Where next for IT outsourcing?

IT outsourcing is emotive, but it is hard to find a company today that doesn’t do it in some way.

Outsourcing is also changing fast. In the past, IT outsourcing was a case of handing over the running of the back office, with suppliers offering to manage “the mess for less”.

This extended to companies choosing to have mess managed for even less in offshore locations, particularly India, where the cost of labour is lower.

But developments in cloud computing, automation software and big data technology are changing the way outsourcers offer services and how businesses consume them.

Traditional application development and maintenance outsourcing is being shaken up as a result of cloud computing and the software as a service it brings. Offshore business processes and IT services are being replaced by automation technology, reducing the need for low-cost, full-time staff to run them. Meanwhile, big data is turning suppliers into information gatherers and translators rather than software maintainers.

Another change taking place is the digitisation of business, which is placing difficult demands on in-house IT resources. Businesses want support in the back end to free up staff for digital projects at the front, where their business knowledge is vital.

All this means IT outsourcing is set to continue, but will change in its form.

Computer Weekly’s CW500 Club recently discussed thefuture of IT outsourcing. CIOs from Croydon Council, Cambridge University Press and clothes retailer Monsoon Accessorize described some of the changes happening now and their impact on IT outsourcing.

Public sector is open to change

The fact that the public sector is transparent is the reason we hear so many public sector IT outsourcing horror stories, not simply because there are more of them. Private sector companies, on the other hand, are unlikely to publicise failed outsourcing arrangements. But outsourcing in the public sector does have its challenges.

Outsourcing is an attractive cost-cutting mechanism for any organisation forced to cut costs. The London Borough of Croydon is a good example of an organisation facing this, as the council has to cut £100m from its budget over the next three years.

Nick Roberts, head of ICT at London Borough of Croydon, and former president of local authority user group Socitm, says while many commercial organisations are coming out of austerity and are able to invest, local government is only about halfway through the process.

Outsourcing provides cost-cutting opportunities, so public sector bodies, with seemingly impossible austerity targets, will inevitably look to the market for options. But while outsourcing contracts promise cost savings, it seems they are failing to support the future plans of customers, despite the importance of IT in these plans.

Roberts says government organisations have had bad experiences with large outsourcing contracts, many of which were set up with the knowledge of what was required from day one, with the supplier offering a competitive price to deliver.

“But then day two comes and you have to change things, but this is a commercial process,” he says.

The supplier has its own targets, so making changes to the agreed contract is not easy.

He says this situation inevitably causes problems, with the inability to change being “difficult to manage in a world where the only constant is change”.

Roberts, not surprisingly, “has a few gripes” about traditional outsourcing contracts.

“They focus on the current operational state and are not built for change,” he says. “That change process is always mired in a commercial process. The business wants to change, but it can’t because it has to go through this commercial process.”

He says contracts reinforce this because they are written to measure success in terms of support rather than the ability to change and be flexible.

But cloud is bringing change, according to Roberts. “A lot of the contracts in place are effectively in-house datacentre support contracts. But the big change is the move to native cloud, which takes that out of the equation,” he says.

For example, enterprise applications that were kept up to date by suppliers are not relevant with software as a service. The hardware estate is also not managed in the same way, with staff using a large number of different devices.

IT that supports the customer-facing operation needs to be in-house. The in-house teams that understand the relationship with customers have vital skills for IT today, because IT is an interface with citizens rather than just underpinning systems.

Roberts says increased multi-sourcing mixed with in-house services and shared services will be the make-up of IT services going forward.

Where shall I take my IT?

While outsourcing changes, so do the locations from which it is delivered.

Mark Maddocks, CIO at Cambridge University Press, says the medium-sized publisher is in the process of moving from print to digital publishing, which is a big step for an organisation that is almost 500 years old.

Cambridge University Press publishes academic journals and books and has English language courses and education businesses across the world. Most of its sales are outside the UK.

The company has significant outsourced operations, many of which are in offshore locations.

Maddocks says the company uses four types of outsourcing and, following success with the approach, has increased its offshore operations over the last five years.

“We have a traditional outsourcing model. We buy services where we are looking for scale and cost reduction. Here we are not really looking for differentiation and I would be quite happy if all our competitors used the same service,” he says. “This works a treat when you have a really clear interface and when you can measure it. We use this for all sorts of things, such as hosting.”

Spend time building relationships with teams offshoreMark Maddocks, Cambridge University Press

The company also has offshore captives.

Its first was in Manila, Philippines, where it started around five years ago with 40 staff focused on software development and testing, supporting its online digital product. Currently, it has just over 250 people and expects over 300 by the end of 2015. The Manila centre now has 18 seperate teams carrying out a wide range of internal services.

According to Maddocks, it is “cost-effective, low attrition and wage inflation is not as bad as people say”.

But there are disadvantages. Maddocks says it requires management time and overhead. “They are my team and I still have to manage them.”

The company’s third model is offshore software development in India, with development centres in Calcutta and Hyderabad. These are with two very large Indian IT services providers and both centres have about 50 people in them.

