Outsourcing Value Proposition in Malaysia PIKOM PLC Course

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Agenda

What is Outsourcing?
Outsourcing Value
Propositions
Key Success Factors
Key Components of
Outsourcing
Outsourcing Challenges

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What is Outsourcing?
Outsourcing is any task, operation,
job, process that could be performed
by employees within an
organization , but is instead
contracted to athird party for
asignificant period
Outsourcing refers to contracting
work out to an external organization
Outsourcing includes both foreign
(sometimes called offshoring ) and
domestic contracting

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ITO, BPO, KPO: Whats the Difference?

Business process
BPO
outsourcing (BPO) is the
outsourcing of a specific
ITO
KPO
business process task, e.g. IT,
finance and help desk
Information technology
outsourcing (ITO), therefore, is
Knowledge Process Outsourcing or KPO
a subset of BPO
involves processes that demand advanced
research and analytical, technical and decisionmaking skills e.g. pharmaceutical research and
development, data mining, and patent research

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Outsourcing Example Simplest Example

Previously you do your own house

chores
But now
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Outsourcing Example - Nike

Nike manufactures literally nothing
Nike never outsourced its strategic thinking
Almost all Nike products are manufactured by
independent contractors located offshore,
mostly in Asia

Outsourcing Value Proposition in Malaysia PIKOM PLC Course

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Outsourcing Example - Apple

Apple outsourced
its supply chain
globally
Apple outsourced
its product
assembly to
Foxconn, China
In 2011, Apple
sold 93 million
iPhones and 40
million iPads
The only reason
Apple didnt sell
more is because
Outsourcing Value Proposition in Malaysia PIKOM PLC Course
they cant make

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Outsourcing Example - Apple

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Outsourcing Example Boeing 787

Outsourcing Value Proposition in Malaysia PIKOM PLC Course

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Outsourcing Example Asian Finance

Bank

Data center and DR

services
Infrastructure &
network management
Desktop management
Outsourcing Value Proposition in Malaysia PIKOM PLC Course

ATM Host &

Operations
ATM
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The Major Categories of Outsourcing

IT is the largest
area of
outsourcing
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Why Outsource?

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Outsourcing Growth is Expected to Continue

Outsourcing Value Proposition in Malaysia PIKOM PLC Course

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What to Outsource?
PricewaterhouseCoopers Model
Strategic

Competitive

Non-Competitive

Non-Strategic

Not
Outsourced

Grey
Area

In House
if Possible

Outsourcing Value Proposition in Malaysia PIKOM PLC Course

Outsource

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Outsourcing is NOT Easy

Outsourcing failure rate is high, between 40
to 70%
The heart of the problem is the inherent
conflict of interest in any outsourcing
arrangement.
o
o

Client is seeking to get better service at lower

costs
The vendor, however, wants to make a profit.

Another cause of outsourcing failure is the

rush to outsource in the absence of a good
business case.
Never

outsource
Outsourcing is pursued by organizations
as a
your mess!
"quick fix" cost-cutting maneuver
o Rather than an investment designed to
enhance capabilities, expand globally, increase
agility and profitability, or bolster competitive
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Outsourcing Value Proposition in Malaysia PIKOM PLC Course
advantage.
o

Key Component #1 - Outsourcing Governance

Outsourcing is the most complex of contracts,
says Kevin Parikh, Gartner. In many ways,
outsourcing looks like an M&A deal. But in fact
its more complicated than an M&A, because you
have to create a retained organization and
manage the outsourcer to ensure specific
IT outsourcing governance represents the
service levels.

management, policies, and procedures necessary

to ensure that the IT outsourcing support the
organizations objectives, minimize risks and
ensuring a successful outsourcing relationship
Gartner Research shows that without a strong
governance structure, an outsourcing
arrangement will most likely fail within 18
months
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A Typical Outsourcing Governance

Client Board

Business Direction

Strategic

Client EXCO

IT Strategy Board

IT Vision
Quarterly

Tactical

IT Outsourcing
Steering Committee
Efficiency
& effectiveness
of
outsourcing
Translate business plans to IT
Strategies
Investment/funding requirements
Final Escalation point for resolving
issues

