Equally a lot of press is made of companies re-in sourcing IT after bad experiences. Why do that? And how? Once you have outsourced, unless the structure is maintained by the outsourcer it is really troublesome and costly to bring it all back in-house again. Even more difficult to switch suppliers!

If you read a lot of the published books on Outsourcing they will help to line up the do’s and don’ts of outsourcing management and to help structure the financial case. A few even help in identifying the risk frameworks – the Black book of Outsourcing is good for this. Alas, there are virtually none around that help on evaluating internal vs. outsourcing and what to do when it all goes wrong.

And that’s not all! Most sourcing decisions are made on either the grounds of a financial benefit, skills continuity, or unit costs of supporting a variable set of requirements. Given that the human brain has trouble keeping more than a few things (about 7 I believe irrespective of the male/female debate) balanced at any one time, the multitude of competing forces involved in making the right sourcing strategy decisions are impossible to process without technology’s support. But up until now there hasn’t been an independent piece of software that helps. I know – because I have looked while working for IT vendors and consultants over the years. Everyone relies on previous assignments and a specific positioning for their services. In the end solutions are a ‘forced fit’ and not generally truly customer driven, and here’s the rub, most of the time the customer doesn’t know because they haven’t analysed their needs in a clear unbiased fashion either. Someone has been told to outsource or has a preference for in sourcing so that’s what happens even after an expensive and lengthy consultation period, long and short listing of vendors and significant contract negotiations.

Long intro? Yes, but now add the different alternative models for hardware procurement and operation, facilities build and operation, software licensing or use arrangements, managed telecommunication contracts or line procurements, dynamic processing tariffs or fixed capacities, storage management, physical vs. virtual, desktop licensing or cloud delivery, staff skills or out tasking, out-sourcing delivery costs – and most people have no chance of sorting it out quickly and understanding what factors to use in fixing around one model or another….and how the impact of that decision might affect some other part of their IT Model.

Long intro but short answer – that’s what the Clarity IT Sourcing Diagnostic does. It asks the questions you need to know the answers to in order to start out in the right direction. It uses the outcomes of over 200 previous sourcing decisions to create a probability score based on that answer alone. The neat bit though is that it then combines all the answers together across all the investment areas to come up with a rationalised probability set that shows how far toward in sourcing models (‘On book models) or external models (‘off book’ models) you should go before creating risks in your sourcing approach that need to be sorted out. The diagnostic process – and especially the detailed scenario report – tells you these too. From there – we haven’t done that bit yet!

There are some ‘buts’ also from our, and client experiences to date!

1. If you don’t have a decent background in different IT sourcing models then you will need some help to move to the next step of sorting out the detail of risk reduction programmes and vendor engagement. You have got here a lot faster though!
2. If the management team don’t have a common view of the factors in play to make the sourcing decision then use the diagnostic in a facilitated management workshop. Several iterations of scenarios may need to be run and some explanation of why the questions are important in assessing requirements is helpful for non IT literate or oriented members of the mgt team.
3. People are really used to spreadsheets but not to macro driven tools like this other than from an accounting side. There is a tendency therefore to underestimate the way that this tool works. Simply explaining that 5 quadrillion score combinations are possible prior to the multi function rules being applied, and of which there are over 240 in the diagnostic, is again a problem for the brain to accept. Trust in the tool is a concern for people initially until they run and understand it. Again, here the supported model works better since questions can be asked and rationale delivered without it being ‘black box’ and therefore perceived as generalised and not specific enough to MY business.
4. If you have multiple divisions and business lines then use the diagnostic initially to get an overall view of the requirements – then break it down to geographies, divisions or business line (software types such as CRM, eBusiness, ERP, HR etc.) This will help to finesse some of the lower level outputs so you can identify risk profiles at a more granular level. If you have an organisation which is a non centralised model it works better this way. Some interpretation has to be done at this level to so we would recommend you either get the right to use licence training and can do this yourself or engage one of the independent consultant network to support you.

If you follow these approaches and use the diagnostic properly you will have an asset that delivers consistent, defendable, high value results across your business use of the tool and which is based on totally unbiased and evidence based factors. You will save money and you will waste less time and effort.

Headlines included:

• 63% of heads of IT plan to increase the level of outsourcing, compared with 54% in 2007 and 51% in 2006 - a 12% increase over three years.
• For 69% of the heads of IT questioned, cost saving was the main driver for outsourcing their IT.
• If asked by the board to make savings, the research found that 80% of IT directors would consider extending the level of outsourcing.
• Other reasons to outsource included improving quality (41%) and providing access to skills (27%).

From this, the conclusion has to be that outsourcing is viewed by many heads of IT as a positive way of making savings.  So what are the pragmatic steps an organisation should take if it wants to outsource all or a part of its IT operations?

• Define the end result you want.  Make sure you understand exactly what the business needs in terms of functionality and service levels – the To-Be’ state.
• Document the state of service provision today.  What works? What needs fixing?  How does it align with the business need? The ‘As-Is’ state.
• Decide how you want the governance of the Contract to work.  Who will the outsourcer report to and how?  What will be measured?
• Understand how you’ll get out of the Contract in the event it doesn’t deliver the ‘To-Be’ state you’ve defined.
• Understand the volumes the outsourced service will need to supply – and how they change over time.  The volumes (for example number of users) should be the basis for the outsourcer’s charging model.
• Calculate the actual savings you need to make so you have a clear view of the financial benefits you need to achieve.
• Think through the implications of where you may outsource to.  Today services can be delivered from almost anywhere in the world but, the financial and cultural aspects of this need careful consideration.

Only when you’ve answered the above questions should you start looking for your outsourcer.  You’ll be able to give them a clear view of your requirements, and you’ll have a consistent framework to measure their proposals.

Procertis can help you answer the above questions in two ways.

• Our Sourcing Diagnostic tool that will help you determine if a full, or partial outsourced IT service delivery model, could yield cost savings and other benefits to your business.
• Alternatively, our AssessiT® and BizMaps® – would enable you to answer the above questions comprehensively.  They also provide a continuing framework to help you measure the business value the outsourcer ultimately creates.

• 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.