I was discussing an interesting article on Computerworld earlier today with a client. The article is based on a study by Compass and leads with the headline ‘Credit crunch fundamentally changes economics of outsourcing’. The cut of the article is two fold.
- It’s imperative to understand the value an outsourcing contract will create.
- It makes economic sense to work within standard services wherever possible to minimise cost.
Savings resulting from outsourcing will come from a deep understanding of the business need
The first point in the article is that traditionally most outsourcing deals are financially engineered to show lower costs at the beginning of the term and higher costs at the end of the term.
Outsourcers have traditionally done this to show attractive savings over the existing or previous service delivery, and clients like it because they’re confident they’ll be able to renegotiate the Contract before the higher charges kick in.
What we’re now seeing however, is a world where the lack of credit makes it much more difficult for an outsourcer to do this financial engineering, and this is beginning to force up the charges in the early years of new Contracts.
The article makes a really interesting point;
“With these upfront savings now removed from many deals, Compass predicts that customers will have to work more closely with providers to gain value and achieve sustainable cost reductions throughout the duration of their contracts.”
So how is this gain in value and sustainable cost reduction going to be achieved? Only through a deep understanding of what the business needs and the primary IT service requirements.
This is precisely what our products, BizMaps® and AssessiT®, help our clients to achieve. Pragmatic and replicable, these products enable our clients to plan exactly what they need, what they need to change and how to effect those changes.
Standard services reduce cost
The second consideration is the need to use an outsourcer’s standard services wherever possible.
From the article, Compass also warned that “many enterprises could be paying for costly customised services from outsourcers for IT services, such as desktop management, when a standardised service would provide savings.”
The consultant went on to say “A standardised service offering could generate savings of up to 30 percent and still meet a company’s requirements”
This begs the question, why customise a service in the first place? So often, it’s because ‘We’ve always done it that way’ without a real consideration of the underlying business needs.
A proper assessment of the requirements coupled with the courage to question the ‘way it’s always been done’ can lead to radical streamlining and cost savings.
Again this is an area in which Procertis can help its clients. The AssessiT® product in particular is about comparing the IT service being provided now with what the business really needs. It highlights the gaps and can form the basis of a robust and effective change management plan that will result in both greater efficiency and cost savings.