Why Outsource DePaul University February 19, 2007 Richard Howe Vice President

Why outsource?  Chinese Proverb: –If you don’t know where you are going, any road will do  Humphrey (originator of SEI/CMM): –If you don’t know where you are, a map won’t help

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 Irrelevancy may carry larger risks than inefficiency Business Drivers

Company Confidential Contract Management Retained Strategy Setting Retained Outsourcer Service Integration RetainedOutsourcer Project Management Outsourcer Operations Delivery Outsourcer Model AModel BModel C How far should we go?

What’s in outsourcing? For the Firm: Improve quality: –Create focus on service delivery from a company and people whose business is delivering the service –Greater experience/knowledge from professionals in a company offering careers in a specific discipline Cost reductions where applicable: –Industry average of 20%/year improvements –Greater incentives to use market solutions and commodity service rather than custom –Access to larger scale economies For employees: Pure player career advantage Training and career opportunity Access to latest technology Opportunity! For executives: Predictive cost model Real pricing competition Excite lines of business on IT responsiveness Positive impact on people/community SLA’s

Offshore adds a third dimension to outsourcing Location –Vendor capabilities and availability –Labor pool projections/economics/skills –Deal types/relationship structure (e.g., subsidiary; JV; consortium) –Location/geographic considerations –Risk management Offshore On-shore Control –Cost structure –Economies of scale –Financial engineering –Service requirements –Process expertise/ capabilities Outsource Insource Comprehensive assessments include –A qualitative assessment of benefits and risks associated with each option –An economic value- based analysis of relative opportunity sizing Information Technology Business Process Call Center Service Categories Source: Society for Information Management, SIMposium 2004

Onshore v. Offshore Delivery comparisons High Low Medium High Low Offshore Legacy maintenance & enhancements Mix of onshore/offshore application development Core application development Application support Management complexity High Low Medium Interaction requirements Low Offshore Legacy maintenance & enhancements Mix of onshore/offshore application development Core application development Application support Legacy maintenance & enhancements Application Support Core/Strategic Application Development Non-core Application Development Project selection done through diagnostics study Project selection done through diagnostics study Project selection done through diagnostics study Proportion Offshore Low High