The Calcutta centre supports the organisation’s learning management platform, which is an English language resource used by about 500,000 people worldwide.

“I put this in Calcutta, rather than Manila, for access to skills. There was a particular technology stack I did not think I could bring in quick enough in Manila,” says Maddocks.

“We have built a long-term relationship and are in the fourth year of working with that supplier. In Hyderabad we are in the third year of a deal to run one of our internal systems,” he adds.

The fourth model, a hybrid of traditional offshoring to a supplier and a captive, has just been launched through a business process outsourcing operation, where it shares a building with the existing team in Hyderabad.

“We have big growth plans and will expand from about 10 people to over 100 by the end of the year,” says Maddocks.

This model uses an Indian partner to help the company recruit for a centre that uses a traditional supplier/customer model, but will have the ability to change to a captive centre easily if the organisation wants it to, he says.

His advice to CIOs thinking about outsourcing and offshoring is to “be really clear what your aims are and think beyond cost reduction and getting rid of a problem”.

“Think about accountabilities and make sure teams have ownership of the relationships with the people you work with and have good offshore leads,” he adds.“Spend time building relationships with teams offshore.”

The day-to-day IT grunt and robust solutions will be provided by suppliersJohn Bovill, Monsoon Accessorize

It is clear the changing role of the IT department is moving it from the dark depths of the basement to the shop window.

Retail’s speedy and necessary take-up of digital customer services is a good example of a sector where IT is split in two. Today there will be teams, probably outsourced, supporting legacy systems, while in-house IT, which understands the business, focuses on providing customer facing apps and understanding customer behaviour through data.

John Bovill, IT and e-commerce director at Monsoon Accessorize, says the retail industry is in a state of flux.

“People are interacting with our company in different ways and this has put IT at the front of house,” he says.

About 50% of Monsoon Accessorize’s customers have first contact with the store via the website and the other 50% through the store, but 75% of final transactions are still in-store.

These changes in customer behaviour meant in-house IT had to change. Resources can no longer focus on the systems that keep the company running but must be dedicated to attracting customers.

In the past, says Bovill, stock was sent to outlets and sold on the high street to consumers  physcially browsing in the stores. But today it is about drawing customers in, which means understanding them.

“The corporate IT function as we know it in our industry will be very different. Consumerisation will turn it on its head. It will be analytics-based and all aboutunderstanding data and using it in an intelligent way,” says Bovill. “The day-to-day IT grunt and robust solutions will be provided by suppliers.”

Source: computerweekly-Where next for IT outsourcing? by Karl Flinders

5 reasons to outsource your IT

Outsourcing any aspect of your business can be a daunting prospect. Done badly, it can leave companies fragmented and their data at risk. However, with the vast quantities of information now being stored digitally and the increasing number of applications and software packages being used every day by organisations, managing everything internally can be a real challenge.

As a result, many companies are now choosing to outsource their IT to help alleviate the burden placed on in-house resources. When outsourcing is carried out effectively, it can bring huge benefits to companies, particularly smaller firms that may be less well-equipped to deal with unforeseen issues. With that in mind, we’ve listed five of the best reasons for companies to use third-party IT management.

Cost

It’s not just smaller firms that stand to benefit from outsourcing their IT, all companies ultimately succeed or fail based on their profit margins, so cost-effective resource management is key.

Dealing with all your IT infrastructure internally can be extremely costly. IT leaders are understandably on a significant salary but are too often tasked with resolving minor technical issues, rather than spending time thinking about how to take the company infrastructure forward.

It’s not just on the recruitment front where businesses could be saving money, however. Third-party suppliers that have dedicated servers focused on a particular service, like email for example, can be managed much more efficiently that an in-house server tackling all the company’s needs.

Free internal resources

By allowing an external organisation to manage your IT infrastructure, you can also free your staff and any remaining internal resources to work more effectively.

Smaller companies in particular can’t afford to spend time and money worrying about technical issues, as every minute wasted on IT management is a minute that could have been used to grow the business.

Depending on the type of business you run, dealing with IT problems can require dedicated support staff, which can become costly. With today’s mobile workforce, companies must increasingly be able to deal with issues 24 hours a day. It is hugely inefficient for individual businesses to provide this level of service, but dedicated third-party teams are able to do so at a lower cost, by providing infrastructure to multiple companies.

Avoid problems

Internal IT departments usually operate on an “if it isn’t broke, don’t fix it” methodology due to budget constraints, but this short-sighted approach can cause huge, unforeseen problems down the line.

Unplanned down time can be hugely damaging to a company’s reputation as well as its bank balance, but constantly managing , evaluating and identifying potential future issues can be beyond some firms.

Third-party service or infrastructure providers are focused entirely on making sure that their product is delivered effectively, meaning that they will handle improvements, updates and maintenance themselves. Many vendors will also provide a level of service guarantee, stipulating how much downtime is to be expected for maintenance. As well as providing peace of mind for companies and their customers, businesses may also be entitled to compensation if a vendor breaches its guarantee.

