Table Of Content

MARCH 1996 Outsourcing Vendor Performance Analysis INPUT Frankfurt • London • New York • Paris • San Francisco • Tokyo • Washington D.C. INPUT About INPUT Clients make informed decisions more quickly and economically by using INPUT'S services. Since 1974, information technology (IT) users and vendors throughout the world have relied on INPUT for data, research, objectiveanalysisand insightful opinionstopreparetheirplans, marketassessmentsand business directions, particularly in computer software and services. Contactustodayto learn howyourcompanycanuse INPUT'Sknowledgeand experiencetogrowand profit in the revolutionary IT world of the approaching millennium. 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(415] 961-3300, Fax (415] 961-3966 Tokyo • 6F#B, Mitoshiro BIdg., 1-12-12, Uchikanda Chiyoda-ku, Tokyo 101, Japan, Tel. +81 3 3219-5441, Fax +81 3 3219-5443 M Washington, D.C. 1921 Gallows Road, Suite 250, Vienna, VA 22182. USA, Tel. (703] 847-6870, Fax (703] 847-6872 2 OUTSOURCING VENDOR PERFORMANCE ANALYSIS INPUT Abstract Outsourcing has grown aggressively over the last several years. It seems the perfect solution to bloated, overstaffed organizations that recognized the information technology expertise of others and sought to take advantage ofthat by moving some company functions out of house. But, how has that gone? Is it the solution for which companies had hoped? And the vendors, are they performing up to expectations? These and other questions of satisfaction with outsourcing were the focus of this study. Research for this report included data gathered from over 50 North American companies who are actively engaged in outsourcing one or more information systems functions. Data from fifty-four European outsourcing users was also used on a comparative basis. Interviews were also conducted with vendors and selected industry experts and a review of secondary information sources was conducted to ensure comprehensive coverage ofthis marketplace. Users report generally positive results with both the approach of outsourcing and with vendors' outsourcing performance. Both are graded in the "acceptable" to "good" range. These results are, however, below user expectations for either the goals of outsourcing or its practice. Cost effectiveness and abihty to control costs were cited as key shortcomings by a majority of users. Users also noted concerns over vendor performance criteria such as understanding requirements, on-time delivery, and responsiveness. Terms and conditions were generally rated as satisfactory. The report identifies a number ofvendor initiatives that could lead to the ehmination of discrepancies between user expectations and vendor performance. This report contains 62 pages, including 49 exhibits. © 1996byINPUT. Reproduction Prohibited. Published by INPUT 1881 Landings Drive Mountain View, CA 94043-0848 United States of America U.S. Outsourcing Services Program Outsourcing Vendor Performance Analysis © Copyright 1996 by INPUT. All rights reserved. Printed in the United States of America. No part of the publication may be reproduced or distributed in any form, or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. The information provided in this report shall be used only by the employees of and within the current corporate structure of INPUT'S clients, and will not be disclosed to any other organization or person including parent, subsidiary, or affiliated organization without prior written consent of INPUT. INPUT exercises its best efforts in preparation of the information provided in this report and believes the information contained herein to be accurate. However, INPUT shall have no liability for any loss or expense that may result from incompleteness or inaccuracy of the information provided. OSCS-683- 1996 1 OUTSOURCING VENDOR PERFORMANCE ANALYSIS INPUT Table of Contents Introduction I 1 A. Scope and Purpose 1 Scope 2 1. 2. Purpose 2 B. Methodology 3 C. Report Organization 6 INPUT D. Related Reports 7 II Executive Overview 9 A. User Satisfaction with Outsourcing 9 B. User Expectation-Vendor Performance Gap 1 C. Outsourcing Goal Satisfaction by Business Function Outsourced D. Vendor Performance by Business Function Outsourced 5 1 III Aggregate Vendor Performance 17 A. Service Requirements 17 Outsourcing Goals 17 1. Vendor Roles 20 2. B. Service Performance 21 Outsourcing Goals 21 1. Vendor Roles 23 2. Outsourcing Requirements and Performance 24 3. C. Gap Analysis 24 D. Vendor Requirements 27 Breadth of Services Offered 28 1. 2. Depth of Services Offered 29 Performance Achievement 30 3. 