As the IT outsourcing market matures, organisations are
changing the way they interact with suppliers and the type of deals
they make. Miya Knights looks at the road ahead for
outsourcing
The decision to outsource any component of an IT infrastructure
has become a familiar one in today's highly competitive business
world. Common drivers include cost efficiencies and the ability to
concentrate on the core business.
In fact, the trend has become so common that organisations now
tend to look for the best ways to manage their outsourced IT rather
than whether they should be outsourcing in the first place.
"European organisations are starting to be more sophisticated in
their outsourcing choices," says Gianluca Tremacere, principal
analyst at research firm Gartner.
"They are tending to select multiple suppliers, particularly at
infrastructure level. Our research shows organisations are liaising
with four suppliers on average at this level."
A move away from monolithic deals with a single supplier is a
clear indication that businesses are becoming bolder in their IT
sourcing decisions, says Tremacere, making more tactical and
strategic deals.
"But these deals are a result of initiatives and decisions made
in an ad hoc way," he says, pointing to recent Gartner research
suggesting that 56% have no formal outsourcing procurement
strategy.
"Organisations should be strategically analysing how IT
outsourcing can support the business strategy. We would expect to
see a top-down approach to outsourcing, but in reality it is a
bottom-up one.
"It is often thought that outsourcing is about getting rid of
people. But it is also about acquiring the right level of skills
and knowledge to handle the outsourcing contract. The next step in
the sourcing cycle is mastering sourcing management."
Tremacere's call to action seems all the more apt given the
number of high-profile outsourcing failures recently. It is widely
thought that Sainsbury's decision to take its IT operations back
in-house from outsourcing partner Accenture followed IT-related
difficulties that affected the supermarket's bottom line, and was
due in part to supplier management issues.
In response, Gartner is predicting that the role of chief
outsourcing officer will become common within large enterprises
before long. Given control of outsourcing within an organisation,
postholders would need to have in-depth technology and business
process knowledge, as well as an understanding of supplier
relationship evaluation and management.
Regardless of whether management ranks will get yet another
C-level executive post, the general industry consensus is that
companies should retain strong in-house management skills if
outsourcing.
John Leigh, BT Global Services' marketing head, says a
successful outsourcing relationship is based on communication,
trust and understanding.
"The UK is particularly mature in terms of outsourcing," he
says. "I am meeting customers now who are on their third or fourth
outsourcing contracts, and UK consultants are increasingly involved
in negotiating deals in the rest of Europe."
Leigh says successful management teams of traditional IT
outsourcing deals tend to have developed a good understanding of
what is possible in a contract at a departmental level.
"The base outsourcing of IT does not tend to operate at a
business process level, but tends to be driven by the department
using it, like HR, finance and administration, and customer
services," he says.
But Leigh echoes Gartner in calling for the development of
outsourcing contract management beyond understanding requirements
from a departmental view to a more strategic, business process-led
approach.
"The first challenge is often to improve processes. The second
is to ship some of the work overseas. And the third is to get cost
savings," Leigh says. "Companies that are mature in outsourcing IT
have reached the end of their cost-cutting phase and are now
looking for innovation to drive more value from IT rather than
squeezing even more cost out."
Leigh believes outsourcing management skills needs to evolve, as
"the value of IT is measured in business processes now, not in the
IT centre". This is translated into more precise, end-to-end
service level agreements that measure IT performance at a
macro-process level, which maps onto the service oriented
architectures increasingly developed by users.
According to Leigh, because BT Global Services is primarily a
network outsourcing provider, many of its basic outsourcing
contracts are quite simple to drive, measuring availability,
downtime and the cost of transmitting information in a timely
fashion. But the company is looking to build on delivering existing
contracts by moving into business process outsourcing.
"Everybody is in the same place with end-to-end SLAs," says
Leigh. "Our AAI [Applications Assured Infrastructure] tools are
able to pull tables up from the routers, Unix systems and
mainframes, for example, to get a single view of how a business
application is performing."
