1. IT Outsourcing with Purpose
Summary Document

2. Where to start with your outsourcing decision?
Overview
Where to start with your outsourcing decision?
Outsourcing is a large and complicated area.
The purpose of this document it to aid you in making the initial decisions about outsourcing direction and to provide you with key success factors for vendor selection and implementation.
Document Coverage Legend
High Medium Low
High Coverage: In-Depth Analysis
Medium Coverage: Key Points Addressed
Low Coverage: Directional Advice
No Coverage: Not Addressed

3. Introduction
Cost Savings aren’t the only thing driving Outsourcing Implementations; Efficiency benefits are key
The motivation for outsourcing does not necessarily have to be purely tangible savings. For 33% of customers interviewed it was flexibility or business focus.
It is true that all motivations culminate in material impacts; however we’re only concerned with the observable and traceable effects of outsourcing.
Therefore there are three separate questions that need to be addressed:
What type of Outsourcing Fits?
What types of Outsourcing tend to save most money?
What are best practices in Outsourcing implementation?
What are the key IT priorities in your Organization?
What are the high level characteristics of your Company?
What types of Outsourcing lend themselves to the above?
What area will save me most money?
Can I feasibly, and successfully, outsource this area?
How do I go about finding a vendor and negotiating an agreement?
How do I deal with associated change management issues?
How do I manage my vendor on an ongoing basis?
Outsourcing is not for everyone, in fact, if organizational fit is not investigated appropriately, Outsourcing can be a detriment to the company.

4. What is Being Outsourced?

5. What’s Being Outsourced?
Overall Outsourcing rate of 62% does not differ significantly by company size
About 2/3rds of companies currently carry out some Level 1, 2 or 3 IT outsourcing.
Overall the outsourcing rate does not differ by company size; however the mix of areas outsourced does differ ?
Infotech.com
Outsourcing in Mid-Sized Enterprises
“Proportions Outsourced” Fig 9-11, Pg 14
Source: Info-Tech Research

6. Four key Outsourcing areas were prevalent in our analysis
What’s Being Outsourced?
Four key Outsourcing areas were prevalent in our analysis
Each type of IT outsourcing was grouped into one of the following core areas to allow for ease of data analysis and reporting
Many clients outsourced in more than one area
Outsourcing Type
Description
Examples of Deployment
Application Development
On-shore or off-shore development of programming applications
Development of Business Application
Application Support
Vendor support of business applications
Services
Web Hosting
Infrastructure
Outsourcing the fundamental architecture of physical hardware used for network support and communication capabilities
Network Rebuild
Infrastructure Management
Asset Management
Help Desk / Desk Size Support
Troubleshooting and resolving issues related to desktops, laptops, and peripherals for either clients or users
Help Desk Support
Desktop Support
PC Installation

7. Why Outsource?

8. Outsourcing is done for either Cost Savings or IT Efficiency reasons
Why Outsource?
Outsourcing is done for either Cost Savings or IT Efficiency reasons
When evaluating the outsourcing decision, organizations are driven by one of two key motivators:
Cost Savings
IT efficiency
Driving cost out of IT
Delivering more value to the business
Outsourcing delivers on its promise of cost savings by varying degrees. Cost savings achieved are driven by three key factors:
Although linked to long-term savings or revenue growth, IT efficiency driven projects usually focus on intangibles. Key areas driving efficiency include:
Type of Outsourcing
% of total IT budget that Outsourcing consumes
Size of Organization
Access to skills
Repurposing of employees
Management overhead
Please see full report for detailed findings on each cost savings factor.

9. Certain types of outsourcing bring significantly higher cost savings
Why Outsource?
Certain types of outsourcing bring significantly higher cost savings
Cost saving dynamics differ by outsourcing type:

10. Making the Outsourcing Business Case

11. The business case will include both cost savings and cost avoidance areas
Many clients indicated that determining their own costs was a learning experience.
From a business case point of view, budget savings (defined as the difference between internal costs and outsource costs of the given IT component) will be the key driver.
One-time
Ongoing
Cost Savings
Budget Savings
Facilities and Other Savings
Training Costs and Staff Turnover
Staff Augmentation
Inefficient Business Operations or Outages
Cost Avoidance
Investment into Research and Selection
Legal Fees
Transitional Costs
Severance Packages (if needed)
Cost of the Contract
Management of the Outsourcer
Costs

