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).

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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.

Collaboration vs. Co-creation

October 18th, 2015 Comments off
Reading Time: 3 minutes

CollaborationI had an interesting conversation the other evening with Markus Andrezak (@markusandrezak). It was using music co-creation and collaboration as an analogy of how to interact with your customers in the business world.

I like the analogy of music and music creation having once, in a previous life, been one (or a joke goes been the guy who hangs around with musicians). when you create music with fellow musicians it really is both collaboration and co-creation, everyone feeding off each other’s ideas essentially starting from one persons base concept. Extending that analogy into business you can look at a start-up where they originally set out to solve their own problems as the basis of the initial product being created. That same problem solving “thing” is discovered to work for others and a new business is formed.

As the start-up grows it starts listening to its initial customers for changes and enhancements, directly adding in features and capabilities. Again this works with the music analogy; the musicians listen directly to the friends and fans, those that attend the performances, and adjust accordingly; changing tempo, changing key, even playing in a different style. In both instances again this is Co-creation because it is a small group able to communicate their needs wants and expectations. As both the music analogy grows into wider distribution of the music, be it online or via physical distribution,separating musicians from direct interaction with their fans, as an organisation grows to include many more clients, it is very hard for almost impossible to maintain or even regain that level of initial intimacy and Co-creation.

What happens when you do reach such scale is that there is a lot of noise that need to be picked through.

There was a lot of debate as to what was collaboration and what was co-creation. Both are the process of working together for a common end. I’m hard pressed to really distinguish between the two and could easily argue that try differentiate is degenerating into an argument about semantics.

Trying to find other people’s views on this was interesting. over at this site I found a reference to this paper: A Typology of Customer Co-Creation in the Innovation Process, where they define co-creation as –

“Customer co-creation is an active, creative and social process, based on collaboration between producers (retailers) and users, that is initiated by the firm to generate value for customers” (Piller, Ihl & Vossen – 2010)

Where as over here  they assert that collaboration is co-creation.

Where I think the difference could be is, collaboration is a structured coming together to address a specific issue or problem and co-creation is a broader, ongoing engagement. Either way, I think the point is that it’s a good thing and should be embraced, unless of course you just meme copy and take your strategies from others

IT outsourcing Frameworks – Part 1

October 16th, 2015 1 comment
Reading Time: 7 minutes

The following is extracted from a report I put together for my Masters recently. I’d like to say it’s based on an initial draft, however, that would suggest that I managed to revise it before submission. I thought that there were some useful pieces of information in here, so rather that just hide it, I thought I’d upload here for others.

For those that follow me on twitter, you may have seen part of the conversation:

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The report was based on back sourcing of IT services and the reasons for it. Constraints were 3000 words and using the University’s text as the basis for the frameworks – for those that know me, that never flies well, I prefer to stretch it as wide as I can to see what is out there. I wanted to bring in some of Simon’s wisdom and add a multi-dimensional view to the process, something I do in life, however, with the constrains and time restrictions…. This was a single pass, written in 2 days and now chopped up into a 3 part blog for your reading pleasure. All references will be in the final blog.

TL;DR – Information Technology Outsourcing or ITO can take a number of forms. These forms include Fee-for-service models, Strategic Partnerships and Buy-in-Contracts (VELTRI et al., 2008). Due to the complexity of some of these ITO agreements, there is the risk that something will go wrong and the services will need to be backsourced, either partially or in full, in order to regain control over those services (VELTRI et al., 2008) before working out what to do next.

This recommends that a flexible, modular and clear contracting model is used, with a strong governance framework in place to manage and oversee the delivery of services. Some of you reading that last sentence will go “ah, duh!” but in reality I’ve seen so many convoluted contracts and models I want to scream. They work for no one except the consultants that are hired to negotiate it and then later manage it.

 

Introduction

Information Systems (IS) and Information Technology (IT) are now the backbone of the modern business. Today all businesses are reliant on IS/IT to provide a base level of capability in market and not only to achieve a competitive edge (CARR, 2004). Outsourcing IS/IT services to an external party requires giving up a degree of control, thus requiring an organisation to decide how much control they wish to relinquish (BANNISTER, F and Remenyi, D, 2005; CIOINSIGHT, 2012).

There are many reasons for outsourcing include cost reduction, improved quality of service, and access to technological expertise (BAHLIA and Rivard, 2005), however, IT outsourcing (ITO) inherently contains an element of risk, and it sometimes leads to undesirable consequences that are the opposite of the expected benefits (BAHLIA and Rivard, 2005).

