IT Infrastructure Outsourcing for Government Sector in Latvia Aivis Rozenfelds MicroLink Latvia Systems Maintenance and Management department director April 2006

Content IT Outsourcing - general IT infrastructure outsourcing IT Outsourcing and Managerial issues Summary

IT outsourcing definition “An IT outsourcing arrangement is a long-term contractual arrangement in which service provider assigns the responsibility of managing part or all of a client’s infrastructure and operations (at a pre-determined price and according to a pre-determined criteria)” Source: Gartner Dataquest

IT outsourcing drivers Business drivers Cost saving Focus on core competencies Positive experience from non-core activity outsourcing Internal IT drivers IT resource shortage Requirement to improve effectiveness IT industry drivers Outsourcing – one of biggest growth area’s for IT companies Effectiveness trough volume and shared IT infrastructure More and more of IT services are standardised

Outsourcing classification BPO Application outsourcing Infrastructure outsourcing Strategic Value Tactical Value

Outsourcing classification – Lattelekom approach Infrastructure management Core Business Applications Non-core business Applications Infrastructure – all group companies outsource to Microlink Non-core – all group companies outsource to Microlink Core – at the moment keep inside in each company

IT infrastructure outsourcing Typical arrangements: Assets belongs to company (servers, PC’s, etc) Data center facilities owned by service provider Help Desk facilities, specific software (monitoring, backup) owned by service provider Outsourced IT are infrastructure management Advertised vision - IT infrastructure as utility – more complex arrangement (but available for simple resources – virtual servers, web hosting etc.)

IT infrastructure outsourcing benefits Quality 7x24 support and monitoring IT Help Desk service Industry standard Data Center, backup facilities

IT infrastructure outsourcing benefits Quality Implemented appropriate IT infrastructure management processes (ITIL) Measured service (KPI’s and SLA)

IT infrastructure outsourcing benefits Peace of mind Management time to focus from operational issues to development Maslow's Hierarchy of Needs

IT infrastructure outsourcing benefits Competitive price for high quality service

IT outsourcing in business environment Source: Cullen S., “Information Technology Outsourcing practices”, 2001 Outsourcing represent ~30% of average IT budget Manufacturing company outsource 70-80% of it’s finished product

Typical differences between CEO and CIO CEO – see the benefits Outsourcing - strategy that makes the company more flexible and adaptable to rapidly changing business and market conditions CIO – see the risks The IT systems are your brain. If you take your brain and outsource it then any adaptability you want becomes a contract negotiation And – both of them are right!

Gartner on IT outsourcing “By 2007, more than 80 percent of IT sourcing decisions will be made at a business level (board or business unit) as part of business transformation or business process sourcing decisions (0.7 probability).”

Findings from IT outsourcing study Study by Center of Research on IT at University of California (data on 860 outsourcing arrangements): Clients accrue a higher return when labour-intensive services are outsourced; The returns to clients and vendors are increasing in the relative size of the contract; Clients with a strategic intent of business impact accrue higher returns than clients with a strategic intent of IS improvement.

IT outsourcing and management issues Outsourcing is very powerful management tool Outsourcing is a management challenge: Rewards are high and risks are high Outsourcing forces management to: Determine core competencies that should be kept in-house rather than outsourced; Align outsourcing with overall corporate strategy; Use outsourcing to support transformation and restructuring strategies.

From outsourcing to BPO The shift form functional oriented view to process centric view; When process thinking view applied, it is called BPO; In BPO case assets are owned by service provider (including IT assets – e.g. payroll outsourcing) ITSalesFinance…

BPO Typical for large corporations (and applicable to government) This is part of transformation process where each service is evaluated and deployed based on: Embedded in business - if they are applicable only to that unit or more effectively delivered in that unit or provide that business with unique competitive advantage Shared services (or internal outsourcing) - if services can be leveraged across multiple business and performance can be improved trough common processes and systems Outsourced - where shared services unit is not cost- competitive or cannot deliver at the needed quality level

Outsourcing and IT industry competitiveness 7 from 10 countries joining EU are promoting IT outsourcing services Government support for IT in India: One of 5 top priority industries in India Significant investments in infrastructure with the establishment of Software Technology Parks in many cities Regulatory environment which allows: - 10 years Tax Holidays for IT Companies - Rebate on duties for Import of Technology Today in India are ~1M IT professionals (and projected 2M by 2008)

IT outsourcing in government Question – from economic point of view – what is better: A.100 IT professionals employed by government? B.or C.The same 500 IT professionals employed by business entity and providing service to government?

Summary Outsourcing is powerful and essential management approach Effective IT outsourcing is part of overall outsourcing strategy (or part of transformation process) IT infrastructure outsourcing is good (and safe) starting point in IT outsourcing journey Effective outsourcing strategy at government would significantly increase Latvian IT industry competitiveness

Thank You! Questions?