trends in the commoditisation of information technology and the need for strategic approach to...

Trends in the Commoditisation of Information Technology and the Need for Strategic Approach to Sourcing

Alan McSweeney

29 December 2010 2

Objectives

• Understand exactly what is meant by the commoditisation of information technology and define a framework for achieving optimal business benefits from appropriate exploitation of commoditisation

29 December 2010 3

Topics

• Commoditisation of Information Technology?

• Framework for Exploiting Commoditisation in Information Technology

• Sourcing Competence

• Supplier Management Competence

• Achieving Effective Exploitation of Commoditisation in Information Technology

29 December 2010 4

Arguments About Information Technology Commoditisation - Who Is Right?

“IT is Dead, IT Does Not Matter”

“IT is Strategic”

“IT’s Strategic Importance Has Diminished” “IT Can Deliver Significant

Business Value”

“Oh No It Hasn’t”“Oh Yes It Has”

29 December 2010 5

Commoditisation of Information Technology

• Elements of certainly information technology have become commoditised− A view that information technology is generally a commodity is at best a

simplification and at worst deliberately misleading− The word commodity is being misused and misrepresented

• But information technology is not uniform− Complex set of layers with complex interaction

• How much of your information technology landscape is fungible?− Freely exchangeable or replaceable in whole or in part for another of a similar

nature − Characteristic of a commodity

• Lower level IT components and specific elements are transferrable between parties

• Care needs to be taken when treating information technology as acommodity− Vast oversimplification

29 December 2010 6

Qualities of a Commodity

• A commodity is a good for which there is demand and which is supplied without qualitative differentiation across a market

• Commoditisation happens when goods or services lose their differentiation

• Good and services become generic and uniform with implied quality

• Commoditisation is caused by the diffusion of the intellectual capital necessary to produce goods or services efficiently and cost-effectively

• Special skills no longer required to produce

• Price governed by supply and demand factors

29 December 2010 7

What Is So Great About Commodities Anyway?

• Price of Pork Bellies – the ultimate commodity – from 2006-2010

• Could you run an IT function with such variability in the price of goods and services?

• Is Information Technology a Pork Belly?

• Is this really a desirable outcome?

• Even if information technology is commoditised, what special skills are needed to take effective advantage?

29 December 2010 8

Lots of Words Associated With Information Technology as a Commodity

29 December 2010 9

Layered View of Information Technology Landscape

Connection

Communication

Data Presentation, Data Security

Applications, Systems and Business Processes

Storage Media and Network Signals

Storage and Network Addressing

Network Transmission

Layer 4

Layer 5

Layer 6

Layer 7

Layer 1

Layer 2

Layer 3

Operations, Usage, Management, Control,

GovernanceLayer 8+

What the Business

is Concerned With

What IT is

Concerned With

29 December 2010 10

Levels of Commoditisation Within Layers of Information Technology Landscape

• Some elements of Information Technology have become commoditised and others have not

• Commoditised elements can be outsourced - others cannot

• Also bear in mind that out of sight cannot be allowed become out of mind

PervasiveStorage Media and Network SignalsLayer 1

PervasiveStorage and Network Addressing, Physical Addressing

Layer 2

PervasiveNetwork TransmissionLayer 3

PervasiveConnectionsLayer 4

PervasiveInter-system CommunicationLayer 5

PervasiveData Presentation, Data SecurityLayer 6

Limited and Specific ElementsApplications, Systems and Business ProcessesLayer 7

Limited and Specific ElementsOperations, Usage, Management, Control, Governance

Layer 8+

Level of CommoditisationComponentsLayer

29 December 2010 11

What Ever Happened to Application Service Providers (ASPs)?

• Forecasts in 1999− IDC (International Data Corporation) - worldwide ASP market worth USD$16

billion in 2002− Forrester - USD$21 billion by 2001− Gartner - worldwide ASP market would reach USD$22.7 billion by 2003

• The reality was around 10% of the forecast values

• Many suppliers jumped on the ASP bandwagon

• What was the ASP model but just a early manifestation of cloud computing?