12. Benefit Drivers

13. Benefit Drivers
Improved Effectiveness was the key motivator in a third of the organizations in the study
Please see full report for detail of all benefit drivers and a Benefits Grid which identifies relevance of benefits by the four types of outsourcing identified
There are 12 key intangible benefits we identified, of which 4 are highlighted below:
Access to More Expertise
The outsourcer has two key advantages in providing access to expertise. Firstly, they will have subject matter experts, in areas needed for the breadth of services they offer, that are leveraged on an as-needed-basis. Secondly, since the outsourcer works with multiple clients, the experience brought to bear is in fact that of their entire client base.
Improved Employee Career Development
Outsourcing can be used to hand off non-critical or tedious work, which allows for better career development as employees can be redeployed to work on more strategic initiatives. This helps employee career development and allows key talent to be applied to the highest priority tasks.
Staff Augmentation
Outsourcing enables you to meet cyclical needs, or meet rapid growth demands that can’t be met internally. This gives you the ability to control and better manage expense growth by turning resource costs into a truly variable expense.
24/7 Service or Development
Many outsourcers offer 24/7 services that are significantly more cost effective to implement than similar services internally. Take advantage of the outsourcer’s economies of scale (i.e. the large number of clients they support).
Intangible Benefits
Confusing issues here:
Access to skills
Elimination of career management
Refocus of employees

14. Common Pitfalls

15. Heed the Warnings of Your Peers
Pitfalls
Heed the Warnings of Your Peers
There are 15 key pitfalls we identified, of which 4 are highlighted below:
Escalation Management
The outsourcing vendor deals with many organizations and may not understand the urgency of your issues. Ensure there is a process in place for classifying requests and escalating issues.
Management of Outsourcer
A least part of someone’s time will be consumed with managing the outsourcer. This will depend on the scope of the contract.
Many clients underestimated the time required to manage the outsourcer, however this was always cited as a crucial element to ensuring success. Ensure you allocate adequate resources as most clients found the management of the project to be of greater complexity than they anticipated.
Location
The physical distance between you and the vendor can create a communication gap as people in general find it easier to resolve issues in person. Be aware that the issue resolution may be prolonged given greater distances, especially those spanning time zones.
Legal Issues
IT may have little experience reading and interpreting contracts, and this can often be a learning experience for those involved. Legal advice is recommended.
That being said, legal fees themselves can be considerable, especially when dealing with larger transactions which tend to bring more lawyers into the equation. Ensure that the economies of scale you should be achieving are not cannibalized by legal fees.
Pitfalls
Confusing issues here:
Access to skills
Elimination of career management
Refocus of employees

16. When to Outsource?

17. Your approach will drive which areas are considered for outsourcing
Fit Indicators
Your approach will drive which areas are considered for outsourcing
Approach Type
What
Outsourcing Urgency
Top Cited Benefit
Burning Platform
IT needs cannot be met internally.
High
Strategic Value
Bottom Up
A specific area of your IT is performing poorly. This could be in terms of service levels or cost.
Medium
IT Efficiency and Business Value
Top Down
A specific Corporate and IT Priority needs to be addressed.
Low - Medium
Cost Savings
For a personalized analysis, refer to the Excel tool available with the full report which allows you to determine outsourcing appropriateness for your organization, likelihood of success, and recommendations on which areas of your IT are best suited for outsourcing.
If IT is constraining your business growth the value and purpose of outsourcing will differ from that of an incremental improvement.

18. Creating the Plan

19. Eight critical planning steps for outsourcing implementation
Based on successful cross-industry implementations, below is a compiled leading-practices guide to moving forward with outsourcing your IT
Step 1: Determine Your Approach and What to Outsource
Step 2: Develop the Business Case
Step 3: Gain Buy-In
Step 4: Determine Resources Required and Duration
Step 5: Choose Your Vendor
Step 6: Negotiate with the Vendor
Step 7: Vendor Transition and Implementation
Step 8: Ongoing Management and Review
Please see full report for details and breakdown of each best-practice step.
Please see full report for details and breakdown of each best-practice step.
Please see full report for details and breakdown of each best-practice step.

20. Case Studies

21. Case Study: 10% of IT Budget Outsourced
Case Studies
Case Study: 10% of IT Budget Outsourced
Additional case studies are described in the full report.
Prior to outsourcing, there were too many people tied up in firefighting type tasks, now they have redeployed. In addition, service levels are high without the need to manage career development for help-desk staff. Very satisfied with cost of service.
Company Profile
# of Employees:
8000
Industry
Industrial Manufacturing
Functions Outsourced:
Help Desk
Application Development
Benefits
Key Drivers
Started out as a pure cost savings play, but benefits of improved service and elimination of career management effort drove the project.
Benefits Achieved
Cost Savings
Decreased Management Overhead
Access to more Expertise
Repurposed Employees
Improved Service
Vendor Selection
Important Vendor Selection Criteria
Cost
References
Experience with industry and technology
Partnership Ability
Vendor Management
1 FTE
Contract Length
3 Years
45% Savings