Multi-Sourcing Workshop

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24 / 9 / 2015

Multi-Sourcing

Workshop

PAUL O’HARE ANDY NELSON ANDREW WOODWARD ANDREA WILLIAMS

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1.30 – 1.50: Introductions and Survey feedback

Andy Nelson (Associate, Kemp Little Consulting LLP)

1.50 – 2.50: Successful Outsourcing and Multi-sourcing: trends, benefits and challenges

Paul O’Hare (Head of Outsourcing, Kemp Little LLP) Andy Nelson (Associate, Kemp Little Consulting LLP)

2.50 – 3.00: Coffee and networking break 3.00 – 4.00: Multi-Sourcing Case Studies

Andrew Woodward (Associate, Kemp Little Consulting LLP) Andrea Williams (Associate, Kemp Little Consulting LLP)

4.00 – 4.10: Coffee and networking break

4.10 – 5.10: Addressing the Challenges of Multi-Sourcing

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Maximising Value in the Outsourcing Relationship

Outsourcing can be a powerful tool not just to deliver cost efficiencies,

but to help drive competitive advantage, improve business

performance, and deliver business transformation

However, these outcomes are not guaranteed, and achieving success

in an outsourcing relationship remains a challenge for many

organisations.

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 Clear Strategy and Objectives

 Clear Scope and Business Requirements

 Understand the Market

 Effective Procurement Process

 Get the Pricing Right

 Incentivising service improvement and cost savings

 Plan ahead for exit

 Strong Governance

 Commercial and Operational Skills are Key

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 The answer broadly is YES

but let’s test that assertion for

 Could Computing

 Big Data

 Agile Development

 Open Source Software (OSS)

 Multi-Sourcing

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 Compute services on demand  IaaS, PaaS, SaaS

 Easy to Buy

 Simple ‘Pay Per Use’

 Cost Effective

 Flexibility and Ease of Change

 Standard service – is that what you want  Challenges of customer control

 Service levels; best endeavours  Security and data privacy

 Termination rights

 Exit assistance and ease of transition  Unilateral change of service features  IPR ownership/licensing

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 The world of digital, commoditised IT, rapid innovation and multi-sourcing is here to stay



The ‘Top 10 Tips’ remain key to successfully buying and managing services in this world

 They still apply to current technology trends. You still:

– Need to be clear about what and why you are outsourcing

– Run an effective procurement process that buys the right service and the right price

– Must implement relevant yet rigorous governance mechanisms

 These technology trends

– place even greater focus customer capabilities and accountabilities

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Multi-Sourcing and SIAM – trends, benefits and challenges

In this section we will share Kemp Little and Kemp Little Consulting

perspectives on the trends in Multi-Sourcing and the benefits and

challenges of implementing a multi-sourcing model.

We will also the address some key contractual considerations and the

role of Service Integration and Management (SIAM) in these models

and the ‘keys to success’ in implementation.

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Multi-Sourcing – what do we mean?

 Infrastructure and application services provided by many suppliers rather than just one or a few

 Services provided as a set of service ‘towers’ such as data centre,

networks and desktop support

 A service tower could be provided by more than one supplier such as in networks separating out the provision of the physical network from

telephony and other services (e.g. video-conferencing)

 Customer owns the contractual relationship with all service tower providers

 Need for Service Integration and Management (SIAM) to ensure effective end-to-end service is delivered to end users

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Multi-Sourcing Trends

 Multi-sourcing not new but more customers moving to this model  Big single source deals still being done

 Other market trends prompting this move

– Commoditisation of infrastructure services such as networks and data centre services – Availability of on demand software services such as Office 365

– Cloud computing

– Competition driving buyers to look to a broader range of IT suppliers to drive innovation  UK Government leading the way on large multi-sourcing deals

 Factors influencing degree of multi-sourcing for customers – Business strategy – e.g. are you an acquirer of businesses

– Overall sourcing strategy

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Multi-Sourcing Benefits

 Better service quality

 Post-signature competition  Greater flexibility

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Multi-Sourcing challenges

 No single point of responsibility

 Increased management overhead  Risk of service gaps

 Supplier collaboration and interdependencies

 Ensuring alignment to the wider business and IT strategies  The degree to which the services are disaggregated

 The difficulty of transitioning to a multi-sourcing model  Managing business risk and stakeholders

 Building or buying in the capability to manage both the transition to and manage multi-sourced models – the place where SIAM plays

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Multi-Sourcing – The Keys To Success

 Target Operating Model - for all IT services internal and outsourced

 Service Model – who does what between corporate IT, SIAM and the

tower providers

 Commercial model – the right mechanisms to ensure collaboration

 Contractual model – the right balance between an overarching Master

Services Agreement, collaboration agreements, and the individual service tower contracts

 Technical Architecture model – the architecture and technical

standards you expect to comply with

 Programme Delivery model – transition is complex and should be

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Optimising the Multi-Sourcing Model

 Reflecting your multi-sourcing requirements in the tender process  Strong governance structures, including cross-supplier governance

boards with attendance by senior management of the customer and each supplier

 Key contractual considerations in multi-sourcing

 The use of collaboration agreements with and between suppliers

 Inclusion of an appropriate balance of incentives and disincentives in their contracts to ensure supplier co-operation and collaboration

