IT Service Delivery Model Overview

1. IT Service Delivery Model Discussion Document October 2009

2. Table of Contents <ul><ul><li>Firm Introduction </li></ul></ul><ul><ul><li>Key Perspectives </li></ul></ul><ul><ul><li>Rapid Assessment Approach </li></ul></ul><ul><ul><li>Summary </li></ul></ul>Page

3. Archstone Consulting at a Glance <ul><ul><li>A Strategy and Operations Improvement consulting firm </li></ul></ul><ul><ul><li>Founded in 2003 to provide independent advisory services in key industries and service areas </li></ul></ul><ul><ul><li>Serve leading global organizations (including 24 of the top 100 companies and 58 of the top 500 according to the latest Fortune rankings) </li></ul></ul><ul><ul><li>Headquartered in Stamford, Connecticut with offices in New York, Chicago, San Francisco, Toronto, and Amsterdam </li></ul></ul><ul><ul><li>Have over 200 consulting professionals worldwide </li></ul></ul>Page DEFINING A NEW AGE IN CONSULTING SM Archstone Consulting Service Offerings and Industry Segments www.archstoneconsulting.com Services Industries <ul><li>Operations </li></ul><ul><ul><li>IT Effectiveness </li></ul></ul><ul><ul><li>Operations Improvement </li></ul></ul><ul><ul><li>Sourcing & Procurement </li></ul></ul><ul><li>CFO Advisory </li></ul><ul><ul><li>Financial Process Improvement </li></ul></ul><ul><ul><li>Reporting & BI </li></ul></ul><ul><li>Life Sciences </li></ul><ul><li>Consumer Products </li></ul><ul><li>Manufacturing </li></ul><ul><li>Utilities and Energy </li></ul><ul><li>Financial Services </li></ul>

4. Our IT Effectiveness practice helps clients improve the business value on their investments in information technology Page Business Value The IT organization and processes needed to implement and operate IT capabilities across the enterprise. The IT applications, infrastructure , and associated data needed to operate a modern business . IT Service Delivery Model IT Technology Assets <ul><li>Focus Areas: </li></ul><ul><li>Server virtualization </li></ul><ul><li>Application rationalization </li></ul><ul><li>IT CapEx optimization </li></ul><ul><li>Program management </li></ul><ul><li>Data strategy/management </li></ul><ul><li>Focus Areas: </li></ul><ul><li>Service delivery strategy </li></ul><ul><li>Service level optimization </li></ul><ul><li>Business/IT alignment </li></ul><ul><li>Performance management </li></ul><ul><li>IT outsourcing strategy </li></ul>Definition Definition Today’s Focus Archstone Consulting provides services to improve quality and reduce costs of IT operations

6. A well-designed IT Service Delivery Model is critical to achieving success in IT management and operations Page Governance Organization Operational Processes Performance Management <ul><li>Executive oversight </li></ul><ul><li>Explicit alignment of business and IT strategy </li></ul><ul><li>Project prioritization </li></ul><ul><li>Budgeting and funding </li></ul><ul><li>Enforcement and adherence </li></ul><ul><li>Proactive issue and risk management </li></ul><ul><li>Organizational design </li></ul><ul><li>Roles and responsibilities </li></ul><ul><li>Centralized vs. distributed activities </li></ul><ul><li>In-house vs. outsourcing </li></ul><ul><li>Staff competency models </li></ul><ul><li>Integration across technology platforms </li></ul><ul><li>Portfolio management </li></ul><ul><li>Enterprise architecture </li></ul><ul><li>Infrastructure optimization </li></ul><ul><li>Vendor management </li></ul><ul><li>Project / program management </li></ul><ul><li>Application development/ maintenance </li></ul><ul><li>Performance management framework </li></ul><ul><li>Cost and performance transparency </li></ul><ul><li>Common metrics/targets definition </li></ul><ul><li>Alignment of service levels and business needs </li></ul><ul><li>Corrective action </li></ul>Key Components of a Robust IT Service Delivery Model

