Information Technology Outsourcing (ITO) Benchmarking Report: October 2008 Methodology Overview

Transcription

1 Information Technology Outsourcing (ITO) Benchmarking Report: October 2008 Methodology Overview Topic: Everest Approach to Infrastructure Price Benchmarking

2 Agenda The goal of price benchmarking IT Infrastructure price benchmarking approach Everest credentials 2

3 Our understanding of the goal of price benchmarking Everest believes that the primary goal of any price benchmarking exercise is to align the company s pricing strategy with global market standards We define benchmarking as a pricing intelligence tools that can help the supplier Diagnose whether the pricing offered by the supplier in the recently won deals leaves any money on the table Diagnose whether the pricing offered by the supplier in the recently lost deals was the reason for the loss Identify acceptable pricing ranges for hypothetical client situations, that reflect likely future supplier s deals 3

4 Context of the benchmarking analysis What What price price benchmarking benchmarking can can do do Provide Provide you you with with comparative comparative pricing pricing data data by by skill skill or or resource resource unit unit to to help help you you evaluate evaluate your your pricing pricing strategy strategy Provide Provide adequate adequate understanding understanding of of the the drivers drivers of of pricing pricing in in the the deal deal environment environment (for (for e.g., e.g., asset asset ownership, ownership, complexity complexity of of environment, environment, scale, scale, etc.), etc.), to to help help you you normalize normalize pricing pricing for for your your pursuit/ pursuit/ client client situation situation What What price price benchmarking benchmarking cannot cannot do do Provide Provide you you the the exact exact pricing pricing comparables comparables While While Everest Everest has has a comprehensive comprehensive database database of of IO IO deals deals,, there there are are many many drivers drivers of of price price in in IO IO Exact Exact matching matching of of all all drivers drivers between between your your pursuit/client pursuit/client situation situation and and Everest Everest comparable comparable is is rare rare Provide Provide universal universal worksheet worksheet that that estimates estimates the the right right price price for for every every pursuit/client pursuit/client situation situation 4

5 Agenda The goal of price benchmarking IT infrastructure price benchmarking approach Introduction in IT infrastructure pricing Input-based pricing benchmarking Output-based pricing benchmarking Everest IT Infrastructure benchmarking deliverables Everest credentials 5

6 Infrastructure outsourcing deals exhibits primarily two pricing models (or their combination) Payment to supplier is based on the consumption of the outsourced service by the buyer through units of output (e.g., price per server, per TByte of storage used) Buyer pricing model preferences in infrastructure ACV in US$ million 100% = Output-based % 2,005 1% Payment to supplier is based on the supplier s effort in delivering the outsourced service measured in the units of input (e.g., labor hours) Input-based 37% 99% Hybrid 26% RIMO Traditional IO Source: Everest Research Institute (ITO RFI 2007) 6

7 Agenda The goal of price benchmarking IT infrastructure price benchmarking approach Introduction in IT infrastructure pricing Output-based pricing benchmarking Input-based pricing benchmarking Everest IT Infrastructure benchmarking deliverables Everest credentials 7

8 There are multiple drivers of IT output-based price in Infrastructure NON-EXHAUSTIVE Supplier type Geographic scope Client industry Predictability of demand and risk sharing Technology drivers Deal scope and volume Duration of the deal Asset ownership and refresh period COLA Transition/transformation cost Pricing structure Service levels desired Use of offshoring Competitive intensity Complexity of the IT environment Technical configuration Level of best practice use 1 Client-level price drivers are primary factors in the price benchmarking; additional price drivers could be included upon specific client request 8

9 In our analysis we focused on four primary drivers and normalized several others Price driver Possible values for low and high pricing Coverage under the analysis Service levels Bronze, Silver, Gold, Platinum Included as a driver where applicable Asset ownership Device type Support location Fee structure Common services COLA Term of deal Client owned Supplier owned Desktop vs. laptop Small vs. large server Standalone vs. network attached Wintel vs. UNIX/other platform Campus Remote site Overall base fee Tower-level base fee Variable fee Common services considered Disaster recovery, change management, incident management not considered Absorbed (by supplier) Passed-through (to buyer) Incorporated in RU price Term of the deal can vary significantly with majority of the deals between 3-7 years Included as a driver where applicable Included as a driver where applicable Included as a driver where applicable Normalized: converted into the variable RU pricing where applicable Normalized: All deals include common services Normalized into the variable RU pricing Normalized: the deals have predominantly 5-7 term 9

