While possible cost savings, improved service delivery and focus on core competence are widely-accepted potential benefits of outsourcing, the statistics reflect a worrying risk: as many as 50% of all outsource “relationship” (deals with the same supplier) falter within 5 years, according to Dun and Bradstreet. We can all remember the outsource disaster stories reported in the press in recent times – why are we still getting it wrong?
The March 2008 First Friday webcast[1], hosted by Jeremy Spencer, Solutions Director at Micro Focus, devoted the session to the topic of Application Outsourcing. We take a look here at some of the keys to success.
For Application Outsourcing, a $55Bn market – according to Gartner (2007), the focus on potential benefits centres upon improving IT resource productivity; IT directors seek accelerated cost-savings through better SLA management and improved return-on-investment. But finding the means to determine, control and measure service provision is by no means straightforward, as many organizations are faced with an eclectic and seemingly immeasurable array of systems. How can IT decide what to do with a system when they are not sure what it does for the business?
So how do we decide what application areas to outsource? This is where knowledge and measurement of the IT infrastructure is first required. Measurements to determine differentiation-of-service (i.e. core business/uniqueness versus commodity/service application), application stability (number of defects, customer satisfaction, and amount of new requirement) and overall business value may be required, depending on the application. More technical measurements may then be needed to establish a granular view – for example trend information regarding rate of change, quality, application complexity (itself measured in several possible ways), technical risk, language usage, helps shape the decision too. The basis for decision-making even at the outset requires a welter of valuable information, and having access to that information is a fundamental aspect of making the right outsourcing choices.
Additionally, how do we decide what kind of activity to outsource? Application maintenance is a typical start-point, where the required level of service may be relatively simple to establish. Innovation project implementation could be another option, but may be justified in a different way. Transformation projects – dramatic change in architecture, outreach, platform, even market – are very different again – with significant business impact and a different set of success criteria. Regardless of the criteria and justification, the IT Director is going to require different service level agreements (SLAs) for each outsource decision. Planning and managing these will be vital.
So, not only deciding what to outsource, but also how to measure the success of it, is going to differ for each outsource project. The Application Portfolio Management Solution from Micro Focus is designed to allow the IT Director to both determine what to outsource, but also to manage the SLA for each outsource project on an ongoing basis.
As is often the case, an outsource contract is already in place, with service already being provided. Worryingly, however, it is not being measured effectively, nor are expectations being appropriately specified. It is here where an effective baseline of metrics and measurements would help both sides of the outsource contract establish some ground-rules.
So what is the baseline to start with? Clearly, this depends on what is important to the business – but we need to establish key performance indicators, levels of expectation to set our supplier. Operational cost, application quality, productivity metrics, service level (business acceptance) criteria are potentially vital. If we sub-contract a service to a 3rd party (from drinks machines to financial auditing), it would be unthinkable to enter do so without an agreement of what to expect from the supplier; controls on IT services should be no less stringent.
Finally, let’s consider intellectual property. Once outsourced, how does the IT Director decide how things are going in terms of overall business alignment? Do we still know enough about IT and how it matches business need? Can strategic planning still happen, or have we abdicated responsibility of this to the outsourcer? And if I am an outsourcer, how can I sustain and nurture the relationship with my client to ensure they perceive a strong ROI? By stipulating clarity, expectation and information, we remove any risk of losing “control” of our IT assets through loss of knowledge. Automated systems for storing and sharing critical information will be vital here too.
With a customer list including both organizations which use outsource services, and outsourcers themselves, Micro Focus’ APM Solution helps control major outsource decisions, and helps monitor and control the provision of service thereafter. The business risk involved in outsourcing – the lack of information - is mitigated. By establishing benchmark information, appropriate visibility, and a common language for communication between customer and supplier, the Micro Focus APM solution is the cornerstone of a successful outsourcing operation. Download the brochure here.
The Micro Focus Enterprise View 5.6 – Outsource Manager option is available now.
Derek Britton is a Senior Director of Product Management at Micro Focus, and a regular contributor to 'In Focus'.
[1] Micro Focus’ “First Friday” series is offers our customers insight into relevant industry developments, product news, customer stories and other items you might find useful. See here for more information.