7. As we’ve assisted our clients with their IT service delivery models, we have gained a number of insights that are important to consider Page Technology Shift Business Alignment Cost Efficiency Speed / Agility Observation Lesson Learned Many companies deploy new technologies (e.g., applications and infrastructure) without tailoring their IT service delivery models. Not only can this prevent positive ROI from the new technology, it can also lead to significant support challenges – a corresponding shift in the IT service delivery model is required to support the new technology and its usage effectively. Observation Lesson Learned Observation Lesson Learned Observation Lesson Learned Most IT service delivery models do not align with the overall business model – failing to consider overall company objectives or business imperatives. This often leads to mis-managed expectations, lack of true integration with the business, and proliferation of “Shadow IT” in the company – what’s required is that the IT service delivery model should follow the business model and hold the same things important. Most IT organizations have executed tried and true cost reduction initiatives (e.g., strategic sourcing, server virtualization, application rationalization), but have not considered the delivery model itself as a potential cost savings opportunity. We have found that the service delivery model represents the largest “hidden pool of cost” within an IT organization – establishing a delivery model with sound process controls continually identifies savings opportunities, addresses them, and makes them “stick.” More than ever, IT executives are asked to deliver more rapidly. The need to increase speed and efficiency often comes at the expense of poor quality and results. IT customers are often frustrated with solutions that aren’t sustainable – we have found that by applying leading business concepts (e.g., overhead lean) to IT operations, companies can deliver faster results without sacrificing quality.

8. Our experience has enabled us to drive operational improvements that can lead to significant cost savings in a number of areas Typical Operational Improvements Technology Alignment Business Alignment Cost Efficiency Speed / Agility *Average savings based on Archstone Consulting client projects Typical “Hard” Benefits <ul><li>Increased focus on application reuse, application lifecycles, and the ability to sunset technologies when appropriate </li></ul><ul><li>Enhanced ability to identify “synergy targets” and consolidate technologies during M&A activity </li></ul><ul><li>More integration with the business and its goals and objectives </li></ul><ul><li>A better understanding of how to apply disparate technologies to specific business challenges and opportunities </li></ul><ul><li>Greater overall cost visibility, control, and management </li></ul><ul><li>Enhanced ability to identify savings opportunities, address them, and make them “stick.” </li></ul><ul><li>Ability to adjust quickly to ever changing business priorities and needs (e.g., unforeseen business events, changes in strategy, M&A) </li></ul><ul><li>Reduction in the proliferation of “Shadow IT” </li></ul><ul><li>15%-25% reduction in hardware and software costs (considers equipment, licensing, and support) </li></ul><ul><li>25%-30% reduction in rework </li></ul><ul><li>25%-50% improvement in customer SLA compliance (internal and external) </li></ul><ul><li>An average total cost of ownership (TCO) reduction of 10% and 20%, and in some cases, much more </li></ul><ul><li>15%-25% reduction in cycle time </li></ul><ul><li>25%-50% improvement in development request response times </li></ul>

9. Technology Shift: As companies adopt new technologies, they must also adjust their IT Service Delivery Model Page Technology Shift Observation Lesson Learned Many companies deploy new technologies (e.g., applications and infrastructure) without tailoring their IT service delivery models. Not only can this prevent positive ROI from the new technology, it can also lead to significant support challenges – a corresponding shift in the IT service delivery model is required to support the new technology and its usage effectively. <ul><li>Most delivery models have been in use for many years, are “cast in concrete,” and do not provide the rigor or flexibility needed to accommodate and sustain current and emerging technologies </li></ul><ul><li>Often, IT organizations tend to be slaves to the cumbersome delivery processes, built on legacy systems and practices, rather than focusing on execution and results </li></ul><ul><li>By tailoring the IT service delivery model to accommodate current and emerging technologies, applying standardization and the appropriate amount of variability, we’ve seen dramatic improvements in our clients’ ability to execute and drive to results </li></ul>Key Perspectives <ul><li>Global Retail Company – Our client introduced new ERP and POS technologies to their application suite; we were chartered with developing a new SDLC that was rigorous, yet flexible enough to accommodate a diverse set of needs – resulting in vast delivery improvements </li></ul>Sample Client Experiences <ul><li>Large Utility – Developed a new IT delivery model that accommodated a high growth company with many recent technology changes; the new model provided standardization, lower “cost to serve,” and flexibility, resulting in improved corporate customer satisfaction </li></ul><ul><li>Global Consumer Goods Firm - After implementing a new ERP system, we developed a post implementation support organization that was tailored to the ERP and provided targeted, multi-tiered support for the enterprise </li></ul>