10 Benchmarking is conducted based on resource unit level for each technology Service area / Towers Typical pricing units Desktop Per end-user device e.g., desktops, laptops, PDAs, printer Per end-user Networks Per network port (e.g., voice, data; type of network WAN, LAN) Per device (Switch, Router) Mainframes Per MIP (capacity) Per CPU min (utilization) Mid-range servers Per server (by size small, medium, large; by types Unix, Wintel) Storage Per GB (by type of storage DASD, SAN) Per tape count (each) Helpdesk Per call Per device supported Per FTE/seat 10

11 Benchmarking report consists of resource unit price ranges, analysis of key drivers and assessment of the overall client pricing approach EXAMPLES Section 1: Price benchmarking for each resource unit Tower RU Quartile 1 Quartile 2 Quartile 3 Desktop Desktop Laptop Printer Mid-range Wintel large Wintel medium Wintel small UNIX large UNIX medium UNIX small Section 2: Analysis of the key price drivers US$ Pricing per laptop Supplier owned, Remote Site Bronze Silver Gold Platinum High pricing Median pricing Low pricing 11

12 Agenda The goal of price benchmarking IT infrastructure price benchmarking approach Introduction in IT infrastructure pricing Output-based pricing benchmarking Input-based pricing benchmarking Everest IT Infrastructure benchmarking deliverables Everest credentials 12

13 While most input-based benchmarking is based on rate-cards, Everest added client deal data to provide more robust and insightful product Source Approach Plausibility Rate cards Client deals Rate cards-based benchmarking provides quick and actionable guidance on the range of industry prices Nonetheless, this type of benchmarking does not reflect competitive dynamics Client deals-based benchmarking helps evaluate effect of competitive intensity and effect on the prices This benchmarking is ineffective without detailed analysis of the underlying drivers of the price range, which can be very complex Rate cards-based benchmarking is a fairly straightforward exercise IO industry pricing is predominantly output- or hybridbased, which makes it difficult to find significant number of deals to allow comprehensive sample Everest offers a hybrid approach to benchmarking which combines simplicity of rate card benchmarking with insightfulness of the client-based approach 13

14 We use price allocation algorithm to normalize deal pricing and estimate individual resource skill charges Typical deal arrangement Buyer team Suppliers team Project manager Team leads Architects Engineers Pricing after normalization Buyer team Total price? Suppliers team prices Key assumptions Supplier delivery team will closely resemble the substituted buyer s team Resource prices for every skill on the supplier s delivery team is proportional to the rate card We will also incorporate productivity gains where necessary Project manager Team leads Architects Engineers Rate cardbased index of skill prices Project manager 1 Team leads 2 Architects 3 Engineers 4 14

15 Benchmarking is conducted for 16 resource skills on 4 dimensions No. Resource skills 1. Help desk agent 2. System administrator 3. System analyst 4. Senior system analyst 5. Database administrator 6. Senior database administrator 7. Manager 8. Engineer 9. Business analyst 10. Specialist 11. Senior specialist 12. Project manager 13. Senior project manager 14. Team lead 15. Technical consultant 16. Architect Delivery methods Offshore Onshore Offshore resources onsite Onshore resources onsite 15