Gain expertise

If companies cannot afford to employ IT experts internally, that doesn’t mean they need to blindly fumble though the tech landscape. Instead, outsourced IT will give them access to expertise as and when they need it, often providing a much more cost-effective solution.

Even if a business has the financial resources to employ a team of IT support staff, the recruitment process itself can be challenging and when handled badly can prove a costly mistake. External organisations are equipped with highly skilled, qualified IT technicians that should be able to rectify problems and offer advice whenever your company needs it.

Agility

Perhaps the biggest benefit of outsourced IT is the added agility that it can give a business. Infrastructure can be a huge expense and before long will be outdated, and perhaps, unsuitable for your company’s needs.

Source: itproportal-5 reasons to outsource your IT

The top five things to consider when outsourcing

Outsourcing may be commonplace in 2015, but businesses need to be wary to balance the risks with a sound strategy

In today’s fast-paced business world, driving efficiency is often at the heart of growth plans. When thoroughly planned, outsourcing plays a vital role in ensuring productivity is high; enabling managers to focus on business development and disruptive innovation.

However, some organisations cause irreparable damage to their business by outsourcing too early, while others risk falling behind to more innovative competitors by ignoring the opportunities available; and some companies outsource the wrong mix of activities.

It’s unclear whether this balancing act is why the outsourcing market in the UK declined in Q1 compared to the same period last year, although it could also imply a wariness to trust third parties with internal business processes.

If this is the case, business leaders are setting themselves up for a fall. Failing to outsource effectively can cause irreparable damage to an organisation. Put simply, business growth will be stunted. In light of this, there are five main areas to consider when outsourcing.

Cost-efficiency

Put simply, the majority of outsourcing takes place to increase profit margins, lowering expenditure on labour and operational costs, while improving the bottom line. However, the cost-efficiency of taking this approach comes into question if the wrong processes are left in the hands of a third party.

> See also: Security and outsourcing – those responsibility is it anyway?

Offshoring well-defined maintenance tasks, such as payroll management, removes the need for businesses to hire in-house experts to manage accounts, freeing up capital which can be invested elsewhere.

Core activities shouldn’t be outsourced though, as the necessary knowledge levels will inevitably be found in-house and should remain at the heart of the company. Google wouldn’t outsource search engine algorithm innovation to a third party for example – it would risk losing its competitive advantage. The same is true for all businesses, regardless of size.

Business reputation

Businesses live and die by their reputation and in the social media age, each product and service they offer is scrutinised under the microscope. It’s therefore vital that the highest possible standards are maintained continuously, especially for external facing processes. Failing to take your reputation into account before outsourcing may be the biggest mistake you ever make.

Take call centres for example. When outsourced efficiently consumers rarely realise they aren’t speaking to an in-house representative. However, if offshored poorly a disconnect between the business and its customer service becomes far too apparent, leading to a vocal and costly backlash. The same is true of all external processes. Offshoring may free capital, but if service levels drop the cost of rebuilding business reputation is much higher than any initial savings.

Innovation

Many businesses aim to transform their offerings and innovate like a ‘start-up’. However, internal constraints and practices can stifle this. Established businesses investing capital in disruptive innovation should be the cornerstone of their development plans.

Outsourcing innovative processes such as software development often breeds the best results, as internal team members may be too close to the business’ existing processes to ‘think outside the box’.

When successful, such innovation is highly lucrative. By researching and identifying a new market the disruptive business will immediately become the industry leader, leaving competitors in its wake. If companies fail to do so their competitors will, so outsourcing wisely in areas such as innovation is critical.

Businesses need to be wary though, pick the wrong partner and it can set back innovation and growth, resulting in missed opportunities. A partner must be agile, able to rapidly adapt to ever changing business needs, all while working very closely with the company.

Communication & collaboration

Agile development has continued growing in popularity, with continuous communication and collaboration at the heart of innovative projects. It’s therefore vital to keep this in mind before outsourcing project work to a third party, especially when considering offshoring. UK businesses which turn to Asian companies will likely find daily iterations are difficult to manage due to the vast time differences.

In some circumstances, there may only be a few hours of overlap during the working day so time for communication is limited and can seem rushed. This will either impact product quality, or at least result in unnecessarily long lead times. Also cultural differences shouldn’t be underestimated, companies frequently need to work much harder to overcome these than is often considered up-front.

However, when outsourcing onshore, communication isn’t strained by time zone difficulties, cultural differences are minimised and daily iterations are also still possible to ensure projects remain on track.

Large companies can benefit greatly from onshore outsourcing, taking advantage of rapid and low cost innovation using an external team without draining resource from their day-to-day operations.

Calculated risk

Outsourcing is often unfairly viewed as a risky option, and although there is risk involved this depends on the type of processes outsourced. If core business practices are offshored the risk is huge, as you have little control over what is a central element of your organisation, which can have disastrous results.

