. Very few
are also involved from the start
organisations involve
but seem to be more involved in
employees during the scenario
the selection and preparation
planning and business case
phase.
phase.
The works council starts to be
involved from the scenario
phase up to delivery and
operations. There is low
involvement of unions across all
phases, this may be caused by
the limited role of unions in our
surveyed organisations.

100,00%

90,00%

80,00%

70,00%

60,00%
Senior management

50,00% Works council

Unions
40,00%
Business
30,00% Employees

20,00% Vendors

10,00%

0,00%
Analysis and Scenario Selection and Transition or Delivery or
Definition Planning and Preparation Migration Operations
Business Case

Figure 20 : Degree of stakeholder involvement


Roadblocks A lack of capability, competency
and capacity (13%,) on the
During the different phases
other hand, points out that
. there will be barriers to
organisations struggle with
success. Roadblocks
freeing up resources with the
encountered by the participants
right competencies or that
are shown in the graph below.
organisations do not have the
Most of these roadblocks relate
required capabilities for
to the way change management
transition and migration.
was executed.

The lack of commitment and
resistance of employees is the
most common barrier to
success (18%) followed closely
by a lack of internal alignment
and diversity of interest (16%).
These roadblocks relate to
change management and
involvement of stakeholders.

Lack of commitment & resistance of
18%
employees
Lack of internal alignment &
16%
diversity of interest
Lack of capability, competency &
13%
capactity
Lack of vision and strategy 9%
How to create an acceptable
7%
business case
Lack of insight & transparancy 7%

0% 5% 10% 15% 20%

Figure 21 : Roadblocks


Involvement consultancy migration. The involvement of
senior management and
Companies can gain knowledge
stakeholders of the business
and capacity by hiring external
(middle management) is high,
consultants. We asked the
especially in the early phases.
Unknown participants if they hired
Very few organisations involve
12% external consultants.
employees during the scenario
Over 50% of the participants
phase, as early involvement
were supported by consulting
might cause unnecessary
No Yes firms during at least one of the
unrest, and we can understand
34% 54% phases. In general our
this approach. From a change
participants require more
management perspective,
support during the first phases
however, delaying employee
of the sourcing strategy
involvement can cause
approach.
problems later on in the
Figure 22 : Involvement process.
consultancy The Financial Services industry
is less inclined to involve
Limited supplier involvement
external consulting firms in
was found in the early phases.
comparison to other industries.
Whilst participants wished to
It seems that Financial Services
avoid early influence by
organisations have developed
suppliers, we think it can be of
the capability and compentence
added value to involve suppliers
inhouse to execute sourcing
earlier. Suppliers can provide
strategy programmes.
support with defining
requirements, delivering
accurate market information
Conclusion and our and managing expectations.
perspective
In general we see organisations
The success of the struggle with the involvement of
implementation of a new different stakeholders during
sourcing strategy is highly the sourcing strategy approach.
determined by the intensity in This is the case, not only for
which change management transition or migration, but also
was applied. Subsequently, the for developing the demand
success of change organisation as a value added
management highly depends on activity in support of frontline
clear communication and services. This includes working
accurate information. The lack with the business to replace
thereof usually creates specific processes (such as HR,
uncertainty, confusion and finance, procurement), or
resistance within the making changes to the
organisation. organisation structure and skills
within the retained processes.
Change management is indeed
mentioned as the most critical
element during transition and


In our opinion, three factors
play an important role in the
change management process:

1. Be clear about the
objectives of the sourcing
strategy approach; these
objectives determine, to a
large extent, the change
management activities.

2. Involve the right
stakeholders, at the right
time in line with the
objectives; given the
objectives there is more
clarity about whom to
inform when.

3. Effectively measure and
track the change
management activities; it
takes significant time and
effort to make things work,
track and measure these
efforts. Strong governance
is key.


Demand The demand organisation is the A virtual team is the most
intermediary between the common design. A separate
organisation internal business client and the department, which is
third party or SSC. The demand responsible for managing the
organisation manages the demand and supply aspects, is
supply side (internal/external also common. Both have
suppliers) as well as the alignment as their main
demand side (business). objective.

