 | Issue: | Asia-Pacific II 2007 |
| Article no.: | 11 | |
| Topic: | Selective sourcing – do more with less, better and quicker | |
| Author: | Ms Cynthia McBride | |
| Title: | Managed Services Group Manager | |
| Organisation: | Sun Microsystems Inc. | |
| PDF size: | 240KB |
About author
Cynthia McBride is the Managed Services Group Manager at Sun Microsystems. Prior to joining Sun, Ms McBride was responsible for designing and building the IT outsourcing service offering and developing services for RELERA, an Internet data centre company. Ms McBride began her career in IT Service development in the training and development industry. Ms McBride, a three times recipient of the Merit Scholarship Award for academic and design achievement, holds an MBA from the University of Colorado’s Leeds School of Business in Boulder, a Bachelor of Fine Arts from the Rocky Mountain College of Art and Design, Colorado State University, and a CEDIR, Colorado Executive Development in Residence.
Article abstract
Growing need – and budgets limited by mistaken perceptions that information technology, IT, is a cost, not a profit builder – force businesses to outsource IT. This can partially resolve the dilemma, but outsourcing often reduces the ability to respond quickly to changing markets and needs. Selective outsourcing of chosen processes, and the tight coupling of outsourcer/client IT resources and personnel on site if needed, can offer the benefits of outsourcing with the management control and flexibility of in-house processing.
Full Article
Many of us are familiar with the situation in which CIOs typically find themselves: unlimited demand for IT services constrained by a limited budget. It is no wonder that the average organizational life expectancy for a CIO is measured in months. The dilemma is that IT, while generally perceived as a business operations overhead expense, should in reality be treated as a competitive advantage for the enterprise. The disconnect comes about when the IT organization is so occupied with day-to-day IT operations that it lacks the time to take a real interest in business operations and objectives. Rather than act as a strategic advantage for the corporation, it instead sinks into a reactive operations mentality that consumes time, de-motivates people and reinforces a negative perception of IT as a cost to reduce or eliminate. IT value perception Company decision makers typically view the value of IT in terms of the costs that it generates rather than as an enabler of business operations and revenue production. This point of view is tacitly acknowledged every time the CIO allows across the board IT budget cuts. The IT value model decision-makers are using, then, looks like Figure 1: While this is simple representation, it illustrates that many decision-makers look at IT strictly in terms of the costs it imposes on the company. In such a model, the only thing that can be done to increase value is to decrease cost. This leads to draconian decisions that cut either personnel, operations capabilities or IT investment. While cutting personnel and investment is bad, when your company depends on IT, cutting operations can be lethal since operations tend to tailor the response of IT to business needs. A more realistic model is to acknowledge that IT does not operate in isolation within the company. It not only impacts costs, but to the extent that it also supports critical business applications, it also impacts business operations costs and revenue directly. The more complete model looks like Figure 2: As this model illustrates, the cost of IT now becomes a lower level consideration. More important is the cost to the company when IT does not work well. The primary impact of IT reliability is the degree to which operations are affected. IT operations literally have the capability to throttle the revenue production of the company. If IT is not working or responding well to business needs, the company may be limited in its ability to react to market demands. At the very least, bad operations translate into a higher cost of doing business. In fact, the cost of maintaining a robust IT response, in some extreme cases, is not the issue at all. For some highly IT dependent companies, a degraded IT operations capability can literally put the company out of business. Imagine a Google or an eBay suffering a prolonged IT outage and you get the idea. In such a case, the cost of IT can be thought of as an insurance premium rather than a reducible overhead. Choice, control, flexibility The more complete IT value model implies that it is critical to the business to maintain choice, control and flexibility in its application of IT to support business operations. Yet, the traditional approaches to managing or valuing IT don’t seem to encourage these objectives. In fact, a budgeting process that over-emphasizes cost reduction rather than business enablement tends to ensure that none of these objectives is met. The global marketplace is now moving so quickly that companies must constantly adjust their business processes to deliver different products and services, in new ways, to new customer groups. Writers such as Ray Kurzweil have speculated that this means that business must now operate at a Moore’s Law pace. In fact, what this means is that a company must be able to alter its way of doing business flexibly in response to