• Lessons − Hype surrounding ASP was never delivered on− Lots of businesses entered into ASP market leading to lots of failures because

of inadequate business models− Generic software provided by ASP model is less useful than software

customised to suit your exact needs− What lessons can be learnt and applied to today’s information technology

trends and fads?

29 December 2010 12

Be Careful About Jumping on Bandwagons

• The ride can be uncomfortable and unpleasant

29 December 2010 13

Framework for Exploiting Commoditisation in Information Technology

29 December 2010 14

Commoditisation of Elements of Information Technology Landscape …

• … Means you have to become good at:

Implementing and operating an effective sourcing strategy

Understanding what can and cannot be outsourced

Implementing and operating an effective supplier management

strategy

Understanding and managing outsourcing risk

effectively

29 December 2010 15

It’s Not About xShoring/xSourcing …

• … It’s about having a sourcing strategy of which xShoring/xSourcing are constituent tactics

29 December 2010 16

Risks in Outsourcing – Lots of Them

Outsourcing Risks

Strategic Reputation

Compliance Operational

Termination Financial

Country Contract

Access Concentration/Systemic

29 December 2010 17

Strategic Risks

• Outsourcing provider may conduct activities that are inconsistent with the overall strategic goals of the outsourcer

• Outsourcer fails to implement appropriate and effective oversight of the outsourcing provider

• Outsourcer has inadequate expertise to oversee the outsourcing provider

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Reputational Risks

• Outsourcing provider delivers a poor service

• Outsourcer’s customer service does not meet expectations in areas serviced by outsourcing provider

• Outsourcing provider practices do not comply with stated practices of outsourcer

29 December 2010 19

Compliance Risks

• Outsourcing provider does not comply with relevant laws and regulations

• Outsourcing provider does not comply with consumer laws

• Outsourcing provider has inadequate compliance systems and control

29 December 2010 20

Operational Risks

• Outsourcing provider experiences technology failures that impact outsourcer

• Outsourcing provider has inadequate financial capacity to fulfil obligations and/or provide remedies in the event of failure or breach

• Outsourcing provider experiences fraud or error

• Outsourcer experiences difficulties or high costs in undertaking inspections

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Termination Risks

• Outsourcer has no exit strategy are not in place because of from over-reliance on one provider or the loss of relevant in-house skills

• Ability to return services from outsourcing provider is difficult, time-consuming or costly because of a lack of staff or loss of intellectual capacity

29 December 2010 22

Financial Risks

• Inadequate cost controls and charging mechanism leads to unexpectedly higher costs for outsourcer

• Changes to services requested from outsourcing provider are very expensive

29 December 2010 23

Country Risks

• Outsourcer cannot enforce contract

• Incorrect selection of applicable legal jurisdiction

29 December 2010 24

Access Risks

• Outsourcing arrangement negatively impacts ability to provide accurate and timely information

• There is an additional layer of complexity in understanding activities of the outsourcing provider

29 December 2010 25

Concentration/Systemic Risks

• Concentration of services from multiple outsourcers in small number of outsourcing providers can mean lack of control by individual outsourcer and overall systemic risk

29 December 2010 26

Principles of Outsourcing

• Need a comprehensive policy to guide the assessment of whether and how activities can be appropriately outsourced

• Senior management needs to be responsible for outsourcing policy and related overall responsibility for activities undertaken under the policy

• Need to establish a comprehensive outsourcing risk management programme to address the outsourced activities and the relationship with the service provider

• Need to ensure that outsourcing arrangements does diminish its ability to fulfil obligations to customers and stakeholders

• Need to conduct appropriate due diligence in selecting outsourcing service providers

• Outsourcing relationship needs to be governed by contract that clearly describes all material aspects of the outsourcing arrangement, including the rights, responsibilities and expectations of all parties