Presence of the demand Most organisations have
organisation learned that focussing only on
demand or supply results in
The vast majority of participants
unnecessary escalations in the
(91%) have a demand
management process.
organisation in place before
Nevertheless, we did still find
starting the transition or
designs focussing mainly on
migration. Three out of four
one or the other aspect of the
organisations confirmed that
service.
they started the preparations for
the demand organisation in an
even earlier phase. There are,
however, differences in the
“The linking pin
design of the demand
between business
organisation.
and supplier was
very important for the
success of this
Virtual team 30%
outsourcing deal”
Seperate department 22%

Service level / contract manager 22%

Business 15%

Service delivery manager 11%

0% 5% 10% 15% 20% 25% 30%

Figure 23 : Demand organisation


Responsibility demand organisation Responsibility of the demand
Means to control the quality
SSC organisation
of service
The outsourcer is, in three out
More than 60% of the
of four outsourcing deals,
Shared participants use an SLA to
responsible for the demand
responsibility control the quality of service
29% organisation. Few participants
levels, 23% have multiple
(6%) mentioned that this is a
Outsourcer mechanisms in place. The
57% shared responsibility. It seems
Insourcer majority of participants (over
14% that organisations do not see a
95%) evaluate the quality on a
demand organisation as
regular basis with the vendor. In
delivering added value to both
a changing environment it is
Responsibility demand organisation parties in the outsourcing
important to evaluate
Outsourcing relationship.
Shared performance on a regular basis.
responsibility
This is also true for the
6% In case of an SSC, this number
alignment of supply and
is much higher (29%). It seems
Insourcer demand.
18% that partnerships within SSCs
are more common than within
Although quality is an important
outsourcing. An explanation can
Outsourcer reason for sourcing, 12% of the
76% be found in the fact that both
organisations evaluate service
parties are part of the same
quality only once a year.
organisation.

SLA 39%
Figure 24 : Responsibility
Multiple mechanisms 23%
Measurement 16%
Governance 10%
Meetings 6%
Inf ormation 3%
People 3%

0% 10% 20% 30% 40% 50%

Figure 25 : Quality control means

Monthly 38%
Quarterly 27%
Daily 12%
Weekly 12%
Yearly 12%

0% 10% 20% 30% 40% 50%

Figure 26 : Update frequency


Conclusion and our
perspective
In contrast with some other
surveys, we found that
organisations recognise the
importance of a demand
organisation and start
preparation in time.
Organisations do, however, use
different designs to align
demand and supply. In our
opinion the right demand
organisation has control of both
aspects of the service.

The responsibility of the
demand organisation lies with
the outsourcer. It seems that
organisations have a
procurement-oriented mindset
towards the demand
organisation. In our opinion, it is
essential to enter a partnership
given the size and complexity of
the sourcing deal. A demand
organisation based on
partnership ensures alignment,
coordination and control of both
supplier and business needs.
However it is important that a
demand organisation adds
value as we often find that they
become unnecessary
roadblocks between the
business and the insourcer.


List of
participants o ABN AMRO

o AGIS

o Air France KLM

o Atlas Copco

o Ballast Nedam

o Blue Water

o Corus

o Enexis

o Fortis Bank Nederland
Capgemini Consulting would
like to extend its thanks to the o Anheuser-Busch InBev
executives who made time to
be interviewed for this survey. o Intergamma
Besides the organisations
o Mexx
listed on this page, a further 13
organisations participated in o Nationale Nederlanden
this survey but requested that
they remain anonymous. o NedCar

o Nutreco

o Philips

o Rabobank Nederland

o Ricoh Nederland BV

o RWE

o Stork

o TenneT

o Van Lanschot

o Vitens

o Vodafone

o WE


i
“Transformational Outsourcing – The Highway to Innovation and Measured Improvements”, Nyenrode Business
University, Breukelen, Inaugural Lecture of Prof. dr. Ir. Andrzej Hajdasinski, May 2007

ii
Neil Davey, www.mycustomer.com

About Capgemini

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cost. Present in 36 countries, Capgemini
reported 2007 global revenues of EUR 8.7 billion
and employs over 88,000 people worldwide.
www.capgemini.com

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Consulting advises and supports organisations in
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through to execution. Working side by side with
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Outsourcing Strategy Survey July 2009

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