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IT Outsourcing Maturity...

...it is not about cost cutting!
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IT Outsourcing

on 29 October 2012

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Transcript of IT Outsourcing Maturity...

Facts Gartner clients execute successful sourcing strategies have achieved business benefits between 10% and 30%. The overall IT services market is expected to approach $1 trillion by the end of 2014. China follows India and the Philippines in IT provision. China’s IT services were valued at 65% of the $3.5 billion in China exports in 2010 (300% increase from 2007). IT Outsourcing Maturity It is not about cost cutting Facts Gartner clients execute successful sourcing strategies have achieved business benefits between 10% and 30%. The overall IT services market is expected to approach $1 trillion by the end of 2014. China follows India and the Philippines in IT provision. China’s IT services were valued at 65% of the $3.5 billion in China exports in 2010 (300% increase from 2007). What is Outsourcing? “Outsourcing is any task, operation, job, or process that could be performed by employees, but is instead contracted to a third party for a significant time period”. Outsourcing is not just cost-cutting. It is a strategic initiative! Approach The right IT service provider Sustainable win-win relationships with external providers. The best possible contracts (not always the cheapest) The right sourcing strategy and vision Businesses can outsource a number of functions IT Security Help Desk Operations Telecommu-nications Network Management Continuity of Operations Software Development Hardware Support Desktop Support Advantages Concentrate On the Core Business

Delegating work to a company that specializes in the activity

Develop Internal Staff

Reduce cost

Continuity & Risk Management

Provides Flexibility

Opportunity to reinvest savings in innovation Outsourcing allows CIOs to focus on innovation: “Information Technology supports what we do. In and of itself, it adds zero value to our business. It should work like a telephone; you pick it up and it works!” Ken Kanoy, an executive VP speaking for Mindshift Disadvantages Potential quality problems

Loss of managerial control

Tied to another company’s performance and reputation

Reliance on company’s ability to recruit and retain the right expertise or licensing

Slows company’s interest in innovation

Reduced security and confidentiality

Potential hidden costs Disadvantages Potential quality problems

Loss of managerial control

Tied to another company’s performance and reputation

Reliance on company’s ability to recruit and retain the right expertise or licensing

Slows company’s interest in innovation

Reduced security and confidentiality

Potential hidden costs Challenges The management of an outsourcing relationship requires different skills than the management of full time employees.

Performance metrics for the outsourcing engagement must be developed and compared to existing performance.

Outsourcing is not always less expensive. Sometimes, it’s the expertise being sought. Outsourcing Relationship Management Managing an outsourcing relationship entails: Management strategy

Organizational structure

IT infrastructure Value of cutting costs by outsourcing To increase profit, a business must
Increase revenue -or- Cut costs Outsourcing can help by adding value to the business http://rikowski.files.wordpress.com/2012/06/it-15.jpg?w=450&h=350 http://blogs-images.forbes.com/work-in-progress/files/2012/09/Strategy-300x225.jpg http://keyintofrederick.com/wp-content/uploads/2012/06/Cost-vs-Value1.jpg Reasons on Why Organizations Outsource aside from Cost 1. Access to Superior Skills
2. Focus on Core Competence
3. Strategic Objectives http://itoutsourcing-services.com/wp-content/uploads/2012/07/Cost-benefit_and_CRM_dev_1-300x300.jpg Assumptions Organizations that outsource the development, operational and management of their IT activities to other companies are at various levels of maturity. Lacity and Willcocks (2001) warned that “organization seeking more radical transformation through mega- outsourcing face greater risk and challenges”. The assumption that the external provider has a high capability to deliver better IT performance at a cheaper cost and better quality. Success factors for IT outsourcing are generic in nature across industries and regardless of the type of outsourcing. Include poor staffing of the IT function

Poorly writing service level agreements (SLA)

Lack of outsourcing experience on the client side

Poor project management skill

Poor technical infrastructure (especially in some offshore cases)