• Need to establish and maintain contingency plans, including a plan for availability and disaster recovery and regular testing of backup arrangements

• Need to take appropriate steps to ensure that outsourcing providers protect confidential information from intentional or inadvertent disclosure

• Need to be aware of the potential risks posed where the activities of multiple outsourcers entities are concentrated within a small number of outsourcing providers

29 December 2010 27

Using Risks and Principles to Achieve Effective Sourcing

• Use as a checklist to validate any outsourcing activities

� �Principle 9� � �Risk 9









Complied With or Reason for Derogation

PrincipleMitigation/ Circumvention/ Acceptance

Risk

29 December 2010 28

Core Competencies for Exploiting Commoditisation in Information Technology

• Sourcing – having an effective approach to outsourcing− Concerned with managing the IT function like a business

• Supplier Management – plan, analyse and manage the ongoing relationships with suppliers− Concerned with managing the IT function

• Need frameworks to measure and manage organisational maturity inthese key areas

• Systematic approaches in these areas improves value IT can derive from its suppliers

• IVI (Innovation Value Institute - www.ivi.ie) IT CMF (IT Capability Maturity Framework) to measure and develop maturity and competence

• Measurement provides an objective assessment of where you are, where you want to be and where to invest to get greatest returns

29 December 2010 29

Sourcing and Supplier Management

• Supplier Management competence and associated processes operationalises the strategic decisions taken within the Sourcing competence

Supplier Management Sourcing

29 December 2010 30

Sourcing

Competence

Supplier Management CompetenceSourcing Competence

Sourcing and Supplier Management

Strategic

Sourcing

Decision

Supplier

Selection

Contracting

Governance and

Partner

Integration

Transition

Supplier

Engagement

Order

Management

(Ordering/

Delivery/

Distribution)

Supplier

Communications

Supplier Risk

Monitoring

Contract

Management

(Payment,

Penalties)

Performance

Measurement

And Monitoring

Supplier

Development

Evaluation

Procurement of IT Services and IT Hardware/Software

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Sourcing Competence

29 December 2010 32

Sourcing Competence

Strategy

Alignment

Objectives

and Scoping

Sourcing

Model

Business Case

Calculation

Organisational

Readiness

Partner

SelectionContracting Transition

Partner

integration

and

Governance

Reevaluation

Planning Cycle

Sourcing Cycle

29 December 2010 33

Sourcing Competence

• Define sourcing strategy and sourcing model

• Evaluate outsourcing potential of IT processes

• Select optimal partner(s)

• Manage the transition to selected partner(s)

• Setting the basis for a successful relationship with selected partner(s) to maximise business value contribution

29 December 2010 34

Sourcing Competence Scope

• Strategic sourcing decisions on what processes are in- or outsourced to what extent

• The decision on what sourcing model is applied

− Internal/external

− Onshore/nearshore/offshore

− Single vs. multiple vendor relationship

• Calculation of business cases for outsourcing projects

• The process of selecting the optimal partner(s)

• Preparation, negotiation, closing and re-evaluation of contracts with selected partner(s)

• Managing the transition process and setting up requirements for an enduring and successful relationship with partner(s)

29 December 2010 35

Dimensions of Sourcing Competence Measurement Framework

• Measure state of Sourcing competence along three dimensions

− Sourcing Strategy

− Contracting

− Sourcing Execution

• Define facets of each dimension

• Measure each facet in terms of:

− Associated processes and their state of development

− Scope or extent within the organisation

Sourcing Strategy

Contracting

Sourcing Execution

29 December 2010 36

Measurement Framework for Sourcing Competence

Sourcing Competence Maturity Assessment

Framework

Sourcing Strategy Contracting Sourcing Execution

Strategy Alignment

Objectives and Scoping

Sourcing Model Selection

Business Case Calculation

Organisational Readiness

Reevaluation

Partner Selection

Contract Preparation and Closing

Transition

Partner Integration and Governance

29 December 2010 37


•Aligning sourcing strategy with overall IT- and business strategy.Strategy Alignment

•Determining the organisational readiness (e.g. process standardisation, org structure, available resources and skills) as well as the cultural readiness for outsourcing (e.g. change willingness, restructuring experience).