16 Benchmarking report provides pricing per resource skill, analysis of price drivers and assessment of client pricing approach EXAMPLES Section 1: Price benchmarking for each resource skill 1 Database administrator 2008 hourly rates Senior Systems Analyst 2008 hourly rates Delivery Client 2008 Client Method Standard Percentile Offshore $24.64 < Minimum Offshore Delivery Client 2008 Client Method Standard Percentile Offshore Onsite Offshore Onshore $17.79 < Minimum Onsite Offshore $24.64 < Minimum Offshore Onshore Onsite Offshore Onsite Offshore Onshore $ % 0.00 Onshore $17.79 < Minimum Price (US$) Onsite 0% 25% 50% 75% Onshore Onsite 100% Onshore $ % Percentile Onshore Onsite $ % % 25% 50% 75% 100% Onshore % of $ % Delivery Percentile First Onsite Third Onshore Method Average Minimum Quartile Median Quartile Maximum Rate Offshore % of % Delivery Offshore First Third Onshore Method Average Onsite Minimum Quartile Median Quartile Maximum Rate 81% Onshore % 100% Offshore Offshore Onsite Onshore Onsite % 96% Onshore % 20 Onshore Proprietary & Confidential Everest Global, Inc % Onsite Price (US$) Section 2: Analysis of the key price drivers Driver Low Rate Factors High Rate Factors Brand equity of Global 100 firm in new New logo Existing client of Minor player in existing buyer (desirability) geography or industry moderate stature geography and industry Supplier type Pure labor arbitrage Offshore with moderate Regional player Globally recognized offshore players process player with process and tools viewed as best of breed Number of suppliers in negotiation Incumbency of supplier (for risk reduction)* Simultaneous negotiation with multiple suppliers New entrant, largely unknown Clear leading supplier despite competitive framework New entrant but well regarded player Negotiate only after downselect final supplier Incumbent though with some performance issues Sole source negotiation Long-established incumbent for this deal and others at client Industry knowledge/ New for supplier Low Moderate Strong expertise Use of supplier Fully leverages supplier Utilizes core with only Utilizes only parts of Little (new skills, standard processes factory minor customization existing processes different process) Supplier delivery India, China, SE Asia Eastern Europe, South North America Western Europe, Japan locations America Proprietary & Confidential Everest Global, Inc

17 Agenda The goal of price benchmarking IT infrastructure price benchmarking approach Introduction in IT infrastructure pricing Output-based pricing benchmarking Input-based pricing benchmarking Everest IT Infrastructure benchmarking deliverables Everest credentials 17

18 Everest benchmarking offering includes benchmarking report and an Everest SME Workshop Whether you choose Output or Input-based benchmarking from Everest Research, your engagement will include the report described earlier. We also encourage you to consider optional Everest SME workshop that will help you deepen your understanding and extend the value you receive. Your 1-hour workshop will be conducted by Everest SME with extensive deal advisory experience and will include: Review of the benchmarking report Analysis of key drivers related to the price range Everest deal-based observations on pricing trends If you are interested in adding the SME Workshop to your benchmarking exercise, please John Mancuso at 18

19 Agenda The goal of price benchmarking IT infrastructure price benchmarking approach Everest credentials 19

20 Since 1991, Everest has completed 300+ IT outsourcing engagements Everest ITO clients (partial list) Consulting engagements synopsis ITO Applications dev. / maint. Human Resources Finance and Accounting Other Number of engagements Experience since