Leigh says this type of service is an example of value-added
innovation, enabling the dynamic spreading of application loads
across networks more consistently, and creating faster and more
reliable IT system response.
Paul Carter Hemlin, associate director at communications and
contract management services provider Blake Newport, says deals
currently reaching the end of their life provide a natural
opportunity for users to drive more value from renegotiations.
"In a UK outsourcing market worth somewhere between £40m and
£50m, 70% to 80% of contracts are currently under renegotiation,"
he says. "And we are seeing the next generation of outsourcing
contracts: while it is very risky to change suppliers, particularly
if they have built up knowledge about your business, most new
contracts are driving more value for the customer and assured
revenue for the provider."
And this has translated into users agreeing shorter term,
tightly specified deals that are less likely to involve the
transfer of staff.
Carter Hemlin suggests these new contracts are more likely to
include "offshoring, new technologies and SLAs to incentivise the
supplier".
User management teams have become more supplier- and
service-savvy, and Carter Hemlin believes that document control can
help in successfully renegotiating and managing new outsourcing
deals.
"Web-based communication, training and refresher tools help with
staff training and attrition rates," he says. "It will take time
and money to renegotiate any deal. There might be a transfer
period, which should contain various milestones. So programme and
project management, and dependencies on the user organisation, need
to be managed in a formal way."
Duncan Tate, head of global outsourcing and infrastructure
services at Unisys, says, "Customers are less interested in the
'how', and far more interested in the 'what'. The expectation now
is for the supplier to understand the customer's business and the
regulations around it. And clients are getting better at managing
the outsourcing process, both in new deals and in existing
ones.
"They are looking for us to be a lot more outcome-focused. But
to achieve the changes required, change control is vital. It is
also vital to set up a governance structure for the deal, to
outline how often it is reviewed, for example."
Suppliers agree that users are looking to exploit outsourcing
for more than basic IT management and cost savings. Outsourcing is
moving up the value chain towards innovation and business process
improvement.
But to successfully drive such improvements, firms will need to
retain comprehensive technology and business knowledge in-house,
and look for providers that reflect and understand the company
culture and business.
And those that negotiate contracts with the flexibility to
change with their business needs using formalised governance
structures are most likely to lead the next generation of IT
outsourcing success.
Case study: national rail enquiries gets the
answer
National Rail Enquiries, which provides information on UK rail
network operations and train running times, outsourced the running
of its communications centre earlier this year.
An alliance between the UK IT services arm of technology
provider Thales and the country's largest rail freight operator,
EWS, took on the role of managing and distributing information
about train services, engineering works and train operating company
products.
The deal underpins the services provided by National Rail
Enquiries to the public and media through its call centres, website
and voice-activated, automated service, Traintracker.
"National Rail Enquiries is truly a virtual company because our
business expands and changes very quickly - train companies change
their service information fairly rapidly," says chief executive
Chris Scoggins. "We have exploited technologies such as
Traintracker that drive customers towards self-service to the
extent that the 62 million calls we had three years ago are down to
20 million a year now, and we operate a website that gets 65
million visits per annum.
"We would have struggled had we built the capacity to handle
these volumes in-house. To process all the information we receive
and integrate it with our channels, including Wap, SMS,
Traintracker and third-party train services, is very
difficult."
The deal allows National Rail Enquiries' communications centre
infrastructure to flex with demand and capitalise on the latest
technology to maintain high availability and service delivery.
"We do a lot of supplier management, but the end result is that
only 1,500 people work on behalf of National Rail Enquiries, and
only about 20 people, who are knowledge experts, work directly for
the organisation itself," Scoggins says.
He says the key to outsourcing the organisation's backbone has
been detailed specification, including knowing every last detail of
how the contract is operating, staying hands-on as though it were
still being handled in-house, and building trust with a transparent
cost model, so renegotiations are easy.
"The market has moved to buying services instead of IT systems,"
Scoggins says. "I did not find it difficult negotiating service
level agreements that include business measures because ours are
around information accuracy rather than processing volumes."
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