10. Business Alignment: Most IT organizations focus on the technology rather than alignment with the business Page Business Alignment Observation Lesson Learned Most IT service delivery models do not align with the overall business model – failing to consider overall company objectives or business imperatives. This often leads to mis-managed expectations, lack of true integration with the business, and proliferation of “Shadow IT” in the company – what’s required is that the IT service delivery model should follow the business model and hold the same things important. <ul><li>Educating IT personnel about the company’s business equips them to understand key goals, priorities, constraints, and challenges </li></ul><ul><li>Establishing a business integration capability as part of the IT organization supports and maintains business awareness, alignment, and focused IT execution </li></ul><ul><li>Developing a services portfolio, based on business needs and using business terminology, provides tighter integration and alignment with the business </li></ul>Key Perspectives <ul><li>Global Pharmaceutical Company – Designed and implemented a new IT Service Delivery Model that established a “Business Integrator” role for IT personnel, who were then co-located with clinical and commercial operations – reduced delivery cycle times by 35% </li></ul>Sample Client Experiences <ul><li>Global Financial Services Firm – Designed and implemented an enhanced IT Service Delivery Model that re-aligned IT to the company’s products and services, resulting in significant improvements in speed (20%), cost (17%), and quality (less rework) </li></ul><ul><li>Large Utility – Re-designed the company’s enterprise architecture function to align with corporate “Smart Grid” initiatives and emphasize technology standardization and re-use; estimated to provide a recurring savings $35MM in OpEx each year </li></ul>

11. Cost Efficiency: The IT Service Delivery Model often represents the best opportunity to reduce annual IT spend Page Cost Efficiency Observation Lesson Learned Most IT organizations have executed tried and true cost reduction initiatives (e.g., strategic sourcing, server virtualization, application rationalization), but have not considered the delivery model itself as a potential cost savings opportunity. We have found that the service delivery model represents the largest “hidden pool of cost” within an IT organization – establishing a delivery model with sound process controls continually identifies savings opportunities, addresses them, and makes them “stick.” <ul><li>Areas of immaturity often cause higher spend and lower productivity </li></ul><ul><li>Too often, businesses reduce spending / labor without fully understanding the impact </li></ul><ul><li>Having a well defined operating model allows an organization to articulate the impact of budget cuts as well as propose reduction in services to lower cost </li></ul><ul><li>While outsourcing labor to offshore countries reduces spend, most organizations fail to take advantage of facilities / resources within their company that reside in lower cost regions </li></ul>Key Perspectives <ul><li>Consumer Packaged Goods Client – Assisted the client in designing a tiered service level approach to help desk / desktop support to tie cost to service levels and allowed customers to choose the right model based on the requirements and budget </li></ul>Sample Client Experiences <ul><li>Global Manufacturing Company – Improved the financial tracking / forecasting process within IT to tie costs to the service delivery components and assets by business function and expose where high demand and customer requirements drove excessive spend </li></ul><ul><li>Consumer Packaged Goods Client – Created Centers of Expertise for application development and piloted ADM support of specific technologies within the client’s Eastern Europe facilities </li></ul>

