The Total Economic Impact Of the Horizon Project at TalkTalk Forrester Consulting

Transcription

1 The Total Economic Impact Of the Horizon Project at TalkTalk Forrester Consulting Project Directors: Dean Davison Vu Long Tran 2015

2 Project Approach

3 Forrester was commissioned by Tech Mahindra to conduct a Total Economic Impact (TEI) study of the Horizon Project Project Approach Benefits (Impact on business) Costs (Impact on budget) Flexibility (Options) RISK Total Economic Impact Forrester was commissioned by Tech Mahindra to conduct a Total Economic Impact (TEI) study of Horizon Project at TalkTalk and examine the potential return on investment (ROI) that enterprises may realise by using the consulting and business re-engineering firm, Tech Mahindra, to improve their program management and development delivery management. The purpose of this study is to provide readers with a framework to evaluate the potential financial impact that engaging with Tech Mahindra can have on their organisations. 3

4 Executive Summary

5 To understand the TEI, Forrester interviewed TalkTalk, an organization that competes in the hyper-competitive UK telecommunications market. Executive Summary Forrester interviewed TalkTalk, a current Tech Mahindra customer for this study. TalkTalk is an UK telecommunications company with annual revenues of $2+ billion. It is a company which provides pay telecommunications, television, Internet, and mobile network services to businesses and consumers in Europe. TalkTalk has approximately 160 development and testing staff (including vendor development and testing staff) in its OSS division. The development and testing team is responsible for managing and working with their outsourced development provider and migrating from an inefficient outsourced development model to a structured in-house development model. As part of its work in implementing a new program management and development delivery model, Tech Mahindra assisted TalkTalk in building a business case study summarising the current as-is delivery model s shortcomings, recommended solutions, and assisted in the implementation of these solutions. This efficiency improvement effort by TalkTalk was particularly important, given the fierce competition in the telecom segment, which demanded swift and constant innovative products and services to not only remain competitive but to stay in business. 5

6 Forrester interviewed TalkTalk to understand the key drivers and reasons behind why it worked with Tech Mahindra; these include: The company had a fragmented and immature development delivery model. There was a long time-tomarket: 44 weeks for development release cycles. There were multiple hand-off points during the software development life cycle (SDLC). There were multiple concurrent releases and a lack of overall organisational focus. 6

7 Horizon Project significantly increased the productivity of the customer s development cycles, maintaining market share in a hypercompetitive industry Executive Summary Horizon Project is the name that TalkTalk coined for the delivery transformation programme to improve its program management and development delivery model. Based on an analysis, the customer s feedback, and quantified benefits, costs, risks, and flexibility, Forrester has determined that Horizon Project has a threeyear risk-adjusted ROI of 189% and NPV of $6,740,482, with a payback period of less than 0.5 months. Three-Year Risk-Adjusted Financial Snapshot ROI Total Benefits (PV) Total Costs (PV) NPV 189% $10.30 M ($3.56) M $6.74 M Payback Period <0.5 Month 7

8 Analysis Interview Highlights Benefits Costs Flexibility Risk 8

9 TEI quantified specific benefits, costs, and metrics that mattered to customers Net Present Value $6.74M Costs ($3.56M) Benefits ($10.30M) Greater efficiency from extra output delivered by FTEs Cost to develop new methodology People cost of delivery FTEs $(10) $(5) $- $5 $10 *In thousands. Based on three-year risk-adjusted figures. Values of costs and benefits are representative of a composite organization constructed from aggregated feedback based on interviews with a Tech Mahindra customer. 9

10 Horizon Project is a partnership between TalkTalk and Tech Mahindra to update and re-engineer development methodologies Horizon Project structured a development delivery model that made the organization 67% more efficient... and allowed the development organization to keep pace with demands from business leaders. We first wanted to facilitate and [be] more agile, [to be able to provide a] richer market on new products. Secondly, we wanted to be scalable. We wanted the ability to spend the capital investment that we have during development. We actually want to be able to spend it, but we couldn t, because of the way that we were managing ourselves. 10

11 Launching a new methodology increased the efficiency of the development organization by more than 55% Greater efficiency from extra output delivered by developers TalkTalk migrated from an inefficient development model to a structured development model engaging vendors as partners rather than extended recruitment agencies. The 55-57% increase in productivity allowed the organization to meet the growing business requirements without hiring additional developers. Over three years, TalkTalk is estimated to save more than $13 million due to improved productivity (measured in terms of extra FTE output delivered in new model). Three-Year Non-Risk-Adjusted Benefit Metric Year 1 Year 2 Year 3 Total Cycle time before (weeks) New cycle time (weeks) Percent improvement in cycle time 57% 55% 55% Number of full time developers required to realize efficiency without Horizon Project Greater efficiency from extra output delivered (in terms of full time developers) Average burdened salary $125,000 $125,000 $125,000 Total $4,474,432 $4,295,455 $4,295,455 $13,065,341 11

12 However, there is no benefit without a cost, and the customer experienced people costs People cost TalkTalk migrated from an inefficient development model to a structured development model engaging vendors as partners rather than extended recruitment agencies. It increased the number of Tech Mahindra FTEs required to be able to support the business and decreased the number of TalkTalk delivery FTEs; this can vary ($31,250 per Tech Mahindra FTEs). Over three years, the organization paid more than $4 million for the cost of Tech Mahindra staff. Key metrics: number of Tech Mahindra FTEs, number of TalkTalk delivery FTEs, average price per person Three-Year Non-Risk-Adjusted Costs Metric Year 1 Year 2 Year 3 Total Number of Tech Mahindra people Average price per person $31,250 $31,250 $31,250 Total $843,750 $1,406,250 $1,781,250 $4,031,250 12