And lack of trust

Reasons Why Outsourcing Fails http://www.trybpo.com/wp-content/uploads/2009/06/iStock_000009118220Large-300x204.jpg Outsourcing Maturity Models Insourcing Some of the organizations in this stage make a decision not to outsource their IT...
...because they believe their internal IT department can perform as good as or better than an external provider. Forming IT outsourcing is sporadic within the organizational departments with no overall knowledge sharing enterprise wide. Storming The senior management will have to make a more serious decision either to pursue IT outsourcing more proactively or regress back to stage two for more experimentation. Norming Teams in psychosocial development maturity begins to form norms, roles and protocols for working together which should lead to developing team cohesion. Performing At this stage the outsourcing partners will have clear methods for problem resolution...
...And all the partners are working together towards a common goal.
This is a difficult stage to achieve because the client and the provider may be pursuing different outsourcing objectives. Case Study Scenario ACB stores (not the real name) is in the trucking and storage business, operates in about ten cities and is headquartered in Chicago, Illinois, USA.
ACB stores outsourced their entire network infrastructure to a network services provider, NetFra (not the real name). Conflict When ACB stores’ network went down due to a problem from SBC Ameritech (the telecommunications carrier), they held NetFra accountable.

According to NetFra CEO, ACB stores could not differentiate between a network problem caused due to external source (telecom carrier) or internal network failure. http://cdn2.business2community.com/wp-content/uploads/2012/09/HubSpot-a-great-case-study-for-inbound-marketing.png http://1.bp.blogspot.com/-mgCrrhW0x_g/TlztzgYArYI/AAAAAAAAAsk/DlZbi2nd_i0/s1600/the_answer.jpg Summary Although there is a lot of valuable IT capability globally, IT executives need to also consider geographically close capabilities and innovation in order to continue improving local skill sets.

Competition is based on innovation and not simply cost. References Craumer, Martha. “How To Think Strategically About Outsourcing”. July 22, 2002. Accessed September 6, 2012. http://hbswk.hbs.edu/archive/3022.html
Delve Group Inc. “Optimum Outsourcing”. Accessed September 6, 2012. http://www.delvegroup.com/pdf/DelveArticle_O2OptimalOutsourcing.pdf
Gartner. “IT Glossary. Defining The IT Industry”. Accessed September 7, 2012. http://www.gartner.com/it-glossary/it-outsourcing
Ian Marriott, Gartner. “Outsourcing & IT Services”. May 2009. Accessed September 7, 2012. http://www.savevid.com/video/ian-marriott-gartner-outsourcing-it-services.html
Lee, Benjamin. “IBM-Outsourcing”. 2011. Accessed September 7, 2012. Ian Marriott, Gartner. “Outsourcing & IT Services”. May 2009. Accessed September 7, 2012. http://www.savevid.com/video/ian-marriott-gartner-outsourcing-it-services.html
Loh, Lawrence and Venkatraman, N. “Determinants of Information Technology Outsourcing: A Cross-Sectional Analysis. Fall 2010. Accessed September 5, 2012. http://wweb.uta.edu/management/Dr.Casper/Fall10/BSAD6314/BSAD%206314-Student%20Articles/Regression/Ola%20Al_laymoun%20article%201.pdf
Mainstay Partners. June 2009. Accessed September 6, 2012. http://www.mainstaypartners.net/downloads/pdf/newsletter-june-09.pdf
Mindshift. “IT Outsourcing and Cloud Services”. January 2012. Accessed September 7, 2012.
Overby, Stephanie “IT Outsourcing: How Offshoring Can Kill Innovation”. July 22, 2011. Accessed September 5, 2012 http://www.cio.com/article/686597/IT_Outsourcing_How_Offshoring_Can_Kill_Innovation
Overby, Stephanie “IT outsourcing to China increases despites drawbacks”. December 6, 2011. Accessed September 5, 2012. http://www.infoworld.com/d/the-industry-standard/it-outsourcing-china-increases-despite-drawbacks-181027?page=0,1
Pine, Marty. “Outsourcing Pitfalls”. on About.com Ousourcing. Accessed September 7, 2012. http://outsourcing.about.com/od/pitfalls/a/The-Pitfalls-Of-Outsourcing_3.htm
Pisano, Gary P. and Shih, Willy C. “Restoring American Competitiveness”. Harvard Business Review. July 2009. Accessed September 5, 2012. http://hbr.org/hbr-main/resources/pdfs/comm/fmglobal/restoring-american-competitiveness.pdf
Wikipedia. “Outsourcing relationship management. August 14, 2012. Accessed September 6, 2012. http://en.wikipedia.org/wiki/Outsourcing_relationship_management