•Designing the structure of the retained organisation.


•Evaluating whether a process should be in- or outsourced and clarifying sourcing objectives (e.g. quality, cost, flexibility, risk) so that expectations are clearly understood and established.

•Selecting processes to be outsourced or out-tasked according to an agreed prioritisation scheme with focus on qualitative aspects. Setting up comprehensive criteria for this scheme.


•Baselining and forecasting cost and volume as well as calculation of business cases for services according to selected model.

• Integrating qualitative aspects (e.g. performance, quality, flexibility) into business case.


Sourcing Strategy


•Defining of structural dimensions of the sourcing model: onshore/nearshore/offshore, internal/external, single/multiple vendor relationship.

•De-averaging structural dimensions into process criteria: partner/location selection criteria (e.g. existing knowledge, cost, quality, political stability, country specific legal issues etc.).

Re-Evaluation

• Regularly reviewing chosen sourcing strategy with focus on generated value, realised cost savings, changed business context (e.g. M&A) and new opportunities – this includes a plan-B-design (e.g. re-insource).

29 December 2010 38


• Designing the governance model for the partnership and integrating outsourcing partner into overall governance model including integration of services and systems.

• Setting the basis for evaluating achieved benefits, impact and business relationship by defining a comprehensive monitoring and managing system.


• Defining joint transition support units, esp. project management office, HR, communication team. Ensure infrastructure connectivity and access rights to ensure a smooth transition of knowledge, staff, and assets to provider.

• Developing project reporting tools for tracking project progress and implement reporting.

• Communicating progress and any deviances from project plan to all stakeholders.

Transition

Sourcing Execution

• Developing own position (negotiable and non-negotiable items) in advance, but also considering incentives for the vendor to deliver on time and on quality – understanding the vendor's success criteria to create a win-win-situation.


• Selecting the optimal partner based on "hard" criteria defined under sourcing model as well as "soft" criteria such as fit of company culture and trust between partners

• Selecting partner consists of creating a long list of candidates, a request for information, a short list, a request for proposal and the final decision on vendor(s). There is a difference between a first bidding process and a renewal.

Partner Selection

Contracting

29 December 2010 39

Sourcing Maturity Profile Levels

A sourcing transition is not actively supported by the organisation

There is no governance model for the partnership

Partner selection is ad hoc

IT/corporate procurement function is not involved in contracting

Processes to be outsourced are selected in an ad hoc way

No formal business case is developed as part of the sourcing decision-making process

1

Initial

Some large transitions are managed as projects with an existing project plan

The most important interfaces of between the partners are defined and documented

Partner selection process consists of a request for information only

Large sourcing contracts are prepared and closed with input from the IT procurement function

Cost saving is the only criterion for evaluating the outsourcing potential of processes

Sourcing decisions are occasionally supported by business cases

2

Basic

All transitions are managed as projects with basic set of project management tools

There is a defined governance model for the partnership in place, which is generally adhered to

A detailed selection process is in place (including an initial list of candidates, RFI, short list, RFP)

Contracting usually involves input from the IT/corporate procurement function

There is a scheme for evaluating the outsourcing potential of certain processes

Business cases are consistently developed as part of the process for evaluating sourcing options

3

Intermediate

Transition projects have a full set of KPIs ensuring timely and reliable delivery - KPIs tracked permanently

The governance model includes considerations of inter-supplier relationships

Different processes for a first time bid and a renewal are in place

Contracting is fully integrated in the enterprise-wide procurement process

A scheme for evaluating the outsourcing potential of all IT processes is applied

A standard business case development is always part of the sourcing decision process

4

Advanced

Project management tools are continuously reviewed, new techniques are introduced

Governance model is continuously optimised based on experiences from the collaboration

