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IT outsourcing Frameworks – Part 3

October 30th, 2015 Comments off
Reading Time: 6 minutes

In Part 1 and Part 2 I looked at reasons why outsourcing fails and what to consider when looking to outsource. In this last instalment I look at recommendations for structure and framework.

 

Part 3 Recommendations

 

Is important to understand that IT should not be treated as a single amorphous blob (BANNISTER, F and Remenyi, D, 2005). To successfully structure, and then manage, an outsourcing contract in such a way that provides for flexibility in delivery model and successful ability to backsource functions as needed the following model should be employed.

A mixed methodology approach (ALEXANDROVA, 2015; MCKEEN, J D and Smith, H A, 2015; LACITY and Willcocks, 2000) allows the contract and service flexibility. A clear framework for contracting and delivery of services (CHOU and Chou, 2009) and strong governance and leadership (MCKEEN, J D and Smith, H A, 2015; GARTNER, 2008)

 

 

Contracting Flexibility

Having used the models and techniques identified in this report, like-services should be grouped into towers or tranches the contracting. Each of these tranches would take into account the relative maturity of the IT service on the continuum as identified above the organisational needs and desires to attain hi operational maturity and a clear understanding of the service and deliverables. The releasing of the outsourcing in tranches or stages would allow the organisation to test IT outsourcing, building their own maturity in outsourcing and contracting and testing their vendor.

Each Group of services would utilise various contracting methods depending upon the relative maturity of that service and the needs of the organisation. This would create a flexible contracting model, combining fee-for-service, strategic partnerships and buy-in contracting models; as depicted in Figure 4.

Tranches- model

Figure 4 Grouping by contracting model

Intellectual property and Knowledge management would be clearly defined not only as a deliverable as part of the IT outsourcing contract, but a deliverable as part of any backsourcing of services (KIEN et al., 2010; LACITY and Willcocks, 2000; MCKEEN, J D and Smith, H A, 2015). The IP and KM aspects would pertain to the processes tools and techniques needed to run the IT operation. This could be delivered in the form of a concept of operations (CONOPS) document specifically detailing those processes and functions needed to deliver IT services (MBAX9106 – ISM, 2015). This may require some contract negotiation around one time perpetual use of the vendor IP if it has become integral to the delivery of the IT service.

This would be delivered as clear termination clauses, detailed documentation during outsourcing, detailed transition plan, and HR considerations (VELTRI et al., 2008).

 

Governance Framework

The government framework employed needs to be made of multiple parts this includes an overarching governance model, that dictates common components of the engagement; a contract management component, that allows for the management of the individual towers and tranches; and the individual measures.

Measures will comprise of both common measures and deliverables along with tower specific ones. Figure 5 shows a common measures and deliverables. These include those outlined previously, including any knowledge management or IP retention deliverables and specific tower measures and deliverables applying only the specific SLA and the KPIs needed.

measures - model

Figure 5 Measures and Deliverables

 

The resulting governance framework can be found in Figure 6. This provides a flexible and agile IT outsourcing model that supports the business with its current and future needs.

 

Assignment2 - model

Figure 6 ITO Governance and contract structure

 

Whilst this looks relatively simple, it is, contractually speak, fairly complex and requires that all parties (client and vendor) understand the purpose of each engagement and the visions an goals of the client organisation. This is possible, using the governance engagement model to socialise and communicate the necessary strategy components to provide the appropriate context and direction to vendors and the business alike.

 

References

ALEXANDROVA. 2015. Risk Factors in IT Outsourcing Partnerships: Vendors’ Perspective. Global Business Review. Vol 16 iss 5, pp.747-759.

BAHLIA and RIVARD. 2005. Validating measures of information technology outsourcing risk factors. The international Journal of Management Science. Omega(33), pp.175-187.

BANNISTER, F and D REMENYI. 2005. Why IT Continues to Matter: Reflection on the Strategic Valie of IT. The Electronic Journal Information Systems Evaluation. Vol 8 iss 3, pp.159-168.

BARKER, J R. 1993. Tightening the Iron Cage: Concertive control in self-managed teams. Administrative Science Quarterly. Iss 38, pp.408-437.

