Outsourcing can add value to users that are dynamic and whose business model has high levels of change, says John Creber
The process for outsourcing both infrastructure and business process is well understood and documented, and is supported by a number of consultancies offering advice and guidance.
What is less well understood is how the different business environments within which outsourcing is applied have a direct bearing on the success (or otherwise) of the arrangement.
Outsourcing can add best value where the customer has high levels of change and dynamism in its environment. In this context outsourcing can be used to provide a catalyst for updating infrastructure and enhancing service levels, and can deliver increased scope, speed and scale of operation.
In a stable environment it is more difficult for outsourcers to provide added value as the breadth of opportunity is narrower, and the opportunities for revenue generation are fewer.
In an environment of business change, with potential for new geographical markets and new customers, outsourcing can provide the springboard from which new technologies and services can be deployed to support increased business activity.
In a homogeneous computing environment with a high use of undifferentiated skills and a static business landscape it is more difficult to realise value from an outsourcing arrangement. The potential value from using third-party services can be measured in terms of cost savings, increased scope of services, improved speed of deployment of new services and technologies, and in the scale that can be achieved.
In 2001 Gallaher had trebled its size in three years, was planning the implementation of SAP across the UK enterprise, and was deploying Siebel as its customer relationship management product. In September 2001 Gallaher outsourced its datacentre operations, SAP infrastructure support and desktop services in the UK.
The move to outsourcing was driven by a requirement for increased levels of service to support the company's two new major business applications, as well as the speed with which the products were to be deployed. In addition to this, although the company had operated its own datacentres in the past, it did not have the scale of operations to support an enterprise-wide resource planning environment, with the requirement for clustered resilience.
For example, in a homogeneous desktop computing environment where in-house controls have been rigorously enforced on standard equipment, there is little value to be added by a third party taking over responsibility.
Although it may be possible to achieve short-term savings with little risk, it will be difficult to drive out longer term costs on a per user basis. Conversely in a mixed desktop scenario, the application of standard operating environments for operating systems and applications can provide a much wider scope for increasing efficiency and eliminating unnecessary costs.
In the case of Gallaher in the UK, the desktop landscape was distributed across standard office layouts, warehouses and production facilities with local standards enforced by individual teams. Across all these environments an outsourced third-party desktop management tool was deployed which yielded a 16% reduction in support calls in the office areas, and up to 25% in the factories.
With the extra flexibility offered by hosting equipment in a third-party environment it was possible to achieve a clustered, fully-resilient SAP environment distributed across two datacentres to meet group-wide requirements.
This is not something that would have been cost effective to achieve in-house. The fast-changing environment for the company meant that maximum use could be made of the resources and expertise of our outsourced services supplier, which added real, measurable value to our business operations.
Examining the type of environment into which a third-party service provision is to be placed is key to managing the expectations of senior management and board members. High levels of cost saving will be difficult to achieve in a relatively stable situation, whereas where there is widespread change and a high level of business dynamism, outsourcing can provide maximum scope for driving real business change and improvement.
John Creber is contracts manager (managed services) at international tobacco company Gallaher