3gamma Insights: IT outsourcing in an ever-changing environment – flexible governance of outcomes is key to value creationIdeas in brief

Jens Ekberg, Director Head of Group Insights

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Cost can’t be the sole driver for IT outsourcing –shifting mind-set from activities to outcomes

The comparative advantage from economies of scale in data centres is nowadays being offset by automation, standardisation and new ways of working

As technology becomes standardised, there is no discernible difference between an outsourced data centre and an in-house one. The case for classical infrastructure outsourcing is further undermined by the rise of the cloud and software as a service

It is critical to have a clear view of the case for IT outsourcing and clearly articulate the goals of an outsourcing initiative. Pay meticulous attention to the business case and make sure that you have a clear view of your current cost baseline and the business requirements. Execute transformation prior to moving into an outsourcing arrangement

To achieve cost saving, consider an internal cost reduction or transformation program, combined with continuous improvements, to achieve cost savings well above any IT outsourcing initiative

In the case of an outsourcing, it is imperative to avoid a transactional mind-set in the agreement and create reciprocal incentives for the entire sourcing life-cycle

3gamma Insights: Idea in brief

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Engaging business in IT sourcing – the fine art of demand management

The results from the 3gamma annual insights survey show a disconnect between IT sourcing strategies and business outcomes

Companies are struggling with aligning IT sourcing and business requirements, and IT seems to be left on their own in designing and developing approaches to IT sourcing

The ability for IT to support an ever-changing business is negatively impacted and a cost paradox is created: IT organisations with a focus on cost optimisation risk inflicting additional costs on the business

Companies working with IT sourcing should make the business an integral part of the IT sourcing strategy development and implement the strategy in daily operations to keep it operational and key to the IT deliveries.

IT sourcing agreements should contain business-oriented service definitions that align with the service recipient’s processes and requirements.

IT should plan for “pitching sessions” for supplier functions, internal as well as external, in order to continuously make the IT delivered smarter and stronger

3gamma Insights: Idea in brief

Only 50 % feels that

business requirements are reflected in the IT sourcing

strategy…

…where only 15 % of feel

‘the business’ understands the IT sourcing strategy

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Improving flexibility in IT outsourcing by collaboration and relationship management

There is significant pressure on companies to be flexible and adapt quickly to new business challenges

The business wants an IT organisation that is proactive, has a good understanding of the business and delivers value on strategic, tactical and operational level

IT is expected to be a proactive business partner and an active supporter and enabler of the business strategy

To improve flexibility in IT outsourcing and avoid some of the common pitfalls and lock-in effects companies should:

Establish strong relationships with all of the vendors involved in service provision

Build relationships within the IS/IT department itself. In particular ensuring that objectives, rewards and behaviours are well aligned so that clear incentives exist for different groups to work together

Develop good relationships with the customers of the IT services. Ensuring that customers understand what services are provided to what standard and what happens when they go wrong

3gamma Insights: Idea in brief

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Understanding IT outsourcing risk: incorporating risk management in your IT sourcing strategy

Outsourcing decisions have long term consequences. Understanding how IT organisations and IT executives make decisions, value risk and manage risk is an integral part of IT outsourcing

The consequences of poor decision making with resulting lock-in effects can be detrimental to competitiveness, undermine organisational morale and incur significant costs

Managing risk during the IT sourcing life-cycle is at the heart of successful IT outsourcing

Review business alignment

Assess lock-in effectsMonitor contract leakage

and performance

Understanding of internal execution capability

Understand alternative market capabilities

Monitor exit capability and readiness

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3gamma Insights: Idea in brief