21 Our research provides deep insight into the current and evolving trends in IT outsourcing ITO market has grown into ~US$270 billion business with two major parts: infrastructure and ADM Within Infrastructure Outsourcing (IO) our current focus is the impact of optimization based solutions Worldwide infrastructure outsourcing market growth US$ billion ~4% CAGR ~X% CAGR XXX XXX XXX XXX XXX XXX XXX Worldwide IT outsourcing market size 2007 (estimated); Percentage 100% = = ~US$XXX ~US$270Bbillion IO 1 ADM 2 42% XX% XX% 58% Worldwide ADM outsourcing market growth US$ billion 213 XXX 201 XXX 187 XXX 172 XXX 156 XXX 141 XXX 126 XXX X% CAGR 11% CAGR X% CAGR 7% CAGR Projected Projected 1 IO Infrastructure Outsourcing 2 ADM Application Development and and Maintenance Sources: Bernstein Research; Everest Research Institute Institute 5 Proprietary & Confidential Everest Partners, L.P. L.P. ERI P P-0210 Market value creation Standards Adoption Viable (army infrastructure) transaction launches the market Standards/suppliers IBM makes infrastructure a focus Standards start to emerge GM invests in EDS Source: Everest Research Institute Scale 1980 s 1990 s Current+ Maturity Mega -multi -tower deals grow rapidly Suppliers increase ownership of assets IBM, CSC and EDS emerge as dominant participants GM monetizes EDS Asset pay-per-use Non-asset pay-per-use On demand sees some market penetration Offshore IMS emerges Large players invest in new on -demand and utility type models Proprietary & Confidential Everest Partners, L.P. Optimization Offshore IMS crosses US$1 billion Asset -lite emerges Mega deal growth slows Offshore based players emerge as Infrastructure contenders beyond IMS ADM market already experiences realignment of suppliers goals driven by diverging interests of buyers and suppliers Value Buyer s value in a typical outsourcing deal Grow volume Grow volume Grow value of the relationship Buyer s value from labor arbitrage Optimal ratio Point of goal divergence Continue growing volume Offshore ratio CONCEPTUAL Buyer s goal Supplier s goal In In the the initial initial stages stages of of a a typical typical ADM ADM deal, deal, buyers buyers and and suppliers suppliers goals goals are are perfectly perfectly aligned aligned as as suppliers suppliers look look to to increase increase business business volume volume and and buyers buyers look look for for additional additional benefits benefits of of offshoring offshoring Once Once a a buyer buyer achieves achieves their their optimal optimal offshore offshore ratio ratio (varies (varies significantly significantly depending depending on on buyer s buyer s situation), situation), the the goals goals diverge. diverge. The The buyer buyer looks looks for for more more value value from from the the relationship relationship while while supplier supplier continues continues looking looking for for more more volume volume Offshore RIMO suppliers still hold a minor share of the IO market Worldwide IO market 2005; Percentage 100% ~US$XXX ~US$109 billion Traditional suppliers (traditional IO model) 76% XX% 24% XX% Offshore <1% <X% suppliers (RIMO model) Traditional suppliers (IMS model) RIMO market shares 1 1 US$ million 100%= Supplier9 Others Microland Supplier8 Supplier7 Patni Supplier6 Satyam Supplier5 Genpact Supplier4 Infosys Supplier3 HCL Supplier2 TCS Supplier1 Wipro 460 XXX XXX 3 3 8% XX% 9% XX% 2% XX% 3% 4% XX% XX% 3% XX% 11% XX% 6% XX% 9% XX% 11% XX% 14% XX% 13% XX% 16% XX% 14% XX% 17% XX% 19% XX% 20% XX% 21% XX% FY 2004 FY 2005 Source: Everest Research Institute Proprietary & Confidential Everest Partners, L.P. ERI P-0210 Sources: Everest Research Institute, supplier s corporate reports Proprietary & Confidential Everest Partners, L.P. L.P. ERI P P

22 We have developed a unique comparative price analysis tool for IT Infrastructure processes drawing upon our extensive transaction pricing experience globally User manual Price comparison summary Price data base Raw price data from Engagement teams Repurposing engine Three-tiered cascade with increasing level of detail 22

23 Get the answers today that lead to tomorrow s success Everest Research Institute has the resources, experience, and capabilities to provide companies with the strategic intelligence, analysis, and insight that are crucial to making the right decisions in today s outsourcing marketplace. With the vision of our leadership team, the personal commitment, and indeed, the passion of our professionals to deliver real value to our clients, our organization is unsurpassed in its ability to guide your company s future success. Everest Research Institute Two Galleria Tower Noel Road, Suite 2100 Dallas, TX U.S.A info@everestresearchinstitute.com Everest Group 150 E., 52 nd Street, 16 th Floor New York, NY U.S.A Everest India Ground Floor, Tower A Unitech Business Park South City - I, Gurgaon National Capital Region India Everest Australasia Level 6, 90 Mount Street North Sydney, NSW 2060 Australia Everest Canada The Exchange Tower 130 King Street West, Suite 1800 Toronto, ON Canada M5X 1E Everest UK 1 st Floor, Accurist House 44 Baker Street London, W1U 7AL United Kingdom Everest Netherlands & Continental Europe Atrium Building 3 rd Floor Strawinskylaan ZX Amsterdam Netherlands Everest Australia 409a Wattletree Road East Malvern Melbourne, VIC 3145 Australia