IT Strategy

Monthly

Weekly/
Fortnightly

Translate IT Strategy to IT Tactical Plan

Outsourcing Performance Review
Prioritization
Conflict resolution

Business - IT Committee
Translate Business Strategy to IT
Strategy
IT Performance Review
Demand Management
Conflict resolution

IT Initiatives

Operational

IT Outsourcing Management Committee

Commercial Team

Service Management
Review Team

Outsourcing Value Proposition in Malaysia PIKOM PLC Course

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PMO Team

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BU Service Cluster
Team

Key Component #2 - SLA

A service level agreement (SLA) is a
contract between an IT services provider
and a customer that specifies, in
measurable terms, what services
performance expectations.
Service levels are determined at the
beginning of any outsourcing relationship
and are used to measure and monitor a
supplier's performance.
Often, a customer can charge an
outsourcing vendor a penalty fee if
certain SLAs are not met. Used
judiciously, that's an effective way to

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Be Very Specific on Calculation

Each measurement to be specific to avoid ambiguities and

disputes
SLA example:
No
Service
1a Time to Resolve Severity 1 Problems - within 4 hours

Threshold
80%

SLA description and calculation:

Problem Management
Service Level
Severity 1 Problem Recovery
Description
Required Service Levels Time to Recover Severity 1 problems
Threshold
80% <= 4 hours or No more than one (1) Severity
1 problem not recovered within 4 hours
Calculation
Total Number of Severity 1 problems recovered
within 4 hours divided by total number of Severity 1
problems recovered during the month * 100
Measurement Interval
Measurement Sources

To be calculated and reported monthly.

Problem Management System

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Monthly Performance Reports

Weekly and monthly performance report should be
produced on time and discussed in the respective
meetings
Performances not meeting the desired levels must be
explained of
and
permanent
corrective
actions (PCA)
Examples
monthly
performance
reports:
must be established
Downtime - Non-IT Problem

ATM Availability
Total monthly ATM Availability

Downtime - IT Problem
AT M Availability
98.00%

Met
Not Met

Call Answer Average Speed

Average Helpdesk Speed to Answ er ( seconds )

seconds 60>

60
100%
50
40
30

95%

20
10
0

90%
N'06 D'06 J'07

F'07 M'07 A'07 M'07 J'07

J'07 A'07 S'07 O'07

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11

12

Outsourcing in Malaysia
Malaysian outsourcing industry is predicted to
be worth $1.9 billion by 2013.
According to an IDC report, the key growth
areas for Malaysian entities remain Business
Process Outsourcing (BPO), Systems Integration
(SI) and IT Consulting.
Government, Financial Service Industry (FSI)
and manufacturing verticals remain the largest
services opportunity verticals for the country.
In both its 2014 Global Services Location
Indexes, consulting firm A.T. Kearney named
Malaysia third location for shared services and
outsourcing behind only India and China and
just ahead of Indonesia, Thailand and
Philippines.

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Outsourcing Challenges
Even though Malaysia is ranked 3rd in 2014 A.T.
Kenny Global Services Location Indexes, Malaysia
is ranked 18th in People Skills and Availability
Long term outsourcing location attractiveness
depends on the ability to produce highly skilled
and knowledge workforce

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Outsourcing Challenges
There are only a handful legal practitioners
that are capable of drafting quality
outsourcing contracts
Outsourcing contracts are different than supply
contracts

Proper outsourcing governance is required

to ensure outsourcing success.
Managing a supplier is different than managing
an outsourcing company
Outsourcing contracts term are longer,
normally between 5 to 10 years

Malaysia lacks in producing skilled IT

resources
Revamp IT curriculum in universities?

Outsourcing Value Proposition in Malaysia PIKOM PLC Course

01 Oct 2015

Whats Next to be Outsourced?

Outsourcing Value Proposition in Malaysia PIKOM PLC Course

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Thank You
Abdul Aziz Mohd Nor
Email: abdaziz.mohdnor@asianfinancebank.com
Mobile: 012 2860669

Outsourcing Value Proposition in Malaysia PIKOM PLC Course

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