The Cloud, a love story! Origin and family secrets of outsourcing

By Pierre-Jean Esbelin

This book offers a new and exciting vision of IT outsourcing based on real examples, and taken from the professional experience of the author. It provides valuable information for professionals. In particular, the book analyses the lessons of each case presented in the perspective of the eSCM methodology. IT Outsourcing no longer concerns only large companies - small and medium sized firms and, increasingly, the public sector now outsource readily. Outsourcing has been generally marketed as a cost reduction process focusing on technology improvements. This approach tends to reduce the advantages to a simple substitution of resources and systems. Mature companies now realise that outsourcing has much more to offer than such marginal gains - particularly as many projects have been branded as failures when targeted savings are not achieved. If one takes a broader view over organisational, technological and business performance, IT outsourcing provides powerful leverage for value creation. Based on a range of case studies involving US and European clients, highlighting their achievements and also their mistakes, this book shows the importance of aligning (out)sourcing strategy with the global business strategy of the company. Numerous best-practice examples are developed.

• Language: English
• Publisher: Les Éditions du Net
• Release date: Jun 7, 2013
• ISBN: 9782312010953

Book preview

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The Cloud,

a love story!

Pierre-Jean Esbelin

The Cloud,

a love story!

Origin and secrets of outsourcing

LES ÉDITIONS DU NET

22, rue Edouard Nieuport 92150 Suresnes

"My role in life is that of the grain of sand to the oyster –

it irritates the oyster and out comes a pearl."

Ross PEROT

© Les Éditions du Net, 2013

ISBN : 978-2-312-01095-3

This book offers a new and exciting vision of IT outsourcing based on real examples and taken from the professional experience of the author. It provides valuable information for professionals. In particular, the book analyses the lessons of each case presented in the perspective of the eSCM methodology.

IT Outsourcing no longer concerns only large companies – small and medium sized firms and, increasingly, the public sector now outsource readily. Outsourcing has been generally marketed as a cost reduction process focusing on technology improvements. This approach tends to reduce the advantages to a simple substitution of resources and systems.

Mature companies now realise that outsourcing has much more to offer than such marginal gains – particularly as many projects have been branded as failures when targeted savings are not achieved. If one takes a broader view over organisational, technological and business performance, IT outsourcing provides powerful leverage for value creation.

Based on a range of case studies involving US and European clients, highlighting their achievements and also their mistakes, this book shows the importance of aligning (out)sourcing strategy with the global business strategy of the company. Numerous best-practice examples are developed throughout the book. The author points out the similarities of such best-practice examples with the secrets of successful relationships between couples. This book presents not only the ingredients but also the recipe.

Benoit Tiers, President of E.O.A. France (European Outsourcing Association) comments :

Cloud: everyone has heard of it... but beyond the buzz, what dimensions does it open up? What are the impacts?

This book, treating the subject from a sourcing and more specifically outsourcing point of view, sheds new light on three major, and linked, trends faced by most companies: the urgent need to be ever more maneuverable, to maximize technological revolutions, and to adapt to an advancing consumerization.

Information Systems enable companies to continually adapt to changes in the ecosystem, and have become a major driver for transformation - particularly through efficient sourcing.

The author reaffirms the fundamentals we know well, and stresses the need for companies to consider these developments as part of their strategy. It is now possible to conjugate industrialization and agility and continue to improve cost variability.

The fact that the Cloud is today a «normal» evolution yet a necessary factor to increase company maneuverability, is confirmed in this book. Without forgetting that in order to extract its full potential, it must be governed with appropriate attention.