The partner's success criteria are considered during selection

Contracting activities are constantly reviewed to realise potential synergies with IT/corporate procurement

The effectiveness of the scheme for evaluating outsourcing potential is constantly reviewed and new criteria are added

Business cases for sourcing decisions are regularly reviewed

5

Optimising

ExecutionContractingStrategyMaturityHigh

Low

29 December 2010 40

Assessing Current and Future Desired Sourcing Competence Maturity


Reevaluation

5 - Optimised4 - Managed3 - Repeatable2 - Defined1 - Ad-Hoc


TransitionSourcing

Execution

Contract Preparation and

Closing

Partner Selection

Contracting




Strategy Alignment

Sourcing Strategy

Current Sourcing Competence Maturity Level Desired Future Sourcing Competence Maturity Level

29 December 2010 41

Measuring Sourcing Maturity and Importance

Level of Importance

5.04.03.02.01.01.0

2.0

3.0

4.0

5.0

Level

Of

Maturity



Business Case

CalculationReevaluation


Partner Selection

Strategy Alignment

Sourcing Model

Selection

Transition

Partner Integration

and Governance

29 December 2010 42

Supplier Management Competence

29 December 2010 43

Supplier Management Competence

• Supplier management is concerned with the execution of the IT supplier strategy and manages the suppliers on an operational basis

• Supplier management operationalises the strategic decisions of IT suppliers and contracts agreed in the Sourcing competence

• Effective supplier management provides opportunities for cost reduction from better control of assets and people, as well as value-creation opportunities by supporting IT supplier collaboration and innovation

29 December 2010 44

Supplier Management Competence Scope

• All activities related to managing ongoing (operational) relationship with suppliers and associated systems/ tools

• Analysis of existing suppliers to identify suitable ongoing engagement strategies at an individual and portfolio level

• Manage supplier relationship in line with evolving IT strategy

• Measure and monitor supplier performance from both the organisation’s own perspective and the supplier’s perspective

• Manage the ongoing external risks (e.g. supplier insolvency) andongoing internal risks (e.g. unchecked SLAs) derived from the organisation’s relationships with its suppliers

• Long-term development of suppliers, their products and services to help them improve internally to achieve improved levels of innovation, quality and performance, and to be aligned optimallywith the enterprise

29 December 2010 45

Dimensions of Supplier Management Competence Measurement Framework

• Measure state of Supplier Management competence along three dimensions− Supplier Alignment

− Relationship Management

− Performance And Risk Management

• Define facets of each dimension

• Measure each facet in terms of:− Associated processes and

their state of development

− Scope or extent within the organisation

Supplier Alignment

Relationship Management

Performance And Risk

Management

29 December 2010 46

Measurement Framework for Supplier Management Competence

Supplier Management Competence Maturity

Assessment Framework

Supplier Alignment Relationship ManagementPerformance And Risk

Management

Supplier Analysis

Supplier Portfolio Analysis

Supplier Engagement Strategy

Supplier Communications

Relationship Operations

Supplier Risk Management

Performance Measurement and Monitoring

Supplier Development

29 December 2010 47


Category Capability Description

Supplier Alignment

Supplier AnalysisAnalyse existing suppliers based on criteria such as quality, TCO, market conditions, level of product/service innovations, etc in order to support selection of appropriate ongoing engagement strategy


Joint analysis of all IT suppliers to identify the relative roles of each supplier within the overall IT supply chain and the interplay between suppliers and the enterprise processes, with the objective of enhancing the ongoing value of the supplier portfolio to the IT organisation

This can help to identify the relative importance of suppliers and the opportunities to leverage certain relationships at different stages of the relationship lifecycle (based on volume), or alternatively to identify paths for consolidating suppliers, thereby enhancing the overall value of the supplier portfolio to the IT organisation.

Supplier Engagement

Strategy

Develop and implement appropriate ongoing supplier engagement strategy based on results of supplier analysis and supplier portfolio analysis.