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 Data and information sharing requirements

 Cross licensing of IP

 Standardised and integrated contract processes

 Adherence to common IT standards



‘Fix first, settle later’ principles



‘Skin in the game’ on achievement of end-to-end service delivery

 Acceptance of SIAM provider role

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OLA / collaboration Agreement Customer SIAM provider Supplier 3 Supplier 2 Supplier 1

 Entered into in parallel to direct agreements  Contractualises multi-sourcing principles

 Risk/reward models to incentivise supplier collaboration

 Documents SIAM provider’s role  Enforcement considerations

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 Balance of practical measures in addition to usual ‘nuclear’ options of termination/suspension of ability to bid for future work packages

 ‘Skin in the game’ against successful performance by other suppliers – element of supplier charges

linked to achievement of end-to-end service levels

 Combination of risk/reward – may require additional customer funding  Combination of hard and soft measurements

 Role of SIAM provider

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 Diagnosis of service failures

 Suppliers required to produce single root cause analysis (one version of the truth)

 If diagnosis agreed, supplier at fault liable for service credit payment

 Failure to agree RCA results in all suppliers paying a higher service credit

Incentivising supplier collaboration:

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 Bonus pool linked to achievement of end-to-end service delivery

 Linked to customer business benefits

– Service availability

– Incident resolution

– Customer satisfaction

– Supplier collaboration behaviours

 Allocation/distribution by SIAM provider

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Service Integration and Management (SIAM)

 SIAM function can be fulfilled in different ways – By the internal IT function

– By an independent provider

– By one of the underlying service tower providers  Role of the SIAM provider

– End-to-end service management

– Provider of some services such as the IT Help Desk, Change Management and Release Management

– Service provider assurance (including adherence to standards and processes) – Service knowledge management

– Take on some risk and liability for the end-to-end service – Dispute resolution support

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

Dispute resolution/implementation of ‘fix first, settle later’ terms

– Supplier requirement for easy recovery of rectification costs where not at fault

– No direct supplier enforcement rights

– SIAM provider adjudication on cost allocation

 Administration of service credit and bonus pools (re soft measurement targets)

 Generally accepted by suppliers, provided:

– SIAM provider not tower provider

– Limits on SIAM adjudication rights

– Right of redress

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 Allocation of legal/commercial risk on supplier performance/delivery

 Service integration risk

 Service levels around SIAM operational responsibilities

 Skin in the game on achievement of end-to-end service metrics

 Gainshare on SIAM provider cost-savings – contribution to funding of bonus pools

SIAM accountability, risk allocation and incentivisation

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3.00 – 4.00: Multi-Sourcing Case Studies

Andrew Woodward (Associate, Kemp Little Consulting LLP) Andrea Williams (Associate, Kemp Little Consulting LLP)

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Multi-Sourcing and SIAM – Case Studies

In this section we will share some Kemp Little Consulting experiences

from recent Multi-Sourcing programmes, to illustrate some of the

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 Large public sector body, providing national front-line public services

 Formed from 3-way merger in 2007

– 3 separate IT organizations, serving total 100,000 staff/users in 2000+ locations

– 3 separate IT, long-term outsource

arrangements – with large systems integrators – specific to each of the 3 business areas.

– 3 separate networks, 3 service desks, 300+

line of business applications; every conceivable piece of technology legacy  IT consolidation strategy in 2 stages:

Case Study 1: Customer

Business Area C Business Area B

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 Target Operating Model:

– In-house retained functions include Strategy, Enterprise

Architecture, Project/Programme Delivery, Service Assurance. – Outsourced SIAM service provider

– ‘Tower’ suppliers providing common technical services across all business areas

– Data Centre, Hosting, Security, EUC, Networks-1 (Voice/Video), Networks-2 (WAN/LAN), Print Services, Apps Mgmt-1 & 2

– Suppliers to be procured primarily via OJEU – Contract structure: 2 parts

1. Suppliers have direct contract with the Authority

Case Study 1: Situation

Business Area A Business Area B Business Area C

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Our ‘Keys to Success’ Issue Recommendation Target Operating Model

TOM, governance, roles, & retained org not defined before going to market.

TOM, governance, roles, & retained org -define before going to market.

Service Model Service management processes and

hand-offs not defined up front

Service management processes and hand-offs – define these prior to procuring the Towers.

Commercial / Contractual Model

SIAM not contracted to be the Systems Integrator – given control but no

accountability

Keep SIAM in-house or manage very carefully.

Programme

Delivery Model

Project delivery governance standards and processes for transition/transformation not defined.

Define project delivery governance standards and processes for transition/transformation up front.

Technical

Architecture

To-be architecture defined but transition sequence not defined before going to

Orchestrate the procurement sequence to deliver services in the order you need them!

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Operating Model: The Golden Thread

The commercial / service model, operating model and

the technology landscape are all intrinsically linked and must be delivered as an integrated bundle to be successful Multi-sourcing drives the need for a more

mature and integrated

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 Benefits:

– Multi-sourcing forces IT function to take accountability; not just blame suppliers – this will drive maturity of in-house IT; to the benefit of the business.