On the other hand, outsourcing development projects should be viewed as well-calculated risk, offering businesses an opportunity to research their market and work closely with a third party to innovate and generate the highest quality results possible.

Time to reap the rewards

Outsourcing is a key element of business today and to write it off as unnecessary risk is short-sighted and leaves organisations at risk of being left behind by their competitors. Companies simply can’t be as efficient if they handle all tasks internally, while failing to look further afield than the office floor for expert advice when aiming to disrupt the market can be a mistake which is impossible to bounce back from.

Sourced from John Cooke, founder and managing director, Black Pepper Software

Source: information-age-The top five things to consider when outsourcing by  Chloe Green

5 risks of outsourcing your IT infrastructure

Outsourcing IT resources can be hugely beneficial to a company, providing significant cost reductions, more efficient use of time and increased agility. However, companies must assess carefully whether outsourcing is right for them and not simply get caught up in industry trends. Perhaps more pertinently, they must also decide which parts of the organisation will benefit from third-party involvement and which would be better off remaining in-house.

Organisations that do ultimately decide to go down the outsourcing route will hopefully have weighed up both the potential benefits and the possible risks involved. For any IT leaders worried about making the transition, we’ve listed some of the likely pitfalls below.

Easier said than done

It can be easy to get carried away and decide to outsource as much of your IT resources as you can, particularly when it can save your business money.

However, some IT functions are not easily outsourced and organisations need to know if their third-party vendor of choice has the required expertise to deliver what their customers need. There are a multitude of IT-based tasks carried out by the modern business, ranging from the relatively simple to complex automated operations. An external service provider may be unaware of in-house standards and will need time to become familiar with your systems and networks. Outsourcing your IT isn’t necessarily a one-size-fits-all solution.

Lack of control

Although it requires more management, keeping your IT infrastructure internal gives a business full control over all of its data and services.

Although, you may have complete faith in your third-party partner, outsourcing means businesses are not able to carry out updates or software changes whenever they see fit. While it makes sense to outsource a relatively simple feature like email, more critical software may be better served remaining in-house.

Businesses may be particularly protective of sensitive data, but when this information is in the hands of an external company there’s very little they can do to guarantee its safety.

As flexible as it sounds?

While outsourcing can give businesses more fluidity when it comes to upscaling and adopting new technologies, it is important not to take this for granted.

Some outsourced companies will require you to sign up for a set period of time, sometimes as much as a year, so the flexibility provided can be more restricted than originally thought. You may also need to purchase proprietary software in order to work with the external company, making it more difficult switch if you feel like you’re not receiving the level of service you need.

If you end up locked in to a partnership with an inadequate third party supplier, you could end up regretting the decision to outsource your IT business.

Too much cost cutting

There is a risk that as soon as executives see how much money they could save from outsourcing, cost-cutting becomes cutting corners.

IT leaders need to have a clear plan in place for how outsourced services are going to operate in conjunction with internal IT as smoothly and efficiently as possible. Before signing up with an external company, make sure there’s plenty of discussion about how this partnership will work, what level of service guarantees you’ll receive and what security protocols are in place. Outsourcing can provide a fruitful long-term collaboration opportunity, so it’s crucial you take time before making a decision.

Employee morale

Utilising an external company rather than using an in-house team can also negatively affect employee morale. Particularly, if outsourcing means getting rid of existing personnel. If the IT department receives its marching orders, it’s likely that the rest of the staff will soon be wondering when they’ll be on the chopping block, making for an unhealthy atmosphere.

Using third party suppliers also means that employees don’t build up the same level of rapport as they would with on-premise IT staff. External firms may send different engineers each time there’s a problem, making it more difficult to form relationships. While fruitful partnerships can develop as a result of outsourcing, they may need to be worked at.
Source: itproportal-5 risks of outsourcing your IT infrastructure by Barclay Ballard

Checklist of IT KPIs for responsive data center ops

The right metrics, aligned with business needs, strengthen data center monitoring and capacity planning. KPIs orient IT performance to specific goals.

The traditional focus on hardware and software monitoring is shifting to a business focus using key performance indicators (KPIs). IT KPIs gauge abstract targets, such as user experience or job ticket turnaround effectiveness.

The difference between IT KPIs and common IT monitoring is the involvement of business leadership. Any organization can deploy tools to track the computing resources assigned to VMs or watch the bandwidth utilization on servers. Granular technical factors can be helpful to IT staff, but have little practical value to the business. Insights from KPIs allow management to justify investments to remediate issues.

KPIs help business executives gauge the impact or success of IT. For example, a business dependent on Web-based sales or content delivery would implement KPIs on overall computing capacity, application performance and system utilization. Additional KPIs measure the state of the IT infrastructure, including transactions, efficiency and agility.

Although ITIL has a general set of suggested key performance indicators, there is no single set of universal KPIs that fit every purpose. IT KPIs typically fall into three categories: service delivery effectiveness, service or performance efficiency and agility (responding to change). Organizations like IT service providers also use service availability KPI metrics.