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Summary

SUMMARY

ABSTRACTS

CHAPTER 1. THE ORIGINS OF OUTSOURCING

CHAPTER 2. STARTING A NEW BUSINESS OPERATION

CHAPTER 3. SUSTAINING THE INFORMATION SYSTEM

CHAPTER 4. SOLVING AN OPERATIONAL PROBLEM

CHAPTER 5. REORGANIZE

CHAPTER 6. INTERNATIONAL EXPANSION

CHAPTER 7. ACCOMPANY CHANGES

CHAPTER 8. 10 YEARS LATER…

CHAPTER 9. CLOSING DOWN A BUSINESS ACTIVITY

CHAPTER 10. REVISION ON LESSONS LEARNED

ESCM WRAP-UP

INDEX

ACRONYMS

BIBLIOGRAPHY

THE AUTHOR

TABLE OF CONTENTS

Abstracts

CHAPTER 1. THE ORIGINS OF OUTSOURCING

This chapter gives an introduction to the subject and associated vocabulary, and describes the fundamentals of the book: End users and Service providers of outsourced IT services tend to have an abridged vision of the business, which leads customers to misunderstand the potential and to remain largely unaware of implementation issues. Forget technology takes on a double meaning - with regard to strategy, users should concentrate on their core business and remove the perceived constraints of the IT system; and concerning tactics, give priority to projects concentrating on strategic objectives.

CHAPTER 2. STARTING A NEW BUSINESS OPERATION

Moving quickly to capitalise on a unique business opportunity, a French company decides to set up a unit in Germany. The time window for success is less than 2 years. If the initiative fails, the future of the group will be at risk. Simultaneously, the company is launching a major IT project - the centralisation of its data centres via an outsourcing contract. Extension of this contract and associated methods and practices, should enable the company to set up infrastructure and resources necessary for the growth of the new subsidiary.

CHAPTER 3. SUSTAINING THE INFORMATION SYSTEM

Geneva, in a medium sized company, subsidiary of a large group, all the members of the application management team (five people) will retire at the same time. The specificity of the company's business has led the IT department to develop an entirely in-house application to manage its main line of business. The company faces a serious risk on its IT programme maintenance.

CHAPTER 4. SOLVING AN OPERATIONAL PROBLEM

Forced to drastically reduce office space, the IT department managing the international network at a large retail bank has to remove desks for external staff. Remaining staff will not be able to cover effectively the time zones across the 60 countries in the network without severe overload. The situation is identified by the Human Resources department as too risky; an alternative solution must be found. Outsourcing application maintenance (AM) solves the question of office space and manages risk by transferring some staff to a provider. A Tender was run to select a provider. The contract was awarded to a firm with virtually no technological skills on the customer computer language – the firm was retained because of their superior analysis of the situation.

CHAPTER 5. REORGANIZE

A banking group operating in Eastern Europe is considering replacing its IT organisation. The current company organisation  is highly decentralised, with each country operating with large management freedom. The IT organisation is similar. The plan is to construct a business case for a global IT platform, shared by all. The mission is to establish the business case, define distinct projects and assist in their realisation. A significant amount of management coaching and training is included, to strengthen customer teams and enable them to lead and deliver the project – which is based directly on outsourcing best practices.

CHAPTER 6. INTERNATIONAL EXPANSION

With a strategic plan to expand internationally and faced with the increasing complexity of regulations within the pharmaceutical industry, a medium sized family company from southern Europe decides to outsource its entire IT department: men, hardware and software. After the transformation phase, the infrastructure is upgraded and operational risks are under control. The new IT organisation, which relies on the international reach of the main service provider based in France, will facilitate the deployment and support of IT requirements linked to future acquisitions abroad. Embedded into the outsourcing contract, the customer also engages a project to implement an ERP that will support deployment of international activities.

CHAPTER 7. ACCOMPANY CHANGES

From the start of this contract - a local, French, application of a global framework agreement - specific milestones were incorporated to measure the progress of changes to a range of components of the IT system. Such local adaptations naturally had an impact on billing, which generated some problems between client and provider. The story describes the way the situation evolved in France, in a context where the IT headcount decreased from 150 to 20. On a different angle, the project became an opportunity to discuss the initiation of Cloud concepts seven years before the appearance of the term.

