Offshore outsourcing Vincent CAYEUX Vincent Cayeux avril 2006

Offshore outsourcing Vincent CAYEUX Vincent Cayeux

1. 2. Index History The worldwide market 1. 2. 3. Before going offshore: the right questions to be answered: 1. 2. 3. 4. In the World In France The main actors What? Why? Where? How? The Impacts for the companies 1. 2. 3. 4. The Risks, The Key success factors The hidden costs Savings Vincent Cayeux

History n The origin n The maturity (2001 -2005) Mi-90: the ERPs Y 2 K bug After 2000: The e-commerce Software activity SW Maintenance SW development IT production IT administration outsourcing Data centers backup The processes The call centers The Business Process Outsourcing (BPO) Vincent Cayeux

Offshore is going up the value chain Vincent Cayeux

Worldwide market n Intentions to use offshore services: More than 50% of the big companies in the USA (+ 5000 employees) More than 40% in Europe n n n 12 to 15 KMUSD in 2005 (2, 8% of the IT services in the World) USA: 80% of the offshore World services demand UK: 70% of the European demand India: 80% of the total offshore services revenues The most important fields of activities are : The SW activities (maintenance, development) The BPO The IT infrastructure outsourcing Vincent Cayeux

The market in France: - 2% of the total amount of IT services n Growth in France: 20% per year n Source: Syntec Vincent Cayeux

French characteristic n n n A majority of Time and material contracts Rigid Social protective laws Importance of the language and culture Preference of Nearshore (North Africa/Eastern Europe) Local IT services leaders have developed « Factories » in regional towns Unitary price reduction split of the resources between several projects/costumers industrialization of processes -> Effective cost reduction and productivity improvement Vincent Cayeux

The countries (80 to 90%) Vincent Cayeux

The leading countries Source: Groupe Alpha Vincent Cayeux

Suppliers competition Source: Syntec Vincent Cayeux

Before going offshore, the right questions to be answered: What? Why? Where? How? Vincent Cayeux

What? n SW development? Which SW? Which technology? n SW maintenance? n TMA? n SW Integration? n IT infrastructure? n Business Process? Vincent Cayeux

Why? n n n n Reduce the costs (20 -40%, 19% in average) Increase the flexibility Reduce the delivery time Improve the service availability (24 h/24, 7 d/7) Improve the quality (CMM, …) Look for specific talents Increase the production capacity Global sourcing approach (more suppliers in more countries) Vincent Cayeux

Why? Source: Groupe Alpha Vincent Cayeux

Where? Vincent Cayeux

Where? n Offshore: India (<-> USA, UK) Pro: very experienced (CMM, strong processes, references…), large capacity Cons: cultural and language differences, time zone, distance Canada (<-> USA) China (<-> Japan) n Nearshore Morocco, Tunisia, Senegal, Mauritius: Pro: French speaking, same time zone, close, low prices Cons: small qualified population, less experienced Tcheky, Slovakia Pro: cost, Time zone, distance Cons: less experience, language Spain Vincent Cayeux

How? n Pure Offshore n On-site / offshore n Pivotal provider n Offshore ressources Vincent Cayeux

How? Front office/Back office Client Front Office Analyze the client’s requirements Write the detailed specifications Transfer the spec to the B. O Follow the realization Validate the developments Deliver to the Client Back Office Perform the developments Update the documentation Test Deliver to the Front Office Vincent Cayeux

Impacts Organization (OPMO, external advice) n Processes (Industrialization) n HR aspects preparation n Jobs losses, jobs evolution-> heavy training External/Internal image n External/Internal communication n customers, employees, shareholders, partners n Costs control Hidden costs Vincent Cayeux

Key factors for success n The pre-requisite Process industrialization Local outsourcing experimentation International experience Telecom and IT infrastructure preparation n Clearly define the targets Why and what offshoring? Quantify the expected gains (cost, quality, flexibility, skills…) n Have a strong support from the management n Work hard the “How? ” And “Where? ” aspects n Consider the transfer phase as an investment n Start small and grow up smoothly in projects size and complexity n Perform a contingency planning Build specific indicators for management dashboard n Vincent Cayeux

Risks n n Hidden costs Communication problem n n n Loss of productivity Telecommunication, infrastructure Country risk n n n n Data security Intellectual property risk Image Change management HR risks Contractual issues Loss of control of the outsourced activity Loss of competence Cultural and language misunderstanding Distance, Time zone Geopolitics (Political or Economic instability, War, Natural risks) Laws Taxes Vincent Cayeux

Hidden costs n n n n Due diligence Contract Transfer costs Project management Loss of productivity Real Menxdays costs Telecommunication, Travels Telecom and IT infrastructure Data security External Advices Reorganization, Process review, Training Job losses Contractual Reversibility clause Vincent Cayeux

Savings Source: Groupe Alpha Average of savings: 19% Source: Groupe Alpha Vincent Cayeux