This report looks at the reasons for backsourcing IT services; the catalysts for doing so; the risks associated with this; and the frameworks that can be used to ensure that the outsource is not only successful but flexible to support future change.

 

Report:

Part 1 – Drivers for Back-sourcing

There are a number of risk factors involved in outsourcing and management of these risks are crucial to the success of ITO arrangements (ALEXANDROVA, 2015); if not managed appropriately, these lead to the misalignment of expectations and can be the catalyst of backsourcing (VELTRI et al., 2008; LACITY et al., 2009; BAHLIA and Rivard, 2005). These risks can be separated into client outsourcing risks and vendor outsourcing risks.

Client Outsourcing Risks

Client outsourcing risks are those risks associated with an outsourcing arrangement as perceived by the client. Willcocks et al. (1999) in their UK Government LISA case study provide a comprehensive list of client factors (WILLCOCKS et al., 1999, p.290), that if not addressed could cause the breakdown and backsource of IS/IT services.

 

Organisational Maturity, Contracts and Treatments

The following factors can be linked to a lack of maturity and experience of contracting for and managing ‘total’ outsourcing arrangements. Each of these individual issues

  • Treating IT as an undifferentiated commodity to be outsourced – This provides frameworks and contracting mechanisms uniformly across the IS/IT service. Treating IS/IT services in this manner will not allow the business to get the most out of their services (CARR, 2004). This can also lead to unrealistic expectations with multiple objectives for outsourcing.
  • This may be due to difficulties in constructing and adapting deals in the face of rapid business/technical change – This change may be market or organisationally driven and is linked to the risk above. This can create a situation where contracts are incomplete (WILLCOCKS et al., 1999; CARR, 2004).
  • Outsourcing for short-term financial restructuring or cash injection rather than to leverage IT assets for business advantage – This treats IT as a cost centre and not a strategic enabler for strategy, locking in contracts and delivery models that are inflexible and likely to fail in the mid-long term.
  • Poor sourcing and contracting for development and new technologies – restricting the business’ ability to take advantage of new and emerging capabilities in order to meet business as it changes to address market demands (CHOU and Chou, 2009)

 

Governance

Relational governance, in addition to contractual governance is essential for IT outsourcing (ITO) success (LACITY et al., 2009). These are very broad practices associated with managing supplier relationships.

  • Lack of active management of the supplier on contract and relationship dimensions – A strong governance framework is critical in not only establishing the ITO, but requisite for ongoing success. This can be arms-length, integrated or embedded (LACITY et al., 2009);
  • Failure to build and retain requisite in-house capabilities and skills – Outsourcing services requires the retention of some skills associated with services being outsourced. Loosing creates the opportunity for the need for the service and it’s changing business requirements to be lost or not managed (TAPPER et al., 2014; LACITY and Willcocks, 2000);
  • Power asymmetries developing in favour of the vendor – This can lead to abuse of the relationship, and services and capabilities being delivered that are not in-line with the expectations and needs of the business (LACITY and Willcocks, 2000).

 

Vendor Outsourcing Risks

Additionally, vendors engaging in providing outsourcing are faced with another set of risks (ALEXANDROVA, 2015, p.754) including

  • Lack of contract compliance – Clients unable or unwilling to meet their deliverables of the contract, such as providing documentation, can lead to relational and financial strain (LACITY and Willcocks, 2000; MCKEEN, J D and Smith, H A, 2015);
  • Dependence on the client – Inherent need of direction from the client, their domain knowledge or the perceived importance of IS/IT systems within the business (KAISER and Buxmann, 2012) can precipitate the backsourcing of IS/IT;
  • Miscommunication – As described in 3.1.1.2, governance is critical to the successful delivery of ITO services. Communication styles may differ (CROMAR, 2014, pp.124-125, 167) or direction miscommunicated (BARKER, J R, 1993) leading to breakdown in communication (ALEXANDROVA, 2015, p.748); and
  • Globalisation pressures and cost competitiveness – Drives vendors to continuously look for more cost-effective ways to deliver the services. Clients who don’t feel that they are getting value for money backsource to their own offshore centres to bring costs down.

 

Grouping of drivers for backsourcing

These issues stem from a combination of the lack of maturity of the outsourcing client organisation (BAHLIA and Rivard, 2005) and inappropriate sourcing models for services (LACITY and Willcocks, 2000). They can be further identified as contract problems, opportunities from internal changes, and opportunities from external changes (VELTRI et al., 2008).

By now you can start to see that issues stem, not only from conflict, but from lack of situational awareness and how the

In Part 2 I look at considerations for outsourcing

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.

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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.