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Companies that follow a formal process to define their outsourcing strategy stand a better chance of achieving expected cost and business targets, according to analyst house Gartner, which said it has identified 10 key steps that CIOs should follow to get the best out of outsourcing.
Gartner vice president Claudio Da Rold said organisations that fail to master the initial phase in the sourcing life cycle are subsequently less likely to select appropriate providers, negotiate a sound contract and effectively manage the deal.
Organisations that fail to develop a thorough business-oriented sourcing strategy place their investments at risk and may find themselves unable to meet business requirements and demands, he warned.
Gartner’s checklist includes:
1. Define your business
CIOs should begin by analysing the targets their organisation hopes to achieve through outsourcing.
The rules and priorities that will influence sourcing decisions should be outlined by the CIO from the start so the search for an outsourcing provider is coherent and follows the same priorities throughout the process. This means defining specific business, service and technical goals for sourcing initiatives – and relevant measures of success.
2. Assess the current state of IT services
The current capabilities of the organisation should be mapped out along with the current cost of internal services and existing outsourcing contracts.
This will give CIOs a fuller picture of the IT services already in place at the organisation and a greater understanding of how external service providers can add value to the business.
Gartner recommends CIOs “take a critical look at the enterprise architecture and determine if it is adequate to support the service delivery evolution required to achieve objectives”.
3. Determine the management capabilities of your organisation
Before committing the business to a contract with an outsource provider, CIOs should ascertain the skills and abilities of the organisation to manage outsourced projects, to determine how well an outsourced IT service will be integrated into the company.
4. Outline possible constraints and opportunities of outsourcing
The potential benefits and constraints of outsourcing should be assessed so that the organisation is better able to consider the suitability of outsourcing IT services.
Potential constraints CIOs should consider include .internal organisational issues, compliance issues and the regulatory environment. “Build sourcing risk profiles and apply a risk management framework,” Gartner said.
5. Analyse the gap between current and desired service levels
IT leaders should compare the desired IT outcomes with the current IT services available in the organisation to determine the gap that outsourcing is expected to fill.
CIOs should then build up a list of alternative approaches the organisation could follow to fill this gap and compare these approaches in terms of risk, cost and potential to meet targets. This way, CIOs can evaluate whether or not outsourcing is the best strategy for the organisation to follow.
6. Evaluate the external market
CIOs should assess the vendor landscape to work out which vendors are likely to offer the most stable, mature and valuable services.
Keeping an eye on the IT services market as a whole will also enable organisations to decide which type of service should be adopted and when, and could help the business to keep ahead of competitors.
7. Determine potential risks
IT chiefs should analyse the risks associated with a particular scenario, and should seek to understand the most common sourcing and vendor risks.
CIOs should adapt the risk assessment to the specific vendors and products – risks associated with IT services that cover business-critical IT functions should be given more importance, for instance.
8. Assess potential scenarios
Having evaluated the risks associated with an outsourcing scenario, CIOs should compare the potential downfalls of the IT service with the benefits.
According to Gartner, CIOs should consider qualitative issues such as whether or not the offering being considered fits in with the company culture and how cohesive it is with the business objectives.
9. Evaluate the cost-effectiveness
IT chiefs need to prepare a business case for the IT services they are considering, taking into account the financial repercussions and likely impact on the business as a whole.
This evaluation should include changes to the workloads and service requirements of internal IT staff, as well as the return on investment expected.
10. Create a plan of action
Once the organisation and vendor offerings have been assessed, CIOs should set out a time frame in which they expect deals to be finalised.
CIOs should also define what changes in management and governance are expected and how the transition to the IT service will take place. “Define the communication and change management plan and develop the program and action plan to implement the strategy,” Gartner said.