This strategy will state the optimal approach to be taken for the supplier portfolio and individual suppliers. As such, changes in IT Strategy and Enterprise Procurement Strategy which occur over the duration of these supplier relationships must be reflected in the Supplier engagement strategy to enable continued strategic alignment – similarly, identifying potential new opportunities for enabling the IT strategy through our suppliers must also be highlighted.

This will enhance the potential for identifying collaborative win-win relationships with suppliers to provide innovative products with a customer they value and trust, without introducing unnecessary risks to the IT organisation (such as migration from supplier to partner).

29 December 2010 48





Plan and manage communications approach with suppliers (inc internal organisation, supplier organisation, mapping of relationships, meetings plan, review points, shared vocabulary, external marketing of relationship, basic rules of engagement, etc.).

The level of activity for each supplier will typically vary in accordance with the supplier engagement strategy.


Undertake fundamental relationship activities to enable supplier operations in line with the agreed supplier engagement strategy.

This encompasses activities such as: regularly communicating with supplier, providing input on ongoing requirements/orders, agreeing actions to overcome deficient supplier performance, imposing sanctions/penalties/bonuses in response toquality/performance/delivery issues, advocating supplier within organisation and vice versa, understanding new product/service roadmaps, managing issues and escalating conflicts via agreed joint management process, managing legal aspects of relationship.


Facilitate value-driven, long-term improvements in supplier products/services/relationship from key suppliers by identifying critical areas for development (e.g. ISO 9001 certification, low levels of innovation) and working with supplier in a collaborative fashion to drive improvements in these areas. (e.g. education, extensive info exchange, joint development of new products, etc.).

29 December 2010 49



Performance

And Risk Management


Monitor ongoing supplier relationship risks and evolving external environment risks and implement appropriate mitigating actions.

These risks may originate internally (e.g. through overly frequent changes in requirements), from the Supplier (e.g. changes in financial viability of supplier/Single Point of Failure / lack of integrity) or from changes in the external environment (new product from supplier rival).

Performance Measurement and Monitoring

Perform performance measurement and monitoring of relevant KPIs across multiple dimensions (e.g. balanced scorecard approach) potentially using automated systems, covering both internal and supplier performance (and benchmarking), in line with requirements defined in the suppler engagement strategy.

29 December 2010 50

Supplier Management Maturity Profile Levels

Ad hoc monitoring of IT supplier performance

Minimal awareness of IT supplier risk

Ad hoc order management, not formalised

No formal processes to manage contracts

No supplier development

No defined strategy for engaging with suppliers on an operational basis

Ad hoc approach to IT supplier communications

1

Initial

Performance monitoring focuses on availability and price

Risk focus is on tactical events (e.g. short term availability dips, unexpected price inflation, etc.)

Basic order management processes are defined and implemented

Compliance focus is on penalties

Informal approach to supplier development

Engagement strategy is defined but primary focus is price and delivery

Communication via nominated IT and supplier contacts

Basic operating principles agreed

2

Basic

Monitoring tracks performance and quality vs SLAs

Medium term operational risks monitored (e.g. dependence on a single IT supplier, stability of business requirements, etc.)

Order management in place but prioritisation at departmental level

Compliance focus is on rewarding good performance

Supplier development addresses identified SLA issues

Ongoing engagement strategy now extended to include quality, and is aligned with IT Sourcing strategy,

IT Supplier interfaces are formally defined for all points of interaction

3

Intermediate

Monitoring focuses on efficiency and effectiveness of interactions between IT, IT suppliers and business

Long-term strategic risks monitored (e.g. supplier insolvency, legislative changes, etc.)

