Running Successful Outsourcing Procurement Projects & Delivering Profitable Outsourcing Business

Running successful outsourcing
procurement projects & delivering
profitable outsourcing business

Managed Services & Outsourcing, Lisbon
30th March 2009
andrew.scott@paconsulting.com
+447738648542

Agenda

The agenda consists of two key sessions:

Session 1 - Understanding the sourcing lifecycle, examining how to run successful
outsourcing procurement projects

Session 2 - Winning and delivering profitable outsourcing business

© PA Knowledge Limited 2009 Andrew.scott@paconsulting.com +447738648542 Page 2

Session 1

Understanding the sourcing lifecycle, examining how to run successful outsourcing
procurement projects
Delivering network outsourcing success
• Seven common weaknesses in the sourcing process
• The empirical evidence
• Eight actions to improve performance
The PA Sourcing lifecycle model
Define the strategy in 6 stages
Tips for optimising the process
The PA portfolio of services




The telecommunications industry is in a mature
phase of development, prices are under
pressure, margins are shrinking, the market is
becoming saturated. As a result operators are
keen to identify new revenue streams through
innovative value-added services and identify
major cost savings to combat margin erosion.
Cost savings are generally achieved in one of
three ways:
• Driving delivery excellence within operations
• Partnering with another operator to share
investment risk
• Outsourcing key operational areas to third
parties


Seven common weaknesses in the sourcing process

We have identified seven common weaknesses in the sourcing process

This market is still very much
in its infancy, which introduces
risk, endangering the likely
success of a best-value deal
for both parties whilst
threatening ISP.
How do you protect against the
risks?


The empirical evidence

Understanding misunderstandings

Poor targeting of investment during the process creates a level of
misunderstanding and subsequent mistrust by clients of the supplier
market
The major findings of the survey are:
• Outsourcing programmes do not deliver the envisaged
benefits – usually because the business case was flawed from the
outset
• Clients underestimated the scale of the challenge – forecast of
resources inadequate
• Clients and suppliers have divergent objectives and
expectations – the mismatch usually stems from poorly
articulated requirements
This international survey has
drawn on the experience of • Suppliers deliver against KPIs, but not the right ones
315 clients as
well as 29 suppliers and 17 • Retained organisations are inadequate – clients are not able to
legal advisors for a complete manage their supplier to deliver the planned benefits
360-degree view.



Outsourcing programmes do not deliver the envisaged benefits

When developing your
business case, which
of the following cost
items did you include?

Only 51% included costs for
the retained organisation, 3 –
9% of contract value
42% omitted costs for
transition
Only 17% factored in costs for
risk



Clients underestimate the scale of the challenge
Given your experience at
the time, how challenging
did you find each of the
following stages?

Yet 50%
found benefits
realisation
hard

Two-thirds
found the
early stages
the easiest



Clients and suppliers have divergent objectives and expectations
Which of the following outcomes did you identify in
your strategy and business case as being required
from provider?

Only 21% of suppliers thought their clients communicated their
objectives clearly to the supplier marketplace


Retained organisations are inadequate
With hindsight, at the beginning of the procurement process how
well did your organisation understand the amount of effort that
would be required to manage the relationship with your supplier?

45% of clients underestimated the effort
required to manage the supplier

Whilst suppliers put this figure at closer
at 65%

44% of suppliers felt their clients
retained organisation is immature.

48% of clients rated their skills set as
immature.


Eight actions to improve performance
Focusing on these 8 actions will vastly improve your chances of outsourcing
successfully


The PA Souring lifecycle model

The PA Sourcing lifecycle model


The PA Souring lifecycle model

The PA sourcing lifecycle model – the detail

Start the Launch Start Contract Award Handover
process Competition Negotiations Lifecycle
management


Define the strategy in 5 stages

Define the Strategy in 5 stages

Understanding the options, their business return, impact on the organisation and risk are
all paramount to making an informed decision.
To achieve this PA has constructed an approach to which assists clients to make an
informed decision regarding the business case and most appropriate combination of
outsourcing and in-house service provision. This approach consists of five key steps:
1 Understand the desired business outcomes and drivers for change

2 Define the scope and potential packaging alternatives and their target operating
model
3 Determine the current and future cost baseline of the organisation
4 Appraise the market’s ability to deliver
5 Produce an outline business case and key recommendations


1 Define the strategy in 5 stages – Stage 1

Understanding the drivers for change

Typical drivers for sourcing:

• Cost reduction with an acceptable risk profile
• Access to skills or core processes not available in-house
• Speed to Market (build out new product or channels to market more quickly than
could be done internally)
• Service Level improvement
• Re-focus management attention from day-to-day operations to concentrate on
strategic and customer-facing issues
• Pricing flexibility & certainty of future cost