Service delivery effectiveness

• Throughput

The user load or demand on an application or system(s). Throughput is often expressed as the number of transactions or measure of computing work.

• Response time

This KPI covers how much time is needed to complete a transaction.Response time may include multiple infrastructure elements, including servers, networking and storage. It may be tied to service level agreements (SLAs).

• Utilization

The amount of physical or virtual computing resources or capacity that is actually used, as compared to total capacity, yields a utilization rate. For example, if a VM is assigned 10 GB of memory and it uses 10 GB of memory, utilization is 100%.

• Uptime

Uptime measures the percentage of time that an application or system is running. Technologies like clustering, resilient servers and network failover all help gird uptime against individual failures.

The organization uses these metrics to compute its custom service delivery KPI. For example, if throughput and uptime are high and response time is low, the service delivery score will likely be good — regardless of utilization. But if utilization and response times increase, and throughput or uptime fall, the waning score brings to light potential IT issues.

Service efficiency or performance

• Workload efficiency or performance

This derived index compares a workload’s allocated resources to utilized resources. It shows if a workload is wasting resources, oversubscribed (resource starved) or just right.

• System efficiency or performance

System efficiency is another derived index comparing a server’s allocated resources to its available resources at an optimum load. This shows if the server is wasting resources or is oversubscribed.

The metrics for workloads and systems are typically aggregated across the data center to calculate a weighted average. The team can quickly gauge status for the period and compare it to previous periods — justifying new technology initiatives and investments to preserve and enhance efficiency figures. A poor KPI may require workload balancing or a technology refresh project.

System agility

• Service requests resolved

This measures the number of help desk tickets, support calls or other service requests addressed and resolved successfully within an acceptable time period.

• Time to resolution (TTR)

TTR tracks the amount of time needed to address service requests. Examples include how long it takes to evaluate, justify, approve and provision a new VM once a request is received, or make changes to resource allocations once a performance impairment is detected.

As the number of IT service requests increases and TTR decreases, it can be inferred that IT is agile and able to respond to changes in workload or user demand. If the number of requests increases and TTR increases, IT faces pronounced agility concerns.

Service availability

IT service providers — or any IT organization bound by SLAs — might adopt an SLA KPI that involves a wide range of metrics.

• Resolution percentage

This IT KPI metric measures the percentage of help or service requests addressed within an acceptable period.

• Uptime

Uptime is how much the service was available over the billing cycle. Some amount of service disruption is unavoidable, but uptime is a means of gauging SLA adherence and business performance.

• Mean time between failure (MTBF)/ mean time to repair (MTTR)

MTBF and MTTR gauge fault frequency and how long it takes to fix them.

• Number of action items

This is the number of complaints or service requests that IT receives. Increases in this number indicate problems with certain systems or platforms.

Collecting all of this data, weighting it, and formulating a result provides business leaders with an important early warning of SLA problems, offers the basis for follow up or discussion with IT leaders, or spawns a business goal for service improvement.

KPI oversights

1. Subjective metrics, such as user satisfaction, are based on objective characteristics like app performance or throughput, but the perception of the KPI may be skewed or used improperly. Always use objective, measurable parameters.
2. When business and IT leaders look at the same KPIs the same way forever. For example, a business might track system utilization and uptime. Early on, utilization was more important, but as services evolve and utilization reaches goals, uptime takes on greater significance.
3. When business leaders fail to update KPIs as the business model matures. For example, a greenfield data center build focused on energy consumption and cost control. Once it met those goals, the focus should change to improving IT service quality or agility.

Select the KPIs to measure

Perhaps the most important — but overlooked — aspect of KPIs is business relevance. Accounting, marketing, sales and IT can manage and report on granular metrics generated by a myriad of sources, systems and tools. But not every metric is essential for business decisions or measuring goals. And essential metrics vary from company to company, even project to project.

Select IT KPIs by first understanding the goals. A business that focuses on IT services will pay attention to transactional- or throughput-related measurements under various load conditions and activity levels. Conversely, a business concerned with controlling IT costs selects KPIs around computing resource availability, utilization and system power consumption.

Then, select areas that can be measured, establish thresholds of performance, implement measurements with monitoring or management tools and generate periodic or ad-hoc reports that show KPI data over time.

Source: techtarget- Checklist of IT KPIs for responsive data center ops by Stephen J. Bigelow

Top 10 IT outsourcing stories

IT outsourcing has had a big year. The increasing maturity and acceptance of cloud-based services has shaken up suppliers.

With technology such as the cloud and automation software able to reduce the need for more people and driving prices down, suppliers are attempting to increase their non-linear business to reduce reliance on just providing full-time equivalents.

At the same time, customers are looking to harness these new technologies, but many lack the resources. This might appear a perfect storm but other trends include the increasing appetite for large companies, like Astrazeneca, to bring services back in-house. In this case the company has established global delivery centres to give it the resources it needs, while retaining control.

Here are Computer Weekly’s top 10 IT outsourcing stories of 2014.