13 There was also a cost to develop the new methodology Cost to develop new methodology While migrated TalkTalk an inefficient outsourced development model to a structured inhouse development model, there was a cost required to develop the new methodology for the business, which can vary ($125,000 per developer). Key metrics: number of FTEs, average burdened salary Three-Year Non-Risk-Adjusted Costs Metric Initial Number of FTEs (2 FTEs for 6 months) 1 Average burdened salary $125,000 Total ($125,000) 13

14 TalkTalk also experienced additional benefits that were not quantitatively tracked in detail Improvement in request for tender (RFT) process More accountability Better business engagement and upfront planning Better connection of crossfunctional teams Clearer business road maps for the development process Double the amount of releases a year 14

15 The three-year risk-adjusted cash flow shows a positive ROI (189%), a NPV of over $6,740,482, and a payback period of less than one month Three-Year Risk-Adjusted Cash Flow Initial Year 1 Year 2 Year 3 Total PV Costs ($131,250) ($885,938) ($1,476,563) ($1,870,313) ($4,364,063) ($3,562,141) Benefits $0 $4,250,710 $4,080,682 $4,080,682 $12,412,074 $10,302,623 Net costs-benefits ($131,250) $3,364,773 $2,604,119 $2,210,369 $8,048,011 $6,740,482 ROI 189% Payback period 0.5 month $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 ($1,000,000) ($2,000,000) ($3,000,000) $4,250,710 $4,080,682 $4,080,682 Initial Year 1 Year 2 Year 3 ($885,938) ($1,476,563) ($1,870,313) Costs Benefits Payback 15

16 Appendix 16

17 Appendix A: TEI Methodology and Framework Introduction Total Economic Impact is a methodology developed by Forrester Research that enhances a company s technology decision-making processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders. The TEI methodology consists of four components to evaluate investment value: benefits, costs, risk, and flexibility. Benefits Benefits represent the value delivered to the user organization IT and/or business units by the proposed product or project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line. Costs Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created. 17

18 Appendix A: TEI Methodology and Framework (cont.) Introduction (cont.) Risk Risk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections and 2) the likelihood that the estimates will be measured and tracked over time. TEI applies a probability density function known as triangular distribution to the values entered. At minimum, three values are calculated to estimate the underlying range around each cost and benefit. Flexibility Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprisewide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated. The collaboration can only be used with additional investment in training at some future point in time. However, having the ability to capture that benefit has a present value that can be estimated. The flexibility component of TEI captures that value. Approach Perform due diligence Conduct customer interview Construct financial model Write case study 18

19 Appendix B: Disclosures The reader should be aware of the following: The study is commissioned by Tech Mahindra and delivered by the Forrester Consulting group. Forrester Consulting makes no assumptions as to the potential return on investment that other organizations will receive. Forrester strongly advises that readers use their own estimates within the framework provided in the report to determine the appropriateness of an investment in Tech Mahindra. Tech Mahindra reviewed and provided feedback to Forrester Consulting, but Forrester Consulting maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester s findings or obscure the meaning of the study. The customer name for the interview was provided by Tech Mahindra. Forrester Consulting does not endorse Tech Mahindra or its offerings. 19

20 Appendix C: Glossary Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their respective organizations to determine the most appropriate discount rate to use in their own environment. Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs. Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total net present value of cash flows. Payback period: The breakeven point for an investment. The point in time at which net benefits (benefits minus costs) equal initial investment or cost. Return on investment (ROI): A measure of a project s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs. 20

21 Appendix D: Tech Mahindra Overview About Tech Mahindra Tech Mahindra is a specialist in digital transformation, consulting, and business re-engineering solutions. Tech Mahindra has operations in more than 51 countries, with 40 sales offices and 72 delivery centres. It is a $3.5 billion company with 98,000+ professionals and provides services to 674 global customers including Fortune 500 companies. Tech Mahindra is also among the Fab 50 companies in Asia according to the Forbes 2015 List. Tech Mahindra's activities spread across a broad spectrum, including business support systems (BSS), operations support systems (OSS), network design and engineering, next-generation networks, mobility solutions, security consulting, and testing. The solutions portfolio includes consulting, application development and management, network services, solution integration, product engineering, infrastructure managed services, remote infrastructure management, and BSG (comprises BPO, services, and consulting). Tech Mahindra has implemented more than 15 greenfield operations globally and has over 128 active customer engagements, mostly in the telecom sector. The company has been involved in about eight transformation programs of incumbent telecom operators and an array of service offerings for TSPs, TEMs, and ISVs. About the Mahindra Group Tech Mahindra is part of the $16.5 billion Mahindra Group that employs more than 200,000 people in over 100 countries. Mahindra operates in the key industries that drive economic growth, enjoying a leadership position in tractors, utility vehicles, information technology, financial services, and vacation ownership. 21

22 Appendix E: Forrester Consulting Dean Davison Principal Consultant Dean has extensive experience in the buy side of technology, advising customers in purchasing and implementing solutions, including interacting with CIOs on six continents. His experience also includes sell-side work in sales-focused marketing functions such as pricing strategy, competitive intelligence, product marketing, customer insights, and market analysis. 22

23 Appendix E: Forrester Consulting Vu Long Tran Senior Consultant Vu Long currently leads the virtual APAC (Asia Pacific) team in managing custom market intelligence research projects for IT vendors and end users. He specializes in helping CIOs and strategic professionals predict and quantify disruptions in the tech industry so that they better direct their investments and understand trends in the IT products and services sector in Asia Pacific. He also tracks leading international and local IT vendors, channel partners, and buyers perceptions and adoption of IT products and services in the APAC market. 23