© 2008 IBM Corporation Challenges for Infrastructure Outsourcing July 29, 2011 Atul Gupta Vice President, Strategic Outsourcing, IBM

© 2008 IBM Corporation 2 Agenda  Outsourcing Continuum and growth of Infrastructure Outsourcing  Challenges and Pragamatic approach for Infrastructure Outsourcing

© 2008 IBM Corporation 3 Evolution of Infrastructure Outsourcing in India Services Maturity Time Full Scope Infrastructure Management Capacity Based / Shared Services Business Outcome Based Evolving Cloud Offerings Manpower Augmentation On-Site Services No Assets Managed Services Asset Ownership DC Outsourcing 1990s onwards

© 2008 IBM Corporation 4 Outsourcing Business Models Increasing Value Benefits Realization Staff Augmentation  Task/RFP Based  Most Client Risk  Statements of Work  Volume Purchase Agreements Out-Tasking  Project integration  Less Client Risk  Standard TsandCs  Multi-year, bottom- line contract  Forward Pricing  Outcome Based Co-Sourcing  Initiative Integration  More Supplier Risk  Knowledge Transfer  Managed Skills  On-Demand  Service Level Agreements (SLAs)  PMO/Governance  End-to-end Mgmt  Some transfer of Management responsibility to Supplier Outsourcing  Strategy Integration  Most Supplier Risk  Outcome based  Custom TsandCs  SLA/Shared Risk- Reward  PMO/Governance  Skills and Capacity On Demand  Leverage IBM infrastructure investments  Leverage best practices  Access to expertise, skills and innovations Portfolio Outsourcing  Most Supplier Risk  Outcome based  SLA based  Productivity enhancement / Application portfolio optimization  Access to expertise, skills and innovation  Shared investment in dedicated resources  Option for FTEs to transfer to Supplier Vendor Alliance Collaborative PartnershipPartnership “What Do I Want?” “How Do I Do It?” Increasing Partner Risk Decreasing Client Risk

© 2008 IBM Corporation 5 However, Outsourcing IT infrastructure comes with its own challenges  Why Outsource  What is to be Outsourced  Who is the Partner of Choice  What is the relationship structure  How to ensure that it creates ongoing value

© 2008 IBM Corporation 6 HOW to outsource starts with WHY? OUTSOURCING IS: - a business strategy - a business relationship OUTSOURCING IS NOT: - a transaction - a quick fix

© 2008 IBM Corporation 7 Infrastructure/ Technology  Create operational resilience and address future challenges (space, locations, etc.)  Address IT currency – “state-of-the-art“ technology, process, innovation Strategic Partnering Growth Enablement / Go to Market Flexibility and Transparency Human Resources Cost Effects Risk Management  Focus on core competencies  Align IT operations with business requirements  Shift fixed capacity to more variable IT services  Adapt quickly to organizational changes (e.g. mergers, acquisitions, sales, etc.)  Assure timeliness availability of critical skills  Reduce headcount / increase flexibility of workforce / improve motivation  Decrease cost levels and ensure continuous cost improvement  Conversion of fixed IT costs into variable costs “Classical” Drivers/Goals of Outsourcing  Stability of the IT operation (even when facing future transformation)  Conformance to all legal and regulatory requirements  Improve reaction times (Time-to-Market)  Leverage technological innovation for competitive advantage Why Outsource?

© 2008 IBM Corporation 8 Soft Factors – Can You Outsource?  Executive sponsorship  Competing business priorities  Ability to absorb and manage change  Availability of resources to support the process  Corporate Culture  Politics (internal/external) What “should be done” versus what “could be done” depends on your company’s strategy and situation

© 2008 IBM Corporation 9 What is to be Outsourced  Evaluate In-house Competencies  What needs to be retained  Legal and Data Privacy requirements  Existing In-house problems and issues  Will it make a strong Business Case

© 2008 IBM Corporation 10 Selecting the Right Partner  Hygiene Issues – Capabilities, Credentials, ability to deliver, Industry Experience  Cultural Match – Shared Values  Financial Stability  Access/ Impact on Emerging Technologies  Flexibility  Share Information transparently – will lead to solution creativity  Use external help (Consultants) if lack of prior in-house experience in Outsourcing

© 2008 IBM Corporation 11 Relationship Structure and Governance  Whats the right Relationship Structure including Financial Structure  Appropriate Risk Reward  Contractual Flexibility to handle business volume changes  How not to get into trap of getting same services cheaper  How will value be created on an ongoing basis  Risk Transference – specially during initial phase  Ongoing Governance Mechanisms

© 2008 IBM Corporation 12 Meeting the Financial Challenge Time Internal Solution Outsourced Solution As-Is Path Growth Oragnisation “Spending Bubble” Internal Solution Outsourced Solution As-Is Path Mature Organisation “Spending Bubble” Technology Skills Infrastructure Technology Skills Infrastructure Costs

© 2008 IBM Corporation 13 Overcoming Outsourcing Challenges DON'T:  Delegate the outsourcing decision  Make it an IT decision  Fail to share outsourcing decision criteria  Limit vendor access to technical and financial data  Expect unrealistic savings  Lengthen the decision process – time kills  Fail to communicate regularly with affected employees

© 2008 IBM Corporation 14 Success Factors – “The Do’s”  Clear Goals and Objectives of Outsourcing  Organisational agreement on Expectation from Outsourcing  An Owner for the Initiative  Clear definition of scope, decision process and schedule  who, what, when, how  Jointly developed and accepted "Base Case" (baselines and budget forecast over a 5/7/10-years)  A clear Business Case  why Partnership between Client and Provider >>>

© 2008 IBM Corporation 15 MAKING THE RIGHT CHOICE MAKING THE RIGHT CHOICE Solution (What & How Good) Value (Price, Structure & Schedule) Partner (Capabilities & Relationship Fit) Balanced Decision

Thank You! Atul Gupta Vice President – Strategic Outsourcing IBM India Ltd