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Outsourcing Global Information Technology Resources

Xerox Background Description


A global enterprise addressing the worldwide document processing market which develops, markets, services, and finances a complete range of products and services designed to make offices around the world more productive.

Xerox Introductions & Market Share


120 100 80 60 40 20 0 1961-64 1965-68 1969-72 1973-76 1977-80 1981-84 1985-88 1989-92 New Product New Copier Introduct ions

New Product & Copier Introductions

35 30 25 20 Low-End Copiers Mid/High End Copiers

Market Share

15 10 5 0 1984 1993

Yet, Net Income is Declining


$800 $600 $400 $200 $0 ($200) ($400) ($600) ($800) ($1,000) ($1,200) 1993 1992 1991 1990 1989 1988 1987 1986

Net Income

Background Corporate Restructuring 1992


Decision Making Moved Closer to Customer Greater Focus on Core Competencies Focus on Core Business Focus on Benchmarks Workforce Reduction

Information Management
1970s - CIM Established 1987 - General Services Division Established
Mission of CIM was now to . . . develop the IT strategy for Xerox and ensure that it was implemented in all the business units. $500 Million IT Budget

No coordination of money spent each year No Corporate-Wide Management of IM Investment Priorities A Peripheral Player in IT Management Narrowly Focused IM Talent Pool Senior Managers Stingy With IT Infrastructure Redundant / Overlapping Efforts No Staff Development Mechanisms

Information Management IT Strategy Consulting Firm Finds Problems

Wallington Presents at Presidents Council Meeting April, 1993

Centralizing IM

$670 Million spent on IM in 1992 Forecast to grow to $1 Billion by 2000 . . . Amounts to 3.7% of total revenues!

IM 2000 Reengineering Project Mid-1993


Identification of IM problem areas Strategies to address those problem areas Projects implemented to fix problem areas

Goal: Move IM to a new information systems infrastructure.

Problems Revealed
Aging applications portfolio Proprietary technologies from previous structure Large spending for legacy systems Autonomous culture allowed for costly duplication

IM 2000 - Strategies
Reduce / Redirect Infrastructure Management Leverage Worldwide IM Resources Business Process Driven Solutions

IM 2000 Internal Obstacles Remain


Little discipline of both time and money Internal costs of $55 million for hardware Viewed as an expense center by top executives

IM 2000 External Forces Create Final Pressures


Increasingly competitive environment Forced to adapt quickly

Outsourcing & Xerox: What? Why? How?

What was and What is Outsourcing


Outsourcing was looked upon as the business strategy associated with downsizing
Outsourcing now is looked upon as utilizing the best expertise in local laws and business customs.

What is Outsourcing?
Is the strategic use of outside resources to perform activities traditionally handled by internal staff and resources. Mgmt strategy by which and organization outsources major, non-core functions to specialized, efficient services providers. Wholesale restructuring of the corporation around core competencies and outside relationships.

Strategic Grid

Outsourcing at Xerox
Outsourcing versus integration. Create win:win relationship. Share values to create a true partnership. Develop spirit of the contract for senior management to and understand. Create infrastructure to support companies strategic direction in the 90s.

Outsourcing Process
Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase III - Feasibility and Management Approval

Phase IV - Baseline Building and Evaluation

Phase V - Due Diligence and Contract Awarded

Phase I - Fact Gathering


Vendor Selection Benchmarking

IT Partner

Outsourcing Objectives

Phase I - Fact Gathering


Vendor selection team
Cross-functional representatives Establish outsourcing requirements, objectives, goals, and timeline Conduct industry benchmarking

Outsourcing Objectives
Drive down spending on legacy system Improve quality and cost of IM services Focus companys resources on the primary mission.

Xerox Benchmarking
Outsourcing Strategies Outsourcing Processes Vendor references Human resource impact
AT&T Kodak Sun Microsystems McDonnell Douglas

Companies
Salomon Brothers General Motors Equifax First Boston

Vendor Selection
Qualifications
Global Presence Capability to manage globally Experienced in large scale outsourcing Core strengths in various frameworks Mgmt processes and strengths

Financial
Translation of productivity savings to Xerox Flexibility in meeting Xerox financial requirements Experience in engineering financial environment

Soft Criteria
Congruence with positive Xerox environment Provide benchmark for desired Xerox cultural traits

Human Resources
Treatment of Xerox employees Human resource values

Technical Solutions
Productivity Commitment Support for existing Xerox diverse environment Capability to migrate

Outsourcing Process
Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase II -Data Gathering and Request for Proposal


Prepare a Request for a Proposal
Be structured in a way that will allow assessments and comparisons to be done in meaningful way Define requirements in complete and measurable terms Describe the type of relationship you are looking for Explain the problems that you are trying to solve Ask specific questions about corporate culture Present the current costs to the organization Specify a service level

Phase II -Data Gathering and Request for Proposal


Data Gathering Research the Vendors
Financial Stability, potential mergers, takeovers

Questions and Answers

Outsourcing Process
Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase III - Feasibility and Management Approval

Phase III - Feasibility and Management Approval


Outsourcing feasibility Recommendation to Management for approval to proceed

Outsourcing Process
Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase III - Feasibility and Management Approval

Phase IV - Baseline Building and Evaluation

Phase IV - Baseline Building and Evaluation


Evaluate the vendor responses
Systematic Measurable Meets objectives

Select the vendor for contract negotiation

Lessons Learned - Xerox


What you want is essential Clear objectives are key Cross functional team is a necessity A good contract requires a lot of data

Outsourcing Process
Phase I - Fact Gathering

Phase II - Request for Proposal and Data Gathering

Phase III - Feasibility and Management Approval

Phase IV - Baseline Building and Evaluation

Phase V - Due Diligence and Contract Awarded

Phase V -Due Diligence & Contract Awarded


Outsourcing deals that go bad frequently suffer from poorly designed contracts Outsource Sense, InfoWorld, September 1996

Managing the Outsourcing Relationship


Create a Shared Vision Include Effective Performance Measures Use Performance Incentives and Penalties Establish Clear Communication Mechanisms Develop a Clear Contingency Plan and Exit Strategy Manage People Issues

Negotiate a Sound Contract


Terms of the Agreement Minimum Service Levels Ownership & Confidentiality of Data Warranty Incentives Disclaimers Bankruptcy Contingency Force Majeure Performance Measures Anticipate Change

Global Complications
Various Human Resource / Employee Laws Degree of Risk Political Instability Various Asset Transfer Laws

Xerox: Status in June 1994


Xerox/EDS Core Teams Created Massive Internal PR Campaign Initiated Switch Incentives Offered Assured Confidentiality Divorce Issues Addressed Annual Price Benchmarking Single Global Contract Key Global Players Added to Team

Xerox: Status 1996/1997


Xerox Satisfaction at the Low End and Dropping 2000 Employees Transferred to EDS / 700 Remain After 2.5 Years 15% of Proprietary System Replaced (Global View) 600 Novell LANs installed 1000s Desktops and Printers Replaced 12 Person Xerox Team Established to Manage Contract Amended in Sept 1996

Contract Addendum
Clarified Terms for Desktop and LAN Support Established Formalized Response Metrics Established Managed Rate Change Eliminated Billing Inconsistencies

Xerox: Status 1999

EDS Files Suit Against Xerox February 1999

Recommendations
Outsource Non-Core Competency Functions Write Air-Tight Service Level Agreements for Every Strategic Business Unit & Every Platform Define Graduated Levels of Performance and Penalties Based on Customer Satisfaction Dont Compromise Service Levels with Price Negotiation

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