BENAROCH, JEFFERY, KAUFFMAN, and SHAH. 2007. Option-Based Risk Management: A Field Study of Sequential Information Technology Investment Decisions. Journal of Management Information Systems. Vol 24 iss 2, pp.103-140.

CARR, NG. 2003. IT Doesn’t Matter. Harvard Business Review. Vol 81 Iss 5, pp.41-49.

CARR. 2004. Does IT Matter. Harvard Business School Press.

CHOU and CHOU. 2009. Information systems outsourcing life cycle and risks analysis. Computer Standards & Interfaces. 2009. Iss 31, p.1036–1043.

CIOINSIGHT. 2012. BYOD Sends Mobile Device Management Costs Soaring. CIO Magazine, 7 November, p.1.

CROMAR. 2014. From Techie to Boss: Transitioning to Leadership. APRESS.

GARTNER. 2008. Gartner IT Infrastructure and Operations Maturity Model.

ISACA. 2012. Cobit 5 – A Business Framework for the Governance and Management of Enterprise IT. Information Systems Audit and Control Foundation.

KAISER and BUXMANN. 2012. Toward a Dynamic View on Client Dependence in IS Outsourcing Relationships: A Qualitative System Dynamics Approach. In: Systems Dynacmics Conference. St. Gallen.

KIEN, KIAT, and PELLY. 2010. Switching it OutSOurcing SupplierS: enhancing tranSitiOn readineSS. MIS Quartely Executive, March, pp.23-33.

KRIEGER. 2015. Service Management in an as-a-service world., July, pp.8-9.

KRONAWITTER, WENTZEL, and PAPADAKI. 2013. IT Application Outsourcing in Europe: Long-term Outcomes, Success Factors and Implications for ITO Maturity. In: 46th Hawaii International Conference on System Sciences. IEEE Computer Society, pp.4456-4465.

LACITY, KHAN, and WILLCOCKS. 2009. A review of the IT outsourcing literature: Insights for practice. Journal of Strategic Information Systems., p.130–146.

LACITY and WILLCOCKS. 2000. “An Empirical Investigation of Information Technology Sourcing Practices: Lessons from Experience. MIS Quarterly, p.363–408.

MBAX9106 – ISM. 2015. Information Systems Management – Semester 2. Sydney: University of New South Wales.

MCKEEN, J D and H A SMITH. 2015. IT Strategy: Issues and Practices. NJ: Pearson.

MIYAGI, MONDEN, AZUMA et al. 2014. Align Business Initiatives and IT Solutions: Collaboration Is Critical for Effective IT Governance. ISACA quarterly.

TAPPER, O’BRIAN, DIALANI, and MARSTON. 2014. From Traditional to Cloud-Based Outsourced/Managed Services: Optimal Business Models for Multiprovider Management in Delivering Business Process and Application Services.

VELTRI, SAUNDERS, and KAVAN. 2008. Information Systems Backsourcing: Correcting Problems and Responding to Opportunities. California Management Review. 51(1), pp.50-76.

WARDLEY. 2014. A quick route to building a strategy. [online]. [Accessed 15 August 2015]. Available from World Wide Web: “http://blog.gardeviance.org/2014/07/a-quick-route-to-building-strategy.html”

WARDLEY. 2015. An introduction to Wardley (Value Chain) Mapping. [online]. [Accessed 6 October 2015]. Available from World Wide Web: “http://blog.gardeviance.org/2015/02/an-introduction-to-wardley-value-chain.html

WARDLEY. 2015. Position, Flow and Movement. [online]. [Accessed 10 October 2015]. Available from World Wide Web: “http://blog.gardeviance.org/2015/06/position-flow-and-movement.html

WILLCOCKS, LACITY, and KERN. 1999. Risk mitigation in IT outsourcing strategy revisited: longitudinal case research at LISA. The Journal of Strategic Information Systems. Vol 8 Iss 3, p.285–314.