 Underlying factors – primarily cultural:

– 10-15 years of managing large outsource contracts meant few in-house IT skills left – little understanding of what it takes to deliver large technology programmes.

– Programme treated as a sourcing programme. ‘We don’t need to understand IT; suppliers do that’. – Regarded as a re-procurement of the ‘as-is’; managed by the service management organisation.

Little focus on the transformation delivery capabilities that would be needed to manage delivery of complex change in a complex environment.

– Little recognition that disaggregation to a multi-sourced model is different from a traditional

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 Large Systems Integrator, bidding for and delivering a ‘tower’ contract in a multi-sourced programme

 Accustomed to providing integrated ‘end to end’ services, i.e.

– Accustomed to taking on associated project and service delivery risk

– Expect to have flexibility to apply own people, process/methodologies, and tools in order to mitigate those risks.

 Their objective: aim to deliver the contracted service, whilst managing those risks in order to generate an acceptable margin (i.e. make money).

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 Supplier bid for and won a significant contract within a multi-sourced transformation programme. – Contracted to build and run a large ‘private cloud’ hosting environment to replace legacy

contracted hosting arrangements

– Contract included the migration of the applications from the legacy environments

– Deal-shape: supplier makes the investment in the platform and makes money from service charges – should incentivise supplier to deliver and ‘go-live’.

Case Study 2: Situation

WAN Example: Accessing an Application

Application DC Core

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 Many dependencies on other supply contracts, including: – Data Centre space – in which to build the platforms

– Network connectivity & gateways – to securely connect the platforms to the network – Applications providers – to assist migration; make any required application changes

– End User Compute – to make any required infrastructure changes; assist with e2e test – SIAM – to put in

place support arrangements

Case Study 2: Situation

Tower1 Supplier’s Mgmt Functions Tower1 Service 1 Tower1 Service 2 Implementation Project Procurement Project Tower2 Supplier’s Mgmt Functions Tower3 Supplier’s Mgmt Functions Tower1 Service 3 Tower2 Service 1 Tower2 Service 2 Tower2 Service 3 Tower3 Service 1 Tower3 Service 2 Tower3 Service 3 Ongoing Service Mgmt

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 Supplier not able to deliver their contracted scope – Not in their gift to deliver it on their own

– Other suppliers not ready/not able to support the transition plan - since not working to same methods, timescales, assumptions – different tower contracts awarded at different times

– Supplier based their plan on the best information provided by the authority but become victims to the fact that the quality of that plan was inadequate

 Supplier not able to enforce the contracted dependencies during transition/build/migrate phase. – Contracting authority had no ability to manage and enforce transition and transformation to the

multi-supplier model because they did not define or build the multi suppler model adequately. – Supplier did not have the contractual relationship with the other suppliers & therefore entirely

dependent on the capabilities in organisations not under their control.

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 Mechanisms which helped to address these issues – and provide suppliers with a level of protection:

– Standardised governance structure across the supply chain

– Standardised programme & project management methods, processes and gated delivery lifecycle

– Defined opportunity in the lifecycle – post contract award – to call out and conform inter-supplier dependencies, and adjust solutions and transition plans accordingly.

– Ongoing process for dependency management; to manage complexity across multiple different suppliers. Enabled suppliers to call out and manage lower-level dependencies between parties on an ongoing basis.

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 Lessons learnt:

– Reliance only on ‘collaboration’ is mis-placed – collaboration breaks down when £££ involved. – Strong governance, structure and processes are a pre-cursor to collaboration.

– Different suppliers have different levels of competence. Collaboration requires equivalent levels of competence.

 Benefits:

– When good structures are in place, suppliers realise they can only succeed if all others succeed. – Suppliers start to share their best practices with other suppliers, to the benefit of the client – ‘best

of all worlds’.

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2.50 – 3.00: Coffee and networking break 3.00 – 4.00: Multi-Sourcing Case Studies

Andrew Woodward (Associate, Kemp Little Consulting LLP Andrea Williams (Associate, Kemp Little Consulting LLP)

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Multi-Sourcing challenges

 No single point of responsibility

 Increased management overhead  Risk of service gaps

 Supplier collaboration and interdependencies

 Ensuring alignment to the wider business and IT strategies  The degree to which the services are disaggregated

 The difficulty of transitioning to a multi-sourcing model  Managing business risk and stakeholders

 Building or buying in the capability to manage both the transition to and manage multi-sourced models – the place where SIAM plays

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Wrap-up and Conclusions

 You should actively consider multi-sourcing models

 These models can lead to greater savings and better levels of service  BUT

 Lots of challenges to be addressed to be successful

 Challenges can be addressed with the right external support and internal capability

 The multi-sourcing model must be defined from a number of perspectives – operating, service, commercial, contractual and technology

 Implementing a multi-sourcing model is a significant change programme  The right contractual arrangements and SIAM provision need to be in

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Kemp Little Consulting LLP is a limited liability partnership registered in England and Wales