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.

Gone are the days when an IT function could dictate to the business units what they could have. Today, control of IT investment is moving to the business functions. He who controls the budget is automatically able to define what he (or she) wants – and with today’s business pressures nobody is holding back on that one.

This poses a big challenge for IT leaders. How can they meet the needs of the business units? How will they ensure a consistent IS strategy when different business units want to go in different directions? How can they help the business units shape what they want in a way that’s deliverable?

The future, therefore, now has three dimensions that IT leaders will have to be able to demonstrate and deliver:

1. How do they keep the overall IT infrastructure – that an organisation depends on - manageable, operational and appropriately charged back to the business units?
2. How can they ensure the business units have the systems they need – when they need them.
3. How will they know what value they’re creating for the business units in business terms? How are they impacting on each business unit’s key performance indicators?

So, what does all this actually mean? It means that there needs to be:

• A tighter coupling between business strategy, business processes and IT strategy.
• An agreement of the organisation-wide objectives, performance metrics and the related governance structures that make them work.
• A structured and replicable way that business units and IT can discuss effectively what’s required, which projects need to be prioritised and the value that change will create.
• A means to ensure that business value creation is the primary basis for making decisions about change.

The theory of achieving this is relatively straightforward. The practicality of achieving it however, is certainly more elusive. Ask yourself this; How good is my organisation in this respect?

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.

SOCITM – the professional association for public sector ICT management in the UK – has recently published a report entitled ‘What’s in a name? The practicalities of being a public sector CIO’.

The report touches on the interesting ground of how the role of the individual responsible for IT in an organisation is changing.

It defines CIOs as “digitally literate leaders who understand fully the operational environment in which their organisation works, and can build and interpret strategy at both business and technical levels.  They have the skills and attributes to lead their organisations to transform and continuously improve their services by making the best use of technology.”

Cost centres are vulnerable

Traditionally, IT has been seen as a cost to the business so, IT functions have been run as cost centres.  In the current climate, that makes them very vulnerable.  When operating costs have to be cut throughout an organisation, IT inevitably becomes a candidate for cutting.  After all, in the 21st century it tends to be one of the biggest spenders.

The ‘cost to the business’ approach also makes IT an ideal candidate for outsourcing.  It’s expensive, it’s got specialist skills that probably can’t be re-deployed elsewhere within the organisation and there is a well developed infrastructure of suppliers out there that could probably do the work on your behalf.

Today, the challenge is to channel the investment and skills in your IT function and turn it into a competitive weapon that directly enhances the core business.

Great theory, but, how do you turn that into practical action?  The first challenge has to be the ability to communicate the business value created by IT into language the rest of the board can understand.  That implies today’s CIO can talk confidently in business terms with peers responsible for business units.

The 21st century CIO needs a mastery of the interlocking factors illustrated below

There are two sets of stakeholders to deal with; internal functions within the organisation and external interfaces to customers, suppliers and partners.

Then there are the needs to:

• Keep the systems that underpin today’s business processes functioning effectively
• Help the organisation deploy IT to create competitive advantage
• Understand what technology to deploy and how to make that happen

The role of the CIO in 2009 is to use technology to create competitive advantage for the organisation.

The key to all the above is clear thinking and effective communication with all the stakeholders, coupled with an understanding of all the data the organisation possesses and how best to leverage it.

That implies a strong level of strategic thinking.  It means having a vision for the future and the ability to translate this into both business and IT strategies.  It also means being able to deliver the required services at the right cost.

This is an area with which Procertis can significantly help new model CIOs. Our unique Bizmaps® and AssessiT® methodologies help CIOs frame their business requirements accurately, and then turn those requirements into workable IT solutions.  Our related consulting expertise helps organisations determine:

• What is needed
• What the business benefits will look like
• How best to deliver it
• How to shape the change management programme to get there

The pressures on business are greater today than ever. Global competition, oppressive macroeconomic conditions and informed, discerning customers mean businesses must deliver ever higher levels of quality and service, at competitive prices.

Change is essential to success

These pressures necessitate change. That is best started by looking at what the business is trying to achieve, what business processes it depends on and how well its IT investment is supporting all of that. It’s become essential to make sure there is a perfect fit between the three elements of business strategy, business processes and IT systems.

A problem can be overcoming resistance to change. The very solidity of habits, processes and structures – when they’re competitive and productive – can help strengthen an organisation. But when an organisation’s current state impedes its ability to serve the customer, to innovate for the future, or to capitalise on a new initiative, change must happen – and fast!

Change management is a broad spectrum of processes and professional specialities aimed at successfully introducing change. These are not “soft skills” with merely subjective outcomes: the results of successful change management can be easily measured in the satisfaction of customers, speed of delivery of a particular action or service, or time to market.