4. Quality of Relationship 31 Contract Terms and Conditions 32 5. OSes © 1995byINPUT. ReproductionProhibited. i OUTSOURCING VENDOR PERFORMANCE ANALYSIS INPUT E. Vendor Requirements-Performance Gap 33 1. Breadth of Service Offerings 34 2. Depth of Services Offered 36 Performance Achievement 37 3. 4. Quahty of Relationship 39 Contract Terms and Conditions 41 5. F. Anticipated Actions 41 IV Satisfaction with Outsourcing Analyzed by Type of Service 43 A. Performance In Systems Operations 43 1. Satisfaction with Outsourcing in Meeting Goals 43 2. Vendor Roles Expected by Outsourcing Users 44 3. Users' Satisfaction with Outsourcing Vendors 45 B. Performance In Desktop Services 46 1. Satisfaction with Outsourcing in Meeting Goals 47 2. Vendor Roles Expected by Outsourcing Users 48 3. Users' Satisfaction with Outsourcing Vendors 49 C. Performance In Network Management 50 1. Satisfaction with Outsourcing in Meeting Goals 51 2. Vendor Roles Expected by Outsourcing Users 51 3. Users' Satisfaction with Outsourcing Vendors 52 D. Performance in Application Management 53 1. Satisfaction with Outsourcing in Meeting Goals 53 2. Vendor Roles Expected by Outsourcing Users 54 3. Users' Satisfaction with Outsourcing Vendors 55 E. Performance in Business Operations Management 56 1. Satisfaction with Outsourcing in Meeting Goals 56 2. Vendor Roles Expected by Outsourcing Users 57 3. Users' Satisfaction with Outsourcing Vendors 59 F. Conclusions 60 G. Recommendations 61 Appendixes A Definition of Terms A-1 — B Questionnaire Outsourcing Vendor Performance Analysis B-1 mm II ©1996byINPUT. Reproduction Prohibited. OSCS OUTSOURCING VENDOR PERFORMANCE ANALYSIS INPUT Exhibits -1 Industry and Revenue Profile of Respondents' Companies 3 -2 Frequency of Mention of Outsourced Functions 4 -3 Leading Vendors Mentioned by Respondents 5 -4 Frequency of Mention of Outsourced Functions for European Respondents 6 -1 Outsourcing Importance-Satisfaction Gap Analysis 10 -2 Aggregate Rating of Vendor Outsourcing Performance 12 -3 Largest Outsourcing Importance-Satisfaction Rating Discrepancies by Type of Outsourcing Service 14 -4 Largest Outsourcing Expectation-Performance Rating Discrepancies by Type of Function Outsourced 16 III -1 Importance of Outsourcing Goals 18 -2 Importance of Outsourcing Goals in Europe 19 -3 Vendor Roles Desired by Customers 20 -4 Customer Satisfaction with Outsourcing Approach 21 — -5 Customer Satisfaction with Outsourcing Approach Europe 22 -6 Satisfaction with Vendor Roles in Europe 23 -7 Respondents' Top-Rated Goals and Results of Outsourcing 24 -8 Outsourcing Importance versus. Satisfaction 25 — -9 Outsourcing Importance versus. Satisfaction Europe 26 -10 Outsourcing Vendor Selection Criteria Categories 27 -11 Importance of Breadth of Service Criteria 28 -12 Importance of Depth of Service Criteria 29 -13 Importance of Performance Achievement Criteria 30 -14 Importance of Quality of Relationship Criteria 31 -15 Importance of Terms and Conditions Criteria 32 -16 Importance versus Satisfaction with Vendor Selection Categories 33 -17 Importance versus Satisfaction with Breadth of Services 34 oscs © 1995byINPUT. ReproductionProhibited. Ill — — OUTSOURCING VENDOR PERFORMANCE ANALYSIS INPUT -18 Importance versus Satisfaction with Breadth of Services Europe 35 -19 Importance versus Satisfaction with Depth of Services Offered 36 -20 Importance versus Satisfaction with Performance Achievement 37 -21 Importance versus Satisfaction with Performance Achievement — Europe 38 -22 Importance versus Satisfaction with Quality of Relationship 39 -23 Importance versus Satisfaction with Quality of Relationship Europe 40 -24 Importance versus Satisfaction with Terms and Conditions 41 -25 LikeHhood of Changing Vendors 42 -26 Changes to Arrangements Anticipated 42 IV -1 Users' Satisfaction with Systems Operations Outsourcing 44 -2 Roles Expected of Systems Operations Outsourcing Vendors 45 -3 User Expectations versus Systems Operations Vendor Performance 46 -4 Users' Satisfaction with Desktop Services Outsourcing 47 -5 Roles Expected of Desktop Services Outsourcing Vendors 48 -6 User Expectations versus Desktop Services Vendor Performance 50 - -7 Users' Satisfaction with Network Management Outsourcing 51 -8 Roles Expected of Network Management Outsourcing Vendors 52 -9 User Expectations versus Network Management Vendor Performance 53 -10 Users' Satisfaction with Applications Management Outsourcing 54 -11 Roles Expected of Application Management Outsourcing Vendors 55 -12 User Expectations versus Applications Management Vendor Performance 56 -13 Users' Satisfaction with Business Operations Outsourcing 57 -14 Roles Expected of Business Operations Outsourcing Vendors 58 -15 User Expectations versus Business Operations Vendor Performance 60 IV ©1996byINPUT. 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