Olayele, A. & Wabash, S. 2004, 'IT outsourcing maturity model', Proceedings of the 13th European Conference on Information Systems, The European IS Profession in the Global Networking Environment, ECIS 2004, pp. 13-21. Craumer, Martha. “How To Think Strategically About Outsourcing”. July 22, 2002. Accessed September 6, 2012. http://hbswk.hbs.edu/archive/3022.html

Delve Group Inc. “Optimum Outsourcing”. Accessed September 6, 2012. http://www.delvegroup.com/pdf/DelveArticle_O2OptimalOutsourcing.pdf

Gartner. “IT Glossary. Defining The IT Industry”. Accessed September 7, 2012. http://www.gartner.com/it-glossary/it-outsourcing

Ian Marriott, Gartner. “Outsourcing & IT Services”. May 2009. Accessed September 7, 2012. http://www.savevid.com/video/ian-marriott-gartner-outsourcing-it-services.html

Lee, Benjamin. “IBM-Outsourcing”. 2011. Accessed September 7, 2012. Ian Marriott, Gartner. “Outsourcing & IT Services”. May 2009. Accessed September 7, 2012. http://www.savevid.com/video/ian-marriott-gartner-outsourcing-it-services.html

Loh, Lawrence and Venkatraman, N. “Determinants of Information Technology Outsourcing: A Cross-Sectional Analysis. Fall 2010. Accessed September 5, 2012. http://wweb.uta.edu/management/Dr.Casper/Fall10/BSAD6314/BSAD%206314-Student%20Articles/Regression/Ola%20Al_laymoun%20article%201.pdf

Mainstay Partners. June 2009. Accessed September 6, 2012. http://www.mainstaypartners.net/downloads/pdf/newsletter-june-09.pdf
Mindshift. “IT Outsourcing and Cloud Services”. January 2012. Accessed September 7, 2012.

Olayele, A. & Wabash, S. 2004, 'IT outsourcing maturity model', Proceedings of the 13th European Conference on Information Systems, The European IS Profession in the Global Networking Environment, ECIS 2004, pp. 13-21.

Overby, Stephanie “IT Outsourcing: How Offshoring Can Kill Innovation”. July 22, 2011. Accessed September 5, 2012 http://www.cio.com/article/686597/IT_Outsourcing_How_Offshoring_Can_Kill_Innovation

Overby, Stephanie “IT outsourcing to China increases despites drawbacks”. December 6, 2011. Accessed September 5, 2012. http://www.infoworld.com/d/the-industry-standard/it-outsourcing-china-increases-despite-drawbacks-181027?page=0,1

Pine, Marty. “Outsourcing Pitfalls”. on About.com Ousourcing. Accessed September 7, 2012. http://outsourcing.about.com/od/pitfalls/a/The-Pitfalls-Of-Outsourcing_3.htm

Pisano, Gary P. and Shih, Willy C. “Restoring American Competitiveness”. Harvard Business Review. July 2009. Accessed September 5, 2012. http://hbr.org/hbr-main/resources/pdfs/comm/fmglobal/restoring-american-competitiveness.pdf

Wikipedia. “Outsourcing relationship management. August 14, 2012. Accessed September 6, 2012. http://en.wikipedia.org/wiki/Outsourcing_relationship_management Analysis Before the outsourcing arrangement: stage one (Insourcing) of the maturity model. (Outsourcing < 5%);
After the contract was signed: stage five (Performing). (total outsourcing / outsourcing > 80%);
After conflict: stage three (Storming);
Without the executives: stage two (Forming). Problems Neither ACB stores nor NetFra have been involved in IT outsourcing in the past;
Based on very good contractual experience, there was no bidding and no detailed SLA was written;
Conflict: ACB stores assumed NetFra was responsible for other IT functions that NetFra believed were not in the contract;
The two executives that put the deal together were no longer in both organizations. IT Maturity on Main Areas Technologies Process People The right employee is acquired and retained for the right job.

They have access to appropriate training and, at the highest levels of maturity, have appropriate industry certifications and training credentials. Process maturity should also include why processes are being improved in the first place.
CMMI, for example, defines Key Process Areas (KPAs) such as “Requirements Management”, “Product Integration”, “Causal Analysis and Resolution” to name a few.
They are not inherently linked to specific measures of business value. Technology is used as a means to improve processes by automating them.
By focusing on process automation, the value of technology is sold short.
Technology should be utilized to help improve the maturity of people as well by maturing training, access to information, as well as the quality of that information.
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