the market. This rarely allows anything like years of time to modify the IT infrastructure to match the new business expectations. Is it any wonder, then, that IT is constantly playing catch up? Yet, in spite of this need to be flexible, the company must retain control over the evolution of IT and the way in which it is supported day to day. Remembering the Moore’s Law dynamic, it is apparent that anything that slows the response of IT can be business threatening. It is easy to see that an outsourcing arrangement that separates the company from its infrastructure planning by contract is probably not going to increase the speed of IT response. Choice, too, is important to businesses. When IT operations are completely outsourced, choice is constrained by contract. This limits the potential response of IT to changing business demands. When functions are selectively outsourced, the range of potential responses is unlimited, since IT operations can now engage with any number of third parties to build the appropriate response based on the expertise of the selected outsourcing service provider. Selective sourcing Outsourcing has acquired some negative press due to the failure to plan comprehensively for the desired outcome and its inability to appreciate the role of IT in the enterprise. However, this needn’t be the case. In fact, I advocate an approach that makes use of the best aspects of outsourcing to change radically the IT dynamic in the corporation. Rather than outsourcing all or most IT operations, the key is to outsource selectively those functions that do not add to the value perception of IT in the corporation. The idea is to reorient IT away from a focus on day-to-day operations and ‘fire fighting’ and focus upon applying IT to key business functions in order to improve them. This focus on the strategic value of IT leaves a void that must be filled with skilled labour. This is where selective sourcing comes in. Effective selective sourcing solutions offer a highly integrated combination of people, process and technology in order to deliver predictable and reliable services to users. The virtue of this approach is in its ability to reduce sources of human error by integrating knowledge into the service delivery process. This allows the rapid correlation of unrelated data to isolate faults and reduce downtime. Not incidentally, this also enables a focus on prevention rather than correction. As our decision model illustrates, the longer it takes to resolve an outage the more it impacts the business. Another way to look at it is the more users a critical system or application touches, the more leverage it has to cause mayhem when it isn’t working. Anything that reduces downtime will have a significant impact on the efficiency of the business. Highly integrated operations management services allow IT to leverage the expertise of an extended service organization. When errors occur, the service provider can dynamically apply whatever resources prove necessary to correct the problem quickly. This tends to minimize the duration of errors since the service provider does not depend on a limited pool of experience, specific to the company, but on the experience it has acquired over many engagements. Since the service provider focuses totally on operations management, rather than all of the competing demands that IT faces, it can apply best practices and acquire the most highly experienced personnel. The near-shore/off-shore dynamic Of course, not all outsourcers are capable of providing the sort of operations management a selective sourcing model requires. The service provider must be capable of using on-site resources embedded in the day-to-day culture of the IT organization. This may mean having service provider personnel on site or having the technology to establish a virtual presence within the client’s IT organization to monitor its processes. The key is that both the on-site and off-site operations management staff adhere to, and leverage, the same tools and processes. This ensures that, from a user perspective, IT appears seamless. Off-shore service provision that seeks to abstract the operations function from the IT organization totally typically introduces so many points of interface that IT reliability can suffer. A more tightly coupled approach – what I call ‘near shore’ – provides a better user experience, reduces the opportunity for handoff errors and increases IT infrastructure reliability. Selective sourcing evolution Selective sourcing is currently in its infancy. The market is still evolving methods to standardise the management of such engagements. However, this needn’t deter companies from exploring such arrangements. The key is to build the operations management capabilities supplied by third parties into the client’s IT service delivery processes, rather than farming them out to the outsourcer. Tightly integrating third-party service providers ensures the client maintains choice, control and flexibility with regard to its operations. Companies interested in fundamentally improving their IT response, and resolving the dilemma of meeting growing IT demand with limited budgets, should talk to service providers that understand how to work within the IT operation of the company without co-opting it. There are several companies, including ours, that have pioneered this approach to delivering managed services.