The careful planning of a major programme of change is crucial to its success: the consideration of all possible ramifications to a proposed initiative; the development of a plan for information and re-education; and a map for ongoing monitoring of the new environment are all areas that need serious consideration BEFORE the start of any change management programme.

Framework for effective transformational business change

Procertis is a specialist consultancy with a unique set of IP based products developed to facilitate effective business change programmes.

Collectively, they can be used to define precisely what needs to be changed, how to change it and what the benefits will look like. These products bring a level of objectivity to what can often be regarded as a politically, sensitive subject within the organisation.

• 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.

• Cost reduction can be an opportunity to align better with business needs

• Measuring IT service provision is an opportunity to align better with key business processes

• Business processes may not be fully supporting the evolving business strategy

• Looking at all three in an integrated way is an effective way of driving change and reducing costs.

We’ve been talking a lot of late to IT budget holders about the increasing pressure they face to cut costs in these recessionary times.

However, before blindly cutting items on the budget sheet, we recommend that the true needs of the business are established using a repeatable, consistent and unbiased measurement model. From this solid foundation it’s then possible to formulate an aligned change programme that delivers cost savings without compromising the current or future IT service delivery capabilities. This is precisely the purpose of our AssessIT® product, which is part of our unique Enterprise Range.

What about the Business Processes?

That’s fine for the IT services but, they are the supporting tools that aid the execution of the company’s business processes. Is there not an opportunity to save cost by changing these business processes to better align them to the strategy of the company?

The answer is a resounding  ‘yes!’ and already, many outsourcing organisations are starting to focus their efforts up the value chain and talk about Business Processes Outsourcing (BPO) as a cost saving opportunity for companies.

Unfortunately, the level of discussion is usually restricted to just the inputs and outputs of these business processes which completely overlook other critical capabilities that must be delivered (e.g. time to delivery, exception handling, ongoing reporting etc.) and which have a major impact on the alignment of business processes to the company’s business strategy.

Without a clear understanding of these additional capabilities you will be locked into assessing the relative merits of a BPO proposition without a full understanding of your needs. That could be an expensive mistake only realised after the Contract has been signed.

Measure the Process then Engage in a Transformational Change Programme

Our advice is clear; measure the business processes in a manner that details the true needs of the business. From this solid foundation, it is then possible to formulate an aligned change programme that delivers true and measureable business benefit.

Our BizMaps® product provides this consistent foundation, and is part of our Enterprise Range. It also fully integrates the supporting IT services as measured using our AssessIT® product.

In this paper we look at the ‘how’ of measurement-based transformation, presenting a structured approach to making confident, sustained changes. This transformational framework is fully realised in the Procertis Change Control Process that is an integral part of our Enterprise Range of products.

To find out more, download the white paper

In the value chain approach the basic product or commodity is surrounded with value add-ons that offer increased margin opportunities and better deliver the true needs of the customers.

One such business that is adopting this transformational strategy has also recognised that to climb this chain their IT must be better integrated with their business processes. To establish the current integration level between IT, the business and their future requirements, we are using our BizMaps® and AssessIT® products from our Enterprise RangeToolkit. These provide a clear, unbiased foundation on which to develop the necessary transformation programme of work.

The first stage of the engagement is to establish the set of services to be measured. Here, we found the business was keen to decompose IT into its commoditised elements – printers, disk storage, email servers etc. which is rather odd given the overall business objective driving this work is to move the company up the value chain.

After some discussion, the value chain mind set was applied to IT and yielded services such as document management, the company communication channel and remote working. These services were far more business relevant and will ultimately be easier to manage as part of the transformational strategy – in fact all the benefits a client would expect from services higher up the value chain.

In our experience, no, it isn’t. The real challenge is to understand exactly what it is all those servers are doing, and why. And that’s a whole lot harder.

How to support your organisation’s key business processes?

The right answer is to think about what it is your organisation sets out to do – it’s strategy. That leads naturally to what business processes enable it to deliver its strategy, and then what IT investment supports those processes.

Right answer, but, in practice, it’s easier to go and buy another server to sort today’s problem. Strategy can wait until tomorrow.

The problem comes when the organisation demands savings (and be assured, in 2009 the savings target will be bigger than ever). There have been savings for years, so getting another 10% isn’t going to be easy.

Be Radical!

That’s the time to recommend a radical approach. To really understand how all that kit, licences, space and power cost lines up against the organisation’s business processes. It’s not uncommon to find that more than 20% of an organisation’s servers are supporting stuff that nobody actually uses any more – if indeed their function can be identified at all.

It’s time to go back to the drawing board; understand exactly what supports what and get rid of the rest. In one move IT can create savings and efficiencies – all at the same time. To find out more, check out how our Enterprise and Clarity product ranges.