CHAPTER 8. 10 YEARS LATER…

A large international group completed a 10 year contract with a global outsourcing company and renewed the contract at European level with the supplier. We are interested in a particular country, the client's situation there - after ten years of outsourcing – and the adjustments that the provider must make to roll over his contract.

CHAPTER 9. CLOSING DOWN A BUSINESS ACTIVITY

Two major companies have a joint venture activity, a tier 2 supplier to both shareholders who operate in the automotive sector. The opportunity to realise a profitable real estate transaction in the suburbs of Paris leads them to dismantle the joint venture. To manage smoothly the IT component of the operation, an outsourcing contract is signed including declining levels of activity, in line with the closure of the company: over a ten year period the number of sites reduced from 5 to 1, and an initial headcount of 100 IT professionals down to 4.

CHAPTER 10. REVISION ON LESSONS LEARNED

This book aims to summarise the key characteristics and the advantages offered by outsourcing, in particular by countering the many clichés conveyed by players in the business. Service providers included – for they have unfortunately presented a limited viewpoint – failing to project the big picture – in sales and marketing pitches. Operational reality regularly displays the rich potential, and also an undeniable complexity in implementation. The examples given throughout the book provide lessons and best practices to help readers deliver projects successfully, with serenity and for the benefit of the company.

Chapter 1

The origins of outsourcing

ONCE UPON A TIME...

EDS, Electronic Data Systems created the market for IT outsourcing. Ross Perot founded the company in 1962 in Plano, a  suburb of Dallas, Texas, USA. Their first contract was for the outsourcing of the IT department of the social security of the state.

The choice of such a prospect was decidedly well thought out. A federal state has an ideal profile to launch such a new service. The customer's business is stable. Functional changes do occur, but slowly. Revenues may be expected to be regular. Once stabilised, the delivery with this state will be a perfect model to duplicate elsewhere in other states - at marginal cost - providing similar value. Margins in this sector will finance growth of the new offer in other sectors.

The size of the U.S. market meant that for over 25 years the company grew in both the public and private sectors. The size of the U.S. market allows phenomenal expansion without seeking international development.

The commercial talent of Ross Perot seems limitless. He wins the outsourcing contract for the information technology function (IT) of General Motors. At a stroke, the company's workforce doubled. EDS has fifty thousand employees, and a global presence. In computer equipment resulting from the transition, it inherits three satellites. At the time, no other IT services company can afford such equipment.

EDS begins a new chapter in its history. This contract represents 80% of its annual turnover. The strategy is twofold:

– Keep the promise made to the client

– Develop activities outside GM to reduce dependence on a single client

GM believes in the value proposition. The outsourcing contract is signed. The company is aware of the size difference between the two companies. The risk is acknowledged. GM takes a controlling share of EDS stock. It leaves the operational management to senior executives. It is the end of independence for Ross Perot. Differences in culture between Michigan and Texas are irreconcilable. The countdown has started for his departure.

A POWERFUL AND COMPLEX OFFER

Outsourcing is an offering that integrates the expertise of a range of operational activities:

– consulting

– implementation / transition

– recurrent services

It represents a service delivery that meets five criteria:

– Long duration contracts (several years)

– Possible staff transfers

– Transfer of assets in some cases

– Support for all or part of the customer IT function

– Overall responsibility for delivery, with performance commitment, service level agreement, and penalties

Outsourcing has the characteristic of integrating all areas of information technology in a unique and demanding life cycle.

In isolation each activity already existed as an offering. Outsourcing combines those elements, and goes further in value than the sum of each individual offer. It absorbs a set of resources within the company. In return it provides an integrated service that makes the client organisation more agile. The target is challenging. The horizon is the contribution to business success. To the IT dimension, it adds the topics of finance, legal, human resources and change management. The power of the offer is based on managing complexity – made possible by industrialized processes.

A TRADE SECRET

EDS developed a secret recipe to manage its offering and win business. It is composed of three elements:

– Training