1. IBM India staff reductions are sign of shift in outsourcing sector

Talk of IBM reducing its India-based workforce by 50,000 over the past three years, with more to come, is a reflection of the diminishing importance of low-cost operatives.

The reported reduction in staff in India, although unconfirmed, is in line with changing IT-outsourcing demand and delivery models. One source claimed India’s Tata Consultancy Services is now IBM Global Service’s biggest competition.

2. Mature Indian offshore IT services firms take larger chunk of market as US giants collapse

India-based IT services firms increased their share of the total contract value of UK private sector IT and business process outsourcing contracts from 4% to 25% in a five-year period at the expense of large US-based service providers.

This is happening in all mature IT services markets. Fears that offshore services represent a security and continuity risk, and are just a form of labour arbitrage, are evaporating.

3. How will Indian IT services firms evolve and prosper?

Indian IT services firms need to reshape their businesses if they are to continue to grow at the rates experienced over the past decade, as traditional markets and service offerings reach maturity.

Research over the past 10 years from the Information Security Group revealed an increase in global market share of 13% for Indian IT services firms, compared with a decline of 7% for their multi-national equivalents.

4. HP should use split to make up lost ground in IT services

When HP acquired Electronic Data Systems (EDS) for $13.9bn in 2008 the scene was set for the IT giant to challenge IBM in the IT services sector, but little has happened to cause IBM to look over its shoulder.

After thousands of redundancies and an almost $9bn write-down, EDS is a shell of its former self. General Motors’ decision to bring its outsourced IT back in-house in 2012 was a high-profile example of the blows HP’s service division had to take.

5. UK government failing to break large service providers’ dominance

Large UK service providers are strengthening their grip on the public sector purse, despite efforts by the government to offer contracts to more suppliers.

The UK government’s attempts to spread its business services spending to more suppliers have so far failed, according to research from the Information Security Group, with small and medium-sized suppliers in the UK and overseas alternatives being overlooked.

6. IBM bags billions of dollars in IT services deals in a matter of days

IBM won deals worth $3.6bn, with advertising giant WPP the latest to ink a billion-dollar deal.

The seven-year contract worth $1.25bn will see WPP, which last year reported revenue of more than $17bn, put digital services on a hybrid cloud managed globally by IBM.

7. European firms satisfied with IT infrastructure outsourcing but priorities are changing

Although 60% of European businesses are satisfied with IT infrastructure service providers, their focus is switching from cost reduction to services that will help them increase sales and provide a better customer experience.

In a study by Forrester Research, 71% of IT infrastructure service buyers cited revenue growth and improving the customer experience as priorities for deals, while 66% said cost reduction was a focus.

8. AstraZeneca takes in-house transformation offshore

The opening of an IT service centre in Chennai announced in February 2014 kicked off AstraZeneca’s bold insourcing strategy and its focus on a trend that is seeing large businesseses invest in global delivery operations.

The Chennai operation will start with 60 employees and increase to 300 in its first year. It will be focused on SAP, infrastructure operations, application development and maintenance, as well as cloud and mobile.

9. Asia dominates as outsourcing location and India remains unrivaled

India is still the best place for businesses to outsource services and is unrivaled in its scale and availability of skills, according to AT Kearney’s latest index, which ranks business services locations.

Asian countries dominate the management consultancy’s index of the top 50 global locations, with six of the top 10 in the region.

10. IT services firm achieves non-linear growth through automation

Scandinavian IT services firm Cygate has expanded its business without needing to recruit more staff by using automation software from IPSoft.

In 2010, the company, which serves more than 1,000 customers including some of the biggest corporates in the Nordic region, was experiencing 20% growth in sales. This meant the company needed to add resources or risk service levels deteriorating. But just adding manpower would have reduced its margins.

Source:  computerweekly-Top 10 IT outsourcing stories by Karl Flinders

3 Benefits to Outsourcing, if Done Correctly

Outsourcing should never just be about cost savings or doing something cheaper. Instead, it should be part of a greater organizational structural plan.

Many people when they hear the word “outsourcing” they immediately think of jobs elimination, deep cost-cutting and subpar customer service. But the facts are that if done right, outsourcing certain functions should create more opportunities and help grow a company.

While organizations outsource certain roles for different reasons, the one common denominator is usually cost savings. Many times this means the elimination of certain functions within an organization, thereby putting employees affiliated with those areas at risk. As unfortunate as that may be, if done correctly and with the right partner, the outsourcing of certain administrative areas—such as accounting, client services and IT—can be a key growth element to an organization and create more opportunity.