Clarity of business intent and drivers for change are both key to defining the options
and framing the analysis


Understanding the scope - the boundaries of the analysis need to be
established

Example Scope of work to be explored
Material This example covers
Warehouse, SPM and refurbishment management
Management the plan, build and
Planning Plan Traffic forecasts, coverage and capacity planning operate of a mobile
Design & Network design, guidelines and specifications, engineer operators RAN.
Engineer software specs and engineering tools However, a number of
Acquire Sites Select, acquire and share sites, obtain permissions scope combinations
Acquire &
Build are visible in the
Construct Manage the construction of sites with 3rd parties market ranging from a
limited scope of first
Provision & Install Installation and commissioning of sites
line field maintenance
Centralised Monitor, 1st and 2nd level fault management to an expansive scope
Network Mgt of RAN, CORE,
Operations
& FLFM Onsite planned and unplanned field response Service Layer and IT.
Maintenance
Performance & It is important at the
Optimisation Build and in-life optimisation of the network including drive testing
outset of the options
Plan As above but for corporate solutions and special events analysis to determine
CS & SE what scope options
Acquire & Build As above but for corporate solutions and special events best fit.
Landlord In-life management of rents, rates and utilities
Estates Management
Management General Estates General site maintenance
Mgt



Hypothetical example, in-scope services can be divided into 5 packages

Package A B C D E

Planning Plan
Full scope
Design &
Engineer Partial scope
Acquire Sites
Acquire & Optional scope
Build
Construct

Provision & Install
Centralised
Network Mgt
Operations
& FLFM
Maintenance
Performance &
Optimisation
Plan
CS & SE
Acquire & Build
Landlord
Estates Management
Management General Estates
Mgt
The larger the scope of outsourcing the greater the likely savings



Current and future cost baseline of the in-scope organisation

Cost of running the in-scope organisation In-scope cost breakdown

Maintenance Power People
2% 6% 3rd line
17%
Tools 3%
2%
Capex
$

Opex

FY08/09 FY09/10 FY10/11 FY11/12 FY12/13
Years
Property
Build 32%
39%
A significant challenge is to define and analyse the cost baseline against the likely
lifetime of a deal, typically 5 years:
• Operators typically forecast capex/opex only three years out with any degree of
certainty
• Cost breakdown aligned to in-scope packages is often difficult to achieve due to
limited granularity of service – oriented cost tracking


Competitive Basic capability No capability
Appraising the markets capability to deliver capability but limited scale evident

Assessment based on vendor meetings with structured line of questioning, including:
• Vendor capabilities and fit against packages
• Comparable experience & savings potential
• Value added service / performance KPIs
Planning Plan
• Awareness of risks in all sourcing stages, including
transition and people issues Design &
Engineer
• Current and future technology migrations
Acquire Sites
Acquire &
Build
Local market capability Construct

Provision &
Install
Strong

Centralised
Plan, Acquire & Build

Network Mgt
Operations
& FLFM
Maintenance
Performance &
Optimisation

Plan
CS & SE
Weak

Acquire & Build

Landlord
Estates Management
Management General Estates
Mgt
Weak Strong
Operations and Maintenance


The outline business case mapped against the packages
Risk Midpoint
Package Score reward NPV over 5 years
A Package A - Combined Field Force 29 17% £10,667,655.48
B Package B - Operations & Maintenance (exc. 2nd line) 31 19% £29,521,664.59
C Package C - Operations and Maintenance 18 19% £31,241,263.40
D Package D - Acquire, Build and O&M 49 10% £46,725,177.41
E Package E - Full Scope 44 10% £48,382,502.84

• The packages identified show various
trade-offs between risk and reward.
• The reward axis represents a
conservative estimate of the potential
percentage year-on-year saving on
the addressable costs.
• The risk axis shows the degree of risk
based on our analysis of the identified
risks.
• The size of each bubble represents
the relative NPV magnitude of the
potential saving.