Robust order mgmt processes with enterprise-level prioritisation

Compliance focus is on improving communication and alignment

Supplier development targets gaps based on IT roadmap

Engagement strategy extended to knowledge sharing / shared objectives underpinned via aligned incentive mechanisms

Strong IT-Supplier advocacy roles function in both directions

4

Advanced

OLAs in multi-supplier environments

Metrics support measurement of compliance with IT Strategy

Risk across extended IT supply chain monitored

Optimised order management processes (across supply chain)

Incentives rewards innovation and collaboration

Direct investments in IT suppliers (capital, time) with shared risk

Engagement strategy is focused on enabling collaboration and innovation across IT supply chain

Senior level representation at key strategic and operational meetings from each party

5

Optimising

Supplier Performance and Risk Monitoring

Supplier OperationsSupplier AlignmentMaturity

High

Low

29 December 2010 51

Assessing Current and Future Desired Supplier Management Competence Maturity


5 - Optimised4 - Managed3 - Repeatable2 - Defined1 - Ad-Hoc

Performance Measurement

and Monitoring

Supplier Risk ManagementPerformance

And Risk Management




Supplier Engagement

Strategy


Supplier Analysis

Supplier Alignment

Current Supplier Management Competence Maturity Level

Desired Future Supplier Management Competence Maturity Level

29 December 2010 52

Measuring Supplier Management Maturity and Importance

Level of Importance

5.04.03.02.01.01.0

2.0

3.0

4.0

5.0

Level

Of

Maturity

Supplier Engagement

Strategy



Performance Measurement

and Monitoring



Supplier Communicat

ions

Supplier Analysis

29 December 2010 53

Achieving Effective Exploitation of Commoditisationin Information Technology

29 December 2010 54

Using Measurement Framework Effectively

• Identify gaps in current areas of sourcing and supplier management competence

• Define roadmap to fill the gaps

• Get good at making sourcing decisions and managing sourcing relationships

• Take strategic advantage of opportunities made available by information technology commoditisation

29 December 2010 55

Phases of Outsourcing Relationship

Initiation

Delivery

Completion

Analysis

Ongoing

Outsourcing Organisation

Determine if outsourcing represents a business opportunity

Plan for outsourcing of selected services, evaluate and select a service provider, create an outsourcing agreement and transfer resources and personnel to service

provider

Implement the capability to manage the service provider, administer the agreement and the issues, challenges and changes that arise after the agreement

has been reached, reviewing the service provider’s performance

Develop outsourcing strategy management, manage relationship with service provider, ensure value, implement knowledge management processes, manage

technology and manage risks and threats

Plan for completion, ensure service continuity, transfer resources and personnel from outsourcing organisation and transfer knowledge

29 December 2010 56

Key Capabilities Within Outsourcing Lifecycle for Outsourcing Organisations

Outsourcing Strategy

Management

Governance Management


Value Management

Technology Management

People Management

Outsourcing Planning

Outsourcing Agreements

Sourced Services

Management

Outsourcing Completion

Outsourcing Opportunity

Analysis

Ongoing

Initiation Delivery CompletionAnalysis

Knowledge Management

Organisational Change

Management

Threat Management

Outsourcing Approach

Service Transfer

Service Provider

Evaluation

29 December 2010 57

Key Capabilities and Constituent Practices for Outsourcing Organisations - 1 Outsourcing