IT outsourcing Frameworks – Part 2

October 23rd, 2015 Comments off
Reading Time: 8 minutes

This is Part 2 of my ITO framework series. In Part 1 I looked at drivers for back sourcing of services

 

Part 2 Considerations for Outsourcing

 

Jennex and Adelakum (2003 in MBAX9106 – ISM, 2015, pp.8:22-8:24) identify critical success factors to consider for ITO including People Factors; Technical Infrastructure; Client Interface; Business Infrastructure and Regulatory Interface. IT outsourcing failures are due to the lack of understanding of critical success factors (KRONAWITTER et al., 2013). Buxbaum (2002 in MBAX9106 – ISM, 2015) identifies a number of questions to minimise the risk of backsourcing services and in combination with the decision criteria provided by McKeen and Smith (2015), provide a framework to support identifying the risks and reasons for backsourcing from section 3.1. By using this framework to answer the questions that need to be addressed when initially outsourcing, it also prepares the client organisation for backsourcing should it be required.

This framework addresses organisational maturity level, service functionality maturity and appropriate sourcing models, sourcing profile based on function, potential contracting model and most importantly the governance framework needed to manage the relationship.

 

Organisational IT Maturity

Organisational Maturity plays a large part in the success of continued IT Outsourcing and as an organisation matures, the ability to easily switch suppliers in and our increases (KIEN et al., 2010).

Research firm Gartner created an operational maturity model (GARTNER, 2008) ranging from 0 (ad hoc IT operations and poor understanding of how IT supports the business) through to 5 (“IT operations are integrated with the enterprise & provide additional value to the organisation”), see Figure 1 below. This model can be used to determine at what level the entire IT operation, or subcomponents, operate at. Building a picture of where the business is and where it wants to be.

Gartner
Figure 1 Gartner IT Maturity Model

 

In addition to organisational IT maturity, the IT Service Maturity will dictate what can be outsourced (BANNISTER, F and Remenyi, D, 2005).

 

Service maturity and appropriate sourcing models

 

Smith and McKeen (2015, pp.122-127) provide a service function maturity model associated with IS/IT functions, ranging from unique to commodity and utility; this is analogous to Carr (2003; 2004) and Wardley (2014) models for the evolution of IT. This model provides a continuum, with guidance, for what should be delivered by a business versus what can be outsourced or procured externally.

This model is then overlaid on the Lacity and Willcocks classification model (2000) for outsourcing options to provide a multi-axis model for identifying the relationship between services, the maturity of the services and the potential sourcing options, depicted in Figure 2.

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Figure 2 – Sourcing strategies (MCKEEN, J D and Smith, H A, 2015, p.128)

This model, due to the overlapping of sourcing options, makes it difficult to decide on what is best (MCKEEN, J D and Smith, H A, 2015, p.128). Identifying your core functions (MCKEEN, J D and Smith, H A, 2015) and then, using the Gartner model above, identify the detail needed to determining the appropriate sourcing model.

 

Function sourcing profile

An additional technique to assist in identifying what sourcing model to use employing a value-chain mapping technique like the Wardley Map (WARDLEY, 2015), This will help not only identify how the various components are inter-connected, it supports grouping supportive services together, that can be used for the contracting construct (WARDLEY, 2015) discussed later in this report.

This creates the ability two developed a Framework for sourcing. Understanding what sourcing strategy to use (KAISER and Buxmann, 2012). Fee for service requires maturity, strategic partnerships require both parties to be equal on many levels; and Buy-in-contracts that requires body shopping (LACITY and Willcocks, 2000).

Contract Problems

 

Organisational IT maturity comprises of IT operational maturity and contracting experience. (LACITY et al., 2009). “Much of the fear of losing control comes from the feeling that IT departments are relinquishing control to IT third parties because they no longer own the IT and can’t see, touch or grab it” (KRIEGER, 2015). How much should be contracted out, how many contracts should exist (WARDLEY, 2015) and how much control is needed? When outsourcing services, there is an all or nothing approach taken by some organisations, though this is not necessarily the best, or most appropriate answer (CHOU and Chou, 2009). Contracting of ITO services should be designed to guide and protect all parties involved in the outsourcing arrangement (CHOU and Chou, 2009; LACITY and Willcocks, 2000).