Outsourcing should never just be about cost savings or doing something cheaper. That is called managing on the decline. Instead, it should be part of a greater organizational structural plan. There are three main benefits every organization should realize when making the decision to outsource anything:

1. Create more capacity: Outsourcing certain job functions should create more capacity as the company grows. It should allow the organization to scale more easily without being burdened with reinventing processes and procedures and requiring employees to constantly take on more. This can be incredibly beneficial in high-growth companies or those on an acquisition spree. Keeping up with the administrative support needs of a fast-growing company can be daunting and outsourcing some of the functions should result in more scalability and better internal support.
2. Allow for the focus on core capabilities: During growth cycles, a lot of time is wasting on trying to keep up with the basics of running the business. As a result, many companies lose sight of their core competencies. Outsourcing should free talented employees and managers—from the C-level to rank and file— to focus on what their business does best. It should allow them to focus back on core competencies and grow the company, instead of being bogged down with internal processes.
3. Generate savings to reinvest in the company: The main reason organizations outsource any area is to save money. In theory, outsourcing is supposed to create efficiencies. However, what is the organization doing with that savings? Smart companies use outsourcing as part of a grander plan to reinvest in areas for growth and create job opportunities.

Outsourcing is a dirty word to many because they have been victims of company downsizing. However, it doesn’t have to be, if done for the right reasons. It needs to be part of the overall strategy to create more capacity, focus on core competencies and generate savings that are, in turn, reinvested in growth and jobs.

Source: thevarguy-3 Benefits to Outsourcing, if Done Correctly by Elliot Markowitz

Top 6 reasons why IT contracts fail

Technology lawyer Garry Mackay, of Ashfords, examines the major issues government departments, large companies, internet service providers and software warehouse companies face when drafting their IT contracts

‘Oh dear,’ ran the headline in The Telegraph addressing the failure of the NHS IT contract, ‘is this another costly IT failure?’

The issues surrounding the NHS IT contract have been widely debated but more interesting is The Telegraph’s reference to ‘another’.

Public perception of IT contracts is often biased as the press rarely publish ‘good news’ and so the impression given is that all IT expenditure is doomed to either complete failure or underwhelming delivery.

This is not true – although, admittedly, when IT projects fail they often do so in spectacular fashion – but the majority of IT implementations pass by without much consternation, litigation lawyers or bad press.

There are many reasons why IT contracts fail or do not live up to expectation – here are some of the top considerations.

1. Money

Contracts are entered into to make money for the contractor and to either save or make money (or both) for the customer. This simple cornerstone is often ignored in the way that contracts are drafted. The customer drive for best value is often evidenced by clauses which regulate cost and delivery including ‘added value’ and ‘benchmarking’ and clauses which are designed to punish for poor or non-delivery such as liquidated damages.

The problem is that all of these clauses erode the profit margin of the supplier. Nothing is for free and squeezing margins is often an empty victory for the customer as the supplier looks to recoup elsewhere. This doesn’t mean that they do not have their place but the impact on the supplier needs to be considered. Incentives to delivery can be as effective as punishment.

2. Technical specification vs. contract

On too many occasions, the technical specification is treated by all parties (including, sadly some lawyers) as something for the ‘tech guys’ to sort. It is appended to the IT contract with flippant disregard on how it works with the remainder of the contract. The technical specification needs to be an integral part of the contract, consistent in definitions and consistent in overall objectives.

3. Flexibility

The problem with technology in general is that we are no longer looking at long term investment cycles. IT infrastructure can be out of date (or worse – obsolete) within months of implementation. The drive for agile contract methodology is a useful approach to provide customers with flexibility of solution but the price to be paid is the uncertainty of what will or will not eventually be delivered and so customers need to be realistic on what their primary goals are. Is it certainty at the expensive of flexibility or flexibility at the expense of certainty.

4. Intellectual property

There is an obsession in the UK with ‘ownership’. On many occasions IT contracts are littered with complicated provisions running into several pages on who ‘owns’ what. Long definitions of ‘background’ and ‘foreground’ IP become battle grounds for the lawyers. This is not to say that IP is not a vital component – but before embarking on complicated IP ownership provisions an analysis should be undertaken on what is needed and what rights are needed to obtain that objective.

5. Expectation mismatch

One of the biggest problems is that there is often a difference between the supplier ‘sell’ and actual delivery. Over-enthusiastic salesman will often promise everything in an attempt to win the work which often results in disappointment on delivery. It is also important that customers remember that simply awarding the contract does not mean they can now sit back and wait for delivery. They need to remain an integral part of the process if they wish to ensure that delivery and expectation are aligned.

6. Change of requirements

One of the biggest frustrations for suppliers is often change in scope as the customer defines or redefines their requirements. Whilst an agile contract is much more able to accommodate this, change in scope will inevitably lead to delay and/or addition cost.

When IT contracts go wrong the potential implications are vast. Even if the customer is able to recover their costs and investment, they will have lost market ground and often the contractual terms will limit their ability to recover damages that are reflective of the actual loss suffered.

Any IT contract should have clear mechanisms for dealing with disputes so as to give both parties the best opportunity to remedy and keep the relationship intact. Clear deliverables and realistic timescales are imperative. Where possible, customers and suppliers should ensure that there is “fat” in the timescales so as to not only allow for slippage but also allow time for rectification.