Capabilities and Skills

Analysis Phase Initiation Phase Delivery Phase

1 Outsourcing Opportunity

Analysis

2 Outsourcing Approach

3 Outsourcing Planning

4 Service Provider Evaluation

5 Outsourcing Agreements

6 Service Transfer

Completion Phase

8 Outsourcing Completion

7 Sourced Services Management

1.1 Define Current State

1.2 Outsourcing Criteria

1.3 Demand Identification

1.4 Outsourcing Options

2.1 Outsourcing Approach

2.2 Business Case

2.3 Governance Model

2.4 Impact and Risk Analysis

2.5 Outsourcing Initiation Decision

3.1 Establish Outsourcing

Project

3.2 Service Definition

3.3 Service Provider Selection

Procedures

3.4 Evaluation Criteria

3.5 Prepare Service

Requirements

4.1 Communicate Requirements

4.2 Evaluate Potential Service

Providers

4.3 Select Candidate Service

Providers

5.1 Negotiations Guidelines

5.2 Confirm Existing Conditions

5.3 Negotiations

5.4 Agreement Roles

5.5 Define SLAs and Measures

5.6 Create Agreements

5.7 Amend Agreements

6.1 Service Transition

6.2 Verify Design

6.3 Resources Transferred Out

6.4 Personnel Transferred Out

6.5 Knowledge Transferred Out

7.1 Perform Outsourcing

Management

7.2 Performance Monitoring

7.3 Financial Management

7.4 Agreement Management

7.5 Problem and Incident

Monitoring

7.6 Service Delivery Change

Management

7.7 Service Change Management

7.8 Review Service Performance

7.9 Stakeholder Feedback

7.10 Service Value Analysis

7.11 Continuation Decision

8.1 Completion Planning

8.2 Service Continuity

8.3 Resources Transfer from

Service Provider

8.4 Personnel Transfer from

Service Provider

8.5 Knowledge Transfer from

Service Provider

29 December 2010 58

Key Capabilities and Constituent Practices for Outsourcing Organisations - 2 Outsourcing

Capabilities and Skills

Ongoing Phase

Governance Focused

Competency and Change

Focused

Environment Focused

9 Outsourcing Strategy

Management

10 Governance Management

11 Relationship Management

12 Value Management

13 Organisational

Change Management

14 People Management

15 Knowledge Management

16 Technology Management

17 Threat Management

9.1 Outsourcing Sponsorship

9.2 Outsourcing Constraints

9.3 Potential Outsourcing

Areas

9.4 Outsourcing Objectives

9.5 Organisational

Outsourcing Strategy

10.1 Outsourcing

Policy

10.2 Service Provider

Management

10.3 Internal Stakeholder

Management

10.4 Defined Outsourcing

Processes

10.5 Align Strategy and Architectures

10.6 Business Process

Integration

10.7 Adapt to Business Change


Interactions


Relationships

11.3 Internal Relationships

11.4 Issue Management

11.5 Cultural Fit

11.6 Collaborative Relationships

11.7 Innovative Relationships

12.1 Organisational

Outsourcing Performance

12.2 Capability Baselines

12.3 Benchmark Outsourcing

Processes

12.4 Improve Outsourcing

Processes

12.5 Innovation

12.6 Business Value and

Impact

12.7 Outsourcing Alignment

13.1 Prepare for Organisational

Change

13.2 Stakeholder Involvement

13.3 Define Future State

13.4 Human Resource Changes

13.5 Communicate Organisational

Changes

13.6 Organisational

Change

14.1 Assign Outsourcing

Responsibilities

14.2 Personnel Competencies

14.3 Organisational

Outsourcing Competency

14.4 Define Roles

15.1 Provide Required

Information

15.2 Knowledge System

15.3 Market Information

15.4 Lessons Learned

15.5 Share Knowledge

16.1 Asset Management

16.2 License Management

16.3 Technology Integration

17.1 Outsourcing

Risk Management

17.2 Organisational

Risk Management

17.3 Intellectual Property

17.4 Security and Privacy

17.5 Compliance

17.6 Business Continuity

29 December 2010 59

Key Capabilities and Constituent Practices

• Idealised set of steps for an outsourcing organisations to perform when taking on a new outsourcing service

• Provides a detailed checklist of work to be done

• Each practices contains a set of activities and tasks

• Can be modified to suit the circumstances: scope of outsourcing, size of service, duration of contract

• Can forms the basis of a project plan for elements of outsourcing work such as initiation

• Reduces risk of failure

29 December 2010 60

Summary

• Commoditisation of elements of information technology is a fact

• Opportunities exist to take advantage of commoditisation

• Need to understand opportunities and take effective decisions

• Use a measurement framework to quantify maturity in sourcing competence

29 December 2010 61

More Information

Alan McSweeney

[email protected]