Contracts are often seen as one-sided either benefiting the Client or benefiting the vendor (ALEXANDROVA, 2015). Using the models supplied above, understanding of what services and capabilities could and should be outsourced along with what outsourcing arrangements make the most sense is possible. There are some common elements that need to be considered when looking at sourcing contracts. The elements include knowledge enhancement or management, cost management, HR aspects and sufficient flexibility to allow the business to adapt and change (MCKEEN, J D and Smith, H A, 2015).

Knowledge enhancement is one area of value when looking at IT outsourcing arrangements (LACITY and Willcocks, 2000). During the process of transitioning to outsourcing an ongoing management of the service processes policies in cool should become well documented. This raises the concern of IP ownership, who owns the resulting IP; and IP retention, what happens to the IP in a back sourcing situation (BENAROCH et al., 2007).

In the contracting framework it should be clear who owns what IP, this should includes access to IP (KAISER and Buxmann, 2012). To ensure that IP is also retained the contract should include a knowledge management component, which addresses the systematic update and refreshing of process and business knowledge during the lifetime of the contract. This is especially pertinent when process improvements clause have been included in the contract, providing reduce cost of service and increased business efficiencies overtime. Where the outsourcing partner brings their own IP or joint IP is created, there needs to be provision for access and use of this IP should the services be backsourced. This protects both the client’s business now relies on new process and the vendor you may have enhanced or improved their own outsourcing capability during this time (KIEN et al., 2010). This is assists in controlling costs where services maybe backsourced or outsourcing suppliers change. Understanding what information needs to be generated and created adds to the transition-in costs (KRONAWITTER et al., 2013). Understanding what information needs to be handed over at the end of the contract supports identifying and understanding the scale operation needed to take on the services, the transition out costs.

HR costs, those associated with downscaling an existing IT operation in an ITO or up scaling and IT operation during a backsource are also contract considerations (MCKEEN, J D and Smith, H A, 2015). In an outsource these costs include redundancies and pay-outs but also include potential loss of it. In a backsource these include recruiting costs and delay in service transition due to recruiting activities. Both of these can be addressed contractually with the transfer of key staff. This may not be possible in situations where offshore resource thing is use, as noted previously the intense pressures of globalisation requires Service providers to use global labour arbitrage.

Finally there are the internal and external opportunity considerations providing the flexibility that is the agility and speed which service functions can be delivered and business exigency to rapidly shift or pivot to meet the market demands. If the contract has been set up with the above provisions in mind you should be sufficient flexibility in the structure to allow this.

ITO contracting experience is gained through the act of contracting services. Those organisations without experience should seek external assistance in structuring and negotiating contracts (LACITY and Willcocks, 2000).

 

Governance

Governance brings together these principals, policies and frameworks with structures and resourcing (ISACA, 2012) , it is critical to the delivery and ongoing success of ITO services (MCKEEN, J D and Smith, H A, 2015). Governance is delivered through open and clear communication between the parties encompassing not only the contractual obligations but look too validate and manage ongoing risks (BAHLIA and Rivard, 2005), communicate changing needs, future visions (KAISER and Buxmann, 2012) and strategies (BENAROCH et al., 2007) and provider model for engagement an issue escalation (MCKEEN, J D and Smith, H A, 2015).

Screen Shot 2015-10-11 at 1.28.46 PM

Figure 3 COBIT Governance structure (ISACA, 2012)

Governance models put in place the measures by which services will be monitored, aligning to the service and business specific needs (Key Performance Indicators and Service Level Agreements). By structuring the interaction and governance of IT formally, it allows the aligning of IT solutions to business initiatives (MIYAGI et al., 2014), these all lead to the formation of a Governance strategy (CHOU and Chou, 2009). Figure 3 depicts the COBIT 5 (ISACA, 2012) model for governance. This incorporates the necessary functions for successful governance of IT (MIYAGI et al., 2014), by measuring and monitoring progress, that can be used to not only manage the outsource, but support backsourcing activities.

Complex Service Level Agreement (SLA), Key Performance Indicator (KPI) structures and penalty clauses put undue risk on the vendor, adding to the cost of service. SLAs and KPIs within the contract should aligning outsourcing goals with the vendor incentives. This last piece I cannot stress enough. Too many times have I seen arbitrary SLAs and deliverables applied across contracts that add risk that MUST be accounted for (people or money to partly or completely mitigate, depending on penalties). 