What is clear is that when IT contracts go wrong, the only parties that are likely to benefit are the press in their ability to report bad news and the lawyers (whichever side they are on) in attempting to ensure that someone is held responsible.

Source: information-age . Top 6 reasons why IT contracts fail by  Ben Rossi

TCS and IBM lead race for Volvo’s $500 million IT contract

Tata Consultancy Services and International Business Machines have emerged as frontrunners in the race to win Swedish truckmaker AB Volvo’s IT outsourcing contract, worth about $500 million, according to people familiar with the matter.

As part of the deal, which is expected to stretch over three to five years, Volvo will outsource its IT business unit, they said, adding that HP and Infosys are among the other firms being evaluated. Volvo may give out business worth at least $100 million a year as part of this deal, they said, requesting anonymity.

“The deal should be finalised within a month—at the moment Volvo is facing a lot of heat to cut costs and any business which is non-core and not making money for the company is under the pump right now,” one of the persons quoted earlier said. “Volvo IT is more of a cost centre for the company, and for them it makes sense to hand it out to professional outsourcing firms.”

Volvo confirmed that the company is evaluating external service providers for the contract, but declined to give the names of vendors being evaluated. Volvo said the initiative would help reduce costs.

“For the external business and the operation of our IT infrastructure we have initiated a process to find an external partner. Our assessment is that this will be more cost-effective for the group.

We will keep application development and maintenance of business critical systems and accelerate efficiency improvements in this part of the operation,” a spokeswoman for Volvo said in an email response to ET’s query.

“This is an ongoing process and we do not intend to leave any comments until we have finalised an agreement with an external partner,” she added. An email query sent to IBM in this regard remained unanswered till as of press time. TCS declined to comment.

Volvo’s decision to outsource comes at a time when the company is facing enormous pressure from shareholders to boost profit margins. The Swedish firm’s move to overhaul in the face of stiff competition from rivals such as Scania AB saw the exit of Olof Persson as CEO earlier this year.

Source: TCS and IBM lead race for Volvo’s $500 million IT contract

IT directors ignoring business benefits in favour of cost reduction

Fifty-two per cent of IT directors’ spend with outsourcing suppliers is focussed on reducing the cost of IT, rather than achieving business benefits, according to research from technology company MooD International.

This is despite the fact that only 21 per cent of IT directors and their teams cite cost reduction as the area that the outsourcing partner’s use is the most critical. Revenue generation and growth are named as the most important initiatives in the business (48 per cent).

The research spoke to over 160 IT managers and directors responsible for the management of one or more IT, applications or business process outsourcing projects, who were also the budget-holders for these contracts. Seventy-six per cent of respondents said that their internal clients’ expectations are not aligned with what the outsourcing suppliers perceive they are contracted to deliver.

And these problems could be tracked back to the transaction-based service level agreements (SLAs). While 77 per cent of suppliers talk business benefits to a great or fair extent (which has increased over the last two to three years), 64 per cent of contracts are either entirely or mainly measured on transaction based SLAs.

George Davies, CEO, MooD International, comments: “SLAs are outdated and should be thrown on the scrapheap; the outsourcing world has progressed. Suppliers need to move on from two-dimensional management of service performance to a third dimension – the ability to clearly understand the business impact and achievement of business outcomes.

“Automation and digitisation should be the driving force behind activity and transformation as they will improve processes, drive out cost and importantly, accelerate innovation and line-of-sight to business value. ”

IT directors are facing pressure from both sides; fifty-eight per cent of them believe it has become more difficult over the last year for their suppliers to deliver within the agreed budget. And 30 per cent believe their internal clients’ satisfaction rates have declined over the last year.

George Davies continues: “IT directors and managers are getting pressure from multiple directions when it comes to outsourcing. On one side they’re facing pressure from their internal clients to show clear business value, whilst driving out costs and demonstrating innovation. On the other side they have suppliers who are trying to make a fair profit in an increasingly complex role.

“Outsourcing can bring benefits that are felt at all levels of a business, from the data centre right up to the CIO, but if these benefits are not communicated properly then the improvements being made can be missed. There needs to be a common view which joins up all the parts of the supply chain and can identify gaps – and resource-wasting overlaps – ensuring there is transparency across the business and not inefficient silos.”

IT directors and managers also feel their role is becoming more complex and difficult to manage. Fifty-seven per cent said that their role has become much or slightly more difficult over the past year or so. And this is impacting on their job satisfaction, with 46 per cent saying their satisfaction with their job has declined slightly or significantly.

“The move we’ve seen towards using multiple specialist suppliers looks like it’s having an impact on the role of IT directors and managers and making their jobs more complex,” adds George Davies.

“The more suppliers you have, the more important it is to have a clear view of what’s happening across the business in a joined up view. Whether your service integration and management is done in house or outsourced, both clients and suppliers need to be able to access the same information to give them the same view of the status of the business and the true end-to-end business performance.”

Source: itproportal-IT directors ignoring business benefits in favour of cost reduction By Dan Raywood