Tips for optimising the process

Tips for optimising the solution and deliver process stages

• Release a prospectus detailing an overview of the programme scope and timeline
• Develop and output based RFP closely aligned to the contract
• Spend quality time with the bidders
• Create a data-room to help shape the deal
• Employ a rigorous evaluation approach
• Establish clear roles and responsibilities within the team
• Prepare for negotiations
• Competitive tension required until the end


The PA Portfolio of services

The PA Portfolio of services

• Define the strategy
• Support the procurement process
• Transition and transformation management
• Effective lifecycle management


Session 2

Session 2 - Winning and delivering profitable outsourcing business
• Competitive bidding utilising the “PA bid capability model”
• Maturity in service delivery as assessed against the “Services delivery maturity
model”


Competitive bidding
The PA Bid Capability Model distils the best practice from market leading
sourcing organisations

Pre-bid preparation

Bid development

Negotiations

Due diligence


Competitive bidding

The six capabilities
Bid programme management: Capability fulfilment:
The bid must be managed using best-practice The vendor must demonstrate to the customer that it
programme management methodology to ensure understands the capability required to deliver against
consistency and quality across the programme. An the current and future scope of the contract, and that
effectively run programme significantly influences the robust plans exists to address any capability gaps.
quality of the bid deliverables, the effectiveness of the
bid process, and equally projects a confident and Customer engagement:
professional approach to the prospective customer. The way that the vendor engages the customer will
significantly influence the customer’s perception of the
Proposition and collateral: vendor’s proposal. It will also determine the opportunity
The vendor must develop compelling value propositions that the vendor has to understand the customer’s
which are clearly presented in high quality, well requirements and to explain its own value proposition.
structured and consistent bid collateral. Value
Partnering effectiveness:
propositions are built on insights leveraged from the
organisation’s knowledge base, and supported by track The way in which the vendor and customer work
record that demonstrates delivery capability. Market together before and during the contract will determine
analysis to understand the competitive landscape whether the full potential value of the partnership is
supports the development of the collateral. realised. A collaborative, strategic and cooperative
approach to the relationship is likely to realise far
Commercial model: greater benefit for both organisations than a
A robust commercial model is a key driver of the overall confrontational and transactional approach.
bid programme, and will often shape other areas, such
as; the proposed solution, the project duration, the profit
profile, the internal business case, the requirements, the
risk assessment and the negotiation strategy

Competitive bidding
Performance can be assessed against the model and ranked according to a
benchmark scale

Rank Description
Non-existent Nothing exists – no capability evident

Substandard Understands issues and has started to put practices
in place to start addressing them. Opportunity for
significant improvement

Basic Understands issues and has control over them.
Approach is standard and would not stand out from
the crowd in a competitive situation. Room for
improvement
Competitive Edging ahead of the field in specific areas. In a
healthy position to compete with mature competitors.

Benchmark Confident & leading the field in this area. Maximised
potential, continually innovating, and always seeking
to make measured improvement to approach.


Competitive bidding
Furthermore, assessing the vendor’s performance against the competition and
industry benchmarks can be enlightening

Vendor under
review

Lowest competitor

Highest competitor

Pre-bid preparation

Bid development
Negotiations

Due diligence


Competitive bidding
The bid programme is managed using best practice programme management
methods

A professionally run programme significantly
influences the performance of the bid deliverables,
the effectiveness of the bid process, and projects a
confident and professional approach to the
prospective customer.
The bid organisation is designed to provide the
right capability to create a high quality bid. Often a
matrix structure of ‘vertical’ functional work
streams, joined up by ‘horizontal’ skills teams.
The programme is resourced with the relevant
experienced & skilled personnel with strong
leadership, and includes both corporate and
regional resource.
Best practice programme management processes
are implemented to drive the delivery and quality of
the bid programme outputs.
IT systems are utilised to capture, store and
disseminate information, supporting effective and
timely decision making.

Competitive bidding
Value propositions are supported by insight driven collateral which articulates a
compelling argument for selecting the vendor

The value propositions are built on insights
leveraged from the organisation’s knowledge base,
are evidence-based, and demonstrate innovative
thinking. They articulate how the vendor will help
the customer differentiate in the market place, and
deliver real and sustainable competitive advantage.
The bid collateral conveys a compelling argument
for selecting the vendor and instils confidence
within the customer’s bid evaluators that the
capability exists to ensure contract delivery. The
quality, clarity and consistency of the bid collateral
is instrumental in determining the success of the
service provider in the bid process.
Benchmark vendors maximise and exploit their
knowledge & intellectual capital, through
leveraging track record and integrating
contextualised organisation insight throughout the
bid collateral to demonstrate their capability to
deliver. Market analysis is critical in providing input
to value proposition and collateral development.

Competitive bidding
A robust commercial model underpins a successful bid programme and
sustainable business case

The internal business case for the contract is
robust and sustainable. A set of business case
criteria and metrics are defined and rigorously
evaluated by senior stakeholders throughout the
bid programme. The business case is continually
assessed throughout the life-term of the contract.
The cost model is comprehensive, dynamic,
inclusive of all cost/volume drivers and capable of
flexing according to all variations in project scope.
The pricing model takes the cost model outputs
and introduces additional details, such as Profit
Margins, Risk Adjustments and Payment Profile.
The vendor has a clear and aligned negotiation
strategy and approach, supported throughout the
organisation. The vendor defines negotiating points
including requisite trade space and negotiating
tolerance.