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In part 3 I make my recommendations for sourcing framework and governance model.

Service Management in an as-a-service world – Part 2

August 6th, 2015 Comments off
Reading Time: 4 minutes

This is part 2 of a guest blog I was asked to create for the Service Management Conference. you can find the original here and where it was published completely in the July issue of the itSMF Bulletin.

Why business mapping is critical to effective Service Management and how to get started.

In Part 1 we looked at why the cloud can give IT service management team more control – not less. Now let’s look at how to use business mapping to provide control and visability in a world where applications are offered as subscription services, from a multitude of vendors.

Use Business Mapping To Ensure IT Truly Supports the Business

A map looks at the context of complex systems. We’re familiar with technology roadmaps that match short-term and long-term goals with specific technology solutions to help meet those goals, often presented in a diagram. They are designed to help customers (including internal customers) understand the technology, current and future, that is at work in their business. But the technology view is only one part of the puzzle.

In addition to addressing the business’ immediate and projected needs you need to have a larger view of the product/capability that your organisation provides and the market forces that may impact it. The external forces range from market segment growth, competitive situation and your distribution channels through to political, economic and environmental factors – and more. There are also internal forces including the company, customers, suppliers and other constituents. This view is known as a market audit.

A business map takes this to the next level. It starts with identifying the need that the organisation is addressing with its product or service, the evolution of that product/service from an idea through to a marketable product and eventually a commodity.

Business maps arm the technologist, and business professional, with information that can be used to understand the overall business’ direction and what factors influence the various capabilities that underpin the central need of the value chain. This holistic view of the business gives context for recommendations and decisions. Hint: Get it right and there will be less instances of Shadow IT, as you will be able to understand the emerging needs of the business as it relates to its strategy

Here are six questions to help you start the mapping process:

  1. Where are we now with the business capabilities, supporting processes and technologies?
  2. What is the visibility and value placed on each of these
  3. Where do we want or need to go with these? Ultimately the drive is to head toward commodity, however, that isn’t always the right answer as there are sometimes constraints
  4. How do we get to where we want or need to be?
  5. As the organisation moves from new and novel to commodity, what are your options for sourcing and delivering?
  6. How will we know that we are on track?

If you’d like to know more about business mapping read my blog or go see Simon Wardley’s blog

Transparency across multiple vendors

IDC predicts more than 65 percent of enterprise IT organisations globally will commit to hybrid cloud technologies before 2016. This hybrid environment encompasses everything from applications, to platforms to business services, providing the services the business needs dynamically.

So once you’ve mapped your organisation and selected your solutions how do you track and manage service delivery across multiple delivery modes and suppliers? How do you let the business know what is available to it? And how do you encourage the innovation through the adoption of new services?

Integrating the disparate IT and business systems and providing a clear view of what services are available to the business based on Persona allows everyone to know what is available. Most importantly this provides a way of tracking and measuring the services, both individually and holistically as they underpin key business capabilities.

So there’s no need to fear the cloud. Recognise it for what it is – a different way of delivering services that can actually give you more control, not less, provided you take the effort to jump into the driver’s seat and use your map.

NOTE: Original post included corporate product links, I’ve removed them from here and made specific reference to Simon’s blog (which was found through my blog link in the original)

Service Management in an as-a-service world – Part 1

July 30th, 2015 Comments off
Reading Time: 5 minutes

This is part one of a guest blog I was asked to create for the Service Management Conference. you can find the original here and where it was published completely in the July issue of the itSMF Bulletin.

Screen Shot 2015-08-30 at 12.37.17 pm

Why moving to the cloud can give you more control, not less.

What are the opportunities and challenges for the IT service management team in a world where more applications are moving into the cloud, offered as subscription services, from a multitude of vendors? Can you keep control and visibility?

Recently I led a discussion at an itSMF Special Interest Group meeting about IT service management in an “as-a-Service” world – a world where the way IT is procured, delivered and consumed has fundamentally changed with the advent of cloud computing. Not that cloud computing is new by any means – particularly in smaller organisations, but it is now becoming more and more prevalent in large enterprises. Or it is expected to be…

While there has been a lot of hype around “the cloud”, what became apparent at the meeting is that most information is targeted at the executives in high level overviews, or at techies in great technical detail.