12. Speed / Agility: Moving faster doesn’t have to mean sacrificing quality Page Speed / Agility Observation Lesson Learned More than ever, IT executives are asked to deliver more rapidly. The need to increase speed and efficiency often comes at the expense of poor quality and results. IT customers are often frustrated with solutions that aren’t sustainable – we have found that by applying leading business concepts (e.g., overhead lean) to IT operations, companies can deliver faster results without sacrificing quality. <ul><li>SDLCs often are not flexible and add substantial overhead to projects </li></ul><ul><li>The number of sign-offs / gate reviews are typically tied to the size / budget of a project, rather than scope, risk and complexity </li></ul><ul><li>Time required by individuals to review documentation usually leads to significant delay in projects </li></ul><ul><li>Applying lean concepts – eliminating waste by measuring time / value of activities – can improve delivery times by up to 70% </li></ul>Key Perspectives <ul><li>Tier 1 Automotive Supplier - Reduced the implementation time associated with EDI maps for new clients from 150 days to under 45 by evaluating the workflow and eliminating non-value added activities / documentation / reviews </li></ul>Sample Client Experiences <ul><li>Fortune 500 Client – Created “kick-off workshops” at the front of the SDLC to get stakeholder agreement on the required documentation, sign-off, and gates based on scope, risk and complexity </li></ul><ul><li>Global Manufacturing Company – Conducted review of SDLC and identified 15% - 30% lag time in each phase caused by personal requirements for time to review documentation </li></ul>

14. Our standard IT Service Delivery Model Definition Approach includes 4 primary phases and typically lasts 8-12 weeks Page <ul><li>Our standard definition approach includes: </li></ul><ul><li>A maturity model assessment </li></ul><ul><li>An analysis of gaps against leading practices </li></ul><ul><li>A comprehensive definition of a future state service delivery model that includes governance, organization design, and operational process roles/responsibilities </li></ul><ul><li>A set of recommended initiatives , prioritized according to financial impact and achievability </li></ul><ul><li>A detailed implementation plan </li></ul>Archstone Consulting IT Service Delivery Model Definition Archstone Consulting Project Timeline: IT Service Delivery Model Definition

15. Our “Rapid Assessment” provides a high level analysis of IT maturity and spend and can be executed in 5-7 days Page <ul><li>Our “Rapid Assessment” includes: </li></ul><ul><li>A maturity model assessment </li></ul><ul><li>An analysis of gaps against leading practices </li></ul><ul><li>A comprehensive definition of a future state service delivery model that includes governance, organization design, and operational process roles/responsibilities </li></ul><ul><li>A set of recommended initiatives , prioritized according to financial impact and achievability </li></ul><ul><li>A detailed implementation plan </li></ul>Archstone Consulting IT Service Delivery Model “Rapid Assessment” Archstone Consulting Project Timeline and Deliverables Maturity Model Comparative Spend Analysis Recommendation Our “Rapid Assessment” can be executed in as few as 5-7 days and includes these deliverables

16. Our “Rapid Assessment” approach typically requires 5-7 days of work over a three week period Page Discover Analyze Report 1 2 3 *Key Activities: Key Activities: Key Activities: <ul><li>Submit data request </li></ul><ul><li>Analyze available data </li></ul><ul><li>Identify 3-5 key business stakeholders and schedule interviews </li></ul><ul><li>Schedule IT team interviews and workshops </li></ul><ul><li>Clarify any questions </li></ul><ul><li>Interview 3-5 business stakeholders </li></ul><ul><li>Conduct 3-5 meetings with IT resources (team sessions) </li></ul><ul><li>Validate data / findings with IT leaders </li></ul><ul><li>Provide initial feedback to project sponsor </li></ul><ul><li>Review Comparative Spend Analysis </li></ul><ul><li>Discuss Maturity Model Rankings and key priorities </li></ul><ul><li>Compare sourcing model to common industry practices </li></ul><ul><li>Capture feedback and summarize final recommendations </li></ul>*Archstone Consulting resources work remotely during the first week

17. Our IT Effectiveness Maturity Model allows us to quickly assess the high level capabilities of an organization <ul><li>Our IT Effectiveness Maturity Model: </li></ul><ul><li>Covers all areas of IT delivery (e.g., planning, strategy, application development, IT operations) </li></ul><ul><li>Considers key capabilities within an IT organization including: closed-loop process execution, governance, and portfolio management </li></ul><ul><li>Differs from models such as CMMi and ITIL as it focuses more on how IT is run and less on how projects and functions operate </li></ul>Page Maturity Assessment Maturity Levels Dimension Components <ul><li>Our assessment: </li></ul><ul><li>Pulls from data sourced from the client including interviews </li></ul><ul><li>Illustrates gaps with comparable organizations </li></ul><ul><li>Identifies key areas of focus that recommended initiatives are based upon </li></ul>