Competitive bidding
The vendor demonstrates the capability required to deliver against the current
and future scope of the contract

The vendor demonstrates a clear awareness of its
own capability, and an understanding of any gaps
to fill to deliver the scope of the contract.
Through an in-depth Capability Analysis the
vendor identifies the full scope of contract
requirements and the capability required to deliver
these requirements.
The vendor develops and implements robust
Capability Actualisation plans to deliver the
services according to the scope of the contract
(Transition and Transformation). Throughout this
process the vendor identifies risks and quantifies
these in the commercial model.


Competitive bidding
The way the vendor engages the customer significantly influence the perception
of the vendor’s ability to deliver

The vendor develops a customer management
strategy that includes a full analysis of the relevant
key stakeholders in the customer organisation,
existing relationships with all customer
stakeholders, and a plan to leverage these
relationships. The vendor leverages its
relationships with customer stakeholders to
understand the customer organisation (e.g.
structure, culture, strategy, bid evaluation criteria),
and thus develop bid collateral that is more
specifically tailored to meet the customer
requirements.
The vendor is aware of both its own strategy and
culture and how this fits with that of the customer
organisation. Alignment between the vendor and
customer underpins the development of a positive
and trusting relationship.
The vendor selects its bid team to best align with
the customer programme.


Competitive bidding
The way the Vendor and Customer work together determines whether the full
potential value of the partnership is realised

The vendor demonstrates its commitment to
delivering a high level of service through a well
structured, stretching but realistic performance
mechanism. Benchmark performance models
encompass both leading and lagging indicators,
align to the customer’s values and priorities, and
cover the full scope of the contract.
The vendor develops a contract governance
approach that is aligned to the values of the
partnership to support the relationship throughout
the full lifecycle of the contract. The governance
model is tuned to enable rapid escalation of issues
and management of change.
The most effective partnerships are those where
effort is exerted to align the engagement styles of
the customer and the vendor, and to the
requirements of the contract, through an
appropriate partnering model.


Services Delivery Maturity Model

The PA Service Delivery Maturity Model distils the best practice from market
leading Managed Service organisations

The Service Delivery Maturity Model defines 4
overarching capabilities that group together a
set of characteristics all representing the key
elements of a successful benchmark MS
delivery organisation.
PA has worked with clients across a number
of industry sectors helping them to move from
a product to a service centric operation.
We understand the factors that make these
organisations successful, for example, the
approach to managing their organisation’s
talent; the mechanisms for tracking cost base
& profitability; their organisation structure; and
their ability to forecast demand.
© PA Knowledge Limited 2009 Andrew.scott@paconsulting.com +447738648542 Page 34 This model can be used to assess the
maturity of the MS service provider, highlight

Services Delivery Maturity Model

The four capabilities
High Performance Organisation Implementation
The basic foundation for any organisation is how it is The capability for the service provider to successfully
structured, the processes which it employs to manage deliver projects, whether that be internal transformation
its operations, and the approach to nurturing talent and or customer initiated implementation impacts
culture. Often greater focus is given to the delivery profitability. A significant number of projects fail to
processes of the organisation and insufficient effort in deliver their expected outcome which has a major cost
getting the basics right. Compromises made in this area implication. Sharing of knowledge across operations is
are proven to disable the organisation to operationally often desired but never realised.
deliver.
Partnering effectiveness
Delivery Operations
The way in which the MS services provider and
Streamlined business processes, minimal number of customer work together before and during the contract
handoffs, standardisation/best practice across delivery will determine whether the full potential value of the
operations and automation are but a few examples of partnership is realised. A collaborative, strategic and
areas where cost reduction and innovation can be cooperative approach to the relationship is likely to
achieved. realise far greater benefit for both organisations than a
confrontational and transactional approach.
Shared services and sourcing strategies are imperative
to attain economies of scale and scope. The strategy Broadening the scope of services delivered beyond the
and implementation approach for off-shoring, build up of contract through cross and up-selling are a must.
centre's of excellence and local contract presence are Demand management and forecasting has a direct
all important factors. influence on cost base utilisation. Managing the supplier
base is key to deliver best value: both strategic and
Underpinning these elements are IT systems and tools
operational supplier management is necessary.
which satisfy both client and service provider
requirements.

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