Meanwhile, the IT service management team has been left in the cold. There is little clear direction on “how to” or “where to start” and too much hype versus fact. Yet it is the service management team who often has the responsibility to “make it happen”.

In our discussion, which included IT service management professionals from government, financial services and IT vendors, the concerns/queries about service management in a cloud environment were startlingly consistent across industry sectors:

  •        What is the best way to monitor and report service delivery?
  •        How have other organisations done it?
  •        What is hybrid cloud and how do you manage it?
  •        How do you manage service integration across multiple vendors?

The Australian Government defines cloud computing as a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.

Interestingly, the itSMF group viewed cloud as a commercial model for delivering IT, rather than a technology. And the overriding concern is that these services are not in their control.

So how does cloud impact the policies, processes and procedures service management uses to plan, deliver, operate and control IT services offered to end-users?

For me it comes down to recognising that while traditional IT procurement has changed, you can still be in control; defining a clear – but flexible – business map for how the technology, processes and people will support the business; and ensuring transparency across multiple vendors.

New Ways of IT Procurement Don’t Have to Mean You Lose Control

Much of the fear of losing control comes from the feeling that IT departments are relinquishing control to IT third parties because they no longer own the IT and can’t see, touch or grab it. Yet in many ways they have more control than ever as it is easier to increase or decrease capacity quickly in response to changes in your organisation or the market in which it operates. And, if you chose the right vendor, they should provide you with regularly updated innovative solutions and contracted service levels rather than you being locked into a technology that will start to age as soon as you implement it.

Of course it’s not simple matter of moving everything into the cloud. Sometimes legislative requirements will dictate where data can be stored or who has access to it which may force an application to be insourced. Or it may depend on the maturity of an organisation’s approach to IT – an immature organisation may refuse to outsource because it is simply fearful of doing so whereas a mature approach is open to pushing risk outside the organisation.

And not all clouds are the same. A private cloud is used by a single organisation. A community cloud is for the exclusive use of a specific community of consumers with shared concerns (eg security requirements or mission). A public cloud is for open use by the general public. And a hybrid cloud is comprised of multiple distinct cloud infrastructures (private, community or public). Whilst the debate over public vs. private cloud services rages on, in the context of the above and the relative organisational needs and maturity, they all have a place.

This feeling of a loss of control can be exacerbated by departments choosing their own systems, easily bought and delivered over the Internet. However this “shadow IT” should not be feared – instead it should be seen as an indicator that the IT department is not delivering what they need. This is why business mapping is so important.

 

Part 2 of this blog will cover why business mapping is critical to ensuring IT and Service Management truly support the business and how to get started.

Bits or pieces?: An introduction to Wardley (Value Chain) Mapping

February 8th, 2015 Comments off
Reading Time: 2 minutes

15817131058_5acabc4677As those reading this blog will know, I’m a fan of the work of Simon Wardley, specifically his mapping technique for business landscape understanding. His most recent blog: Bits or pieces?: An introduction to Wardley (Value Chain) Mapping is the most concise step by step explanation to date.

I’ve watched as Simon’s model has matured of the years and it only gets better. When I think I’ve got a great tweak or variation on his work, he releases another explanation that has it and more.

The most recent of these are the aggregate view, overlay of provision or consumption and gameplay.

  • Aggregate view – when you take multiple views of the same map and overlay to get a holistic view of the organisation
  • Provision vs. consumption – are you consuming a service and as such what is it’s value, are you providing the services to higher-order components and are there smarter ways to obtain them.
  • Overlaying outsource/COTS/build your own with the provision/consumption to get a clear view of what you should be doing – working with market moves toward the right (commoditisation) when and where should you get the service you need.

My favourite is the use of the Kanban technique when implementing changes. I’ve been using this myself for several years (though I didn’t know it was called that) and found Trello to be an amazing tool to help.

I suggest you take the time to check out Simon’s blog, as it is well worth it to pick up on the concepts to develop your own tactics to strategy development.