18. In parallel, we review spending and labor distribution against industry averages Page • IT spending overall is inline with industry averages, though lab or spend / headcount is much higher as the organization has taken little advantage of outsourcing tactical support • The high number of local support resources drives these results and also diminishes the organizations ability to invest in more global / strategic initiatives Global / Strategy FTEs vs. Local / Tactical FTEs CapEx vs. OpEx IT FTEs as % of Total Employees** IT Maintenance / Operations Expense as % of Revenue Industry Average & Client Position Metric Overall Spend Analysis Global / Strategy FTEs vs. Local / Tactical FTEs CapEx vs. OpEx IT FTEs as % of Total Employees** IT Maintenance / Operations Expense as % of Revenue Industry Average & Client Position Metric Overall Spend Analysis IT Op Ex Analysis IT Op Ex Analysis 0% 3% 1% 2% 0% 3% 1% 2% 0% 3% 1% 2% 0% 3% 1% 2% 100% CapEx 50/50 100% OpEx 100% Global 50/50 = Industry Average = Client = Industry Average = Client 100% Local 75/25 30/70 = Industry Average = Client = Industry Average = Client Illustrative Example 0% 10% 20% 30% 40% 50% Labor Software Maintenance Outsourcing/SLA Depreciation

19. When Discovery and Analysis are completed, the outputs are holistically reviewed in order to produce a final recommendation Page Maturity Model Analysis Comparative Spend Analysis Maturity Model Assessment Final Recommendation The results of each analysis are compelling, but it is critical to review them side-by-side to understand the root cause of our findings… … we do not want to merely give you something to think about - - we want to give you something to act on.

20. Too often, companies make the mistake of analyzing spend against benchmarks without understanding the root cause Page In this example, labor spend is higher than the industry average, though there could be justification, such as: <ul><li>In-sourced development staff due to unique requirements and a high level of custom applications </li></ul><ul><li>A need to staff locally due to unique business requirements / regulations in each region </li></ul>When comparing the spend analysis to the maturity ratings, a root cause is often discovered <ul><li>In this example, the high number of local resources performing tactical support drives a low maturity rating and would contribute to the high labor spend </li></ul>Illustrative Example Illustrative Example

22. Summary <ul><li>In our experience, Business Value is achieved most effectively when the IT Technology Assets and the IT Service Delivery Model are integrated and work together seamlessly </li></ul><ul><li>Our focus on technology integration, business alignment, cost performance, speed, and agility has allowed us to build very effective IT Service Delivery Models for our clients </li></ul><ul><li>We have a proven “Rapid Assessment” approach that quickly identifies delivery improvements and savings opportunities – and includes a roadmap to achieve them </li></ul><ul><li>We typically save our clients an average ranging between 10% and 20% on annual spend; in some cases, we have saved much more </li></ul>Page

23. How does Archstone Consulting differ from traditional IT consulting firms? <ul><ul><li>Our Foundation – We’re business people first; we believe that effective IT begins and ends with the business, rather than “IT for IT’s sake” </li></ul></ul><ul><ul><li>Our Industry Depth – We understand the pressures, the requirements, and the constraints of the industries in which we work and can practically apply our industry experience to IT </li></ul></ul><ul><ul><li>Our Focus – We focus on achieving tangible and sustainable results for our clients, rather than merely executing yet another consulting study </li></ul></ul><ul><ul><li>Our Approach – It is proven and has been tuned via the execution of many information technology deployment and service delivery model projects </li></ul></ul><ul><ul><li>Our Style – We work shoulder to shoulder with our clients – we believe that the best results are achieved when client and consultant work together </li></ul></ul><ul><ul><li>Our Flexibility – We recognize that business doesn’t stop just because we’re on the ground; we accommodate our clients’ busy schedules to minimize the disruption to operations </li></ul></ul><ul><ul><li>Our Independence – We are not owned, nor are we aligned, with any technology firm; as a result, we focus on what’s right for our clients, rather than for a partner </li></ul></ul>Page We are excited at the prospect of working with you and stand ready to begin immediately

IT Service Delivery Model Overview

Mark Peacock

IT Service Delivery Model Overview