1. Offshore Outsourcing DePaul University October 18, 2004 Richard Howe

2. Topics 60 seconds about SAIC Why outsource to offshore Considerations How to make it work What did you say SAIC Why Consider How Recap

3. SAIC Overview Technology/Capabilities That Contribute to Our Competitive Advantage SAIC Why Consider How Recap

4. Government Business Areas Health Care 4.9% Energy 1.4% Other 14.7% Environment 6.6% National Security 67.1% Core Competencies Information technology systems Professional services Engineering services Telecommunications systems Core Competencies Information technology systems Professional services Engineering services Telecommunications systems Telecommunications 2.4% IT Outsourcing 2.9% SAIC Why Consider How Recap

5. Core Competencies Telecommunications systems Information technology systems and outsourcing Core Competencies Telecommunications systems Information technology systems and outsourcing Commercial Business Areas IT Outsourcing 21.3% Environment 1.6% Health Care 2.4% Other 10.9% Telecommunications 58.9% Energy 4.9% SAIC Why Consider How Recap

6. Sustainable Competitive Advantage Leading to 35 Years of Growth SAIC Why Consider How Recap

7. Why outsource?

8. Internal u Work force constraints u User dissatisfaction u Inefficient operations u Escalating budgets u Attrition u Redirect internal staff u Mission critical services u Complex services External u Tight labor market u Global competition u Rapid change in technology u Technology complexity u Cost pressures u Integration needs u Business process change u Partners are competitors Today, irrelevancy may carry larger risks than inefficiency Business Drivers SAIC Why Consider How Recap

9. Why Outsource? Create flexibility Focus on core business Improve quality Realize cost reductions Through 70’s 70’s - 80’s 90’s Joint Ventures Alliances Outsourced Operating Partners Core value SAIC Why Consider How Recap

10. Why outsource to offshore? Some Macro Drivers: Large highly educated labor force Wage Arbitrage Relative political stability: post-cold war period permits capital & labor mobility Some Business Drivers: Depressed global demand (Overcapacity) – Need to Cut Costs Maturation of offshore service delivery platforms – Initial driver was unmet labor demands Emergence of Information Technology Enabled Services – Back Office and Call Center Standardization of IT software platforms Source: Information Policy Institute January 14, 2004 SAIC Why Consider How Recap

11. Considerations

12. Offshore adds a third dimension to outsourcing Control –Cost structure –Economies of scale –Financial engineering –Service requirements –Process expertise/ capabilities Location –Vendor capabilities and availability –Labor pool projections/economics/skills –Deal types/relationship structure (e.g., subsidiary; JV; consortium) –Location/geographic considerations –Risk management Information Technology Business Process Offshore On-shore Outsource Insource Call Center Service Categories Source: Society for Information Management, SIMposium 2004 SAIC Why Consider How Recap

13. Considerations Culture Coordination Cost Complexity Constancy/Stability Core/Strategic process Confidentiality SAIC Why Consider How Recap

14. Onshore v. Offshore Delivery comparisons High Low Medium LowHigh Offshore Legacy maintenance & Project selection done through diagnostics study Complexity High Low Medium Constancy/Stability (e.g. Requirements) Offshore Legacy maintenance & Project selection done through diagnostics study Legacy maintenance & enhancements Application Support Core/Strategic Application Development Non-core Application Development Project selection done through diagnostics study Proportion Offshore Low High SAIC Why Consider How Recap

15. Facts about India Government: Democratic & Secular. Religion: Hindu, Muslim, Christian, Sikh, Jain, Buddhist, Parsies etc., Calendar: Christian Calendar for Business; Indian for Ceremonies/Festivals Food and costumes: Distinct regional food & costumes. Besides regional song and dances. Predominantly Vegetarian. Language: –National Language: HINDI (30%) –25 different regional languages and numerous dialects –Governments do business in English. SAIC Why Consider How Recap

16. Behaviors Shy, soft spoken, reserved & low voice Polite, humble & respect for elders Superior makes decisions; subordinate carries them out Mutual dependence and interdependence - family bonds Waving of palm and hands Nodding of head/shaking head for ‘yes’ or ‘no’ Hesitate to disagree and contradict others Hesitant to shake hands especially with opposite gender Eye contact with female colleagues is low Public display of emotions/affections is discouraged SAIC Why Consider How Recap

17. Schedule = S(k)edule Route (Root) = Route (Raut) Half = Half Fast = Fast Z (Zed) = Z (Zee) Zero = ‘O’ Organisation = Organization Colour = Color One Lakh = Hundred Thousand One Crore = Ten Million Differences Yes = I heard you (not I agree) Asian Indian vs. American English Hello = Hi Phone is engaged = Busy Disconnect a Phone = Hang- up Petrol Pump = Gas Station Lift = Elevator Bill = Check Note = Bill Too = Very/Lot Repair = Fix Fix = Assemble SAIC Why Consider How Recap

18. How to make it work

19. Short-term Transition Project Define the “win” for employees and the firm Communicate, recognizing culture differences “Tain't what a man don't know that hurts him, tis what a man knows that just ain't so.” Kim Hubbard Process must be more rigorous than you’ve ever used and address time zone differences Infrastructure –Duplicate of test/QA environment –Robust communication network Knowledge transfer – use phased approach and test to assure success Risk management Establish service level agreement at start (e.g. bug fixes, problem resolve time, “lights on” tasks, etc.) Allow for 6 week gap in travel (acquire visa’s, etc.) Clarify when support/development occurs during business day Clarify who pays for equipment/infrastructure at start Begin reporting progress against plan from week 1 SAIC Why Consider How Recap Objective: Enable daily (or hourly) handoff and return of tasks

20. Offshore mix progression SAIC Why Consider How Recap

21. Division of responsibilities SAIC Why Consider How Recap

22. Process Detail SAIC Why Consider How Recap

23. Risk Assessment Methodology Low (minimal risk) (critical risk) MediumHigh Medium Low Manageability Risk Magnitude (Probability x Impact) R3 R8 R5 R4 R2 R7 R6 R1 Outside InfluenceWithin InfluenceWithin Control SAIC Why Consider How Recap

24. Governance Oversight –Steering Board – Annual –Management Committee – Quarterly –Operations Group – Monthly Pricing –Real competition with internal and external suppliers Agreed Service Level Descriptions Measurement –Key performance indicators (monthly/quarterly) –Benchmarking SAIC Why Consider How Recap

25. What did you say?

26. Results Outsourcing Can Create Assure performance with actions rather than promises. Business can adapt, with a focus on growth, competitive response, new opportunities, etc. IT becomes focused on its own business (clarity in customers and competitors) and therefore, growth, competitive response, new opportunities, etc. Manage to performance goals and mitigate risks (likely impacts to performance) Focus around survival of a business (not a function) Flexibility to respond to business needs in any direction Assure access to best quality (service meets requirements) for price Variablize costs – pay according to use versus maximizing consumption of resources SAIC Why Consider How Recap