I recently had the opportunity to chat with Cognizant’s Ramesh Gudalur, Head, Global BPO, and Paul Roehrig, Director of Strategy for Cloud Business Solutions, regarding the implications of Cloud Computing for BPO.
Bill Huber: Frame the big picture for our readers… How does Cognizant see the cloud impacting the way in which BPO services are delivered?
Paul Roehrig: Broadly speaking, multiple converging contextual forces such as the reset economy, intense businesses pressures, the increase of millennial workers, and the maturation of cloud-enabled technologies and collaboration have created a set of force vectors causing end users to search for new delivery models.
Most enterprise decision makers will not suddenly move all technology and process services to a cloud-based delivery model.
Our belief is that cloud based solutions are beginning to offer disruptive advantages when woven together with more traditional delivery models. Looking at services as “cloud” or “not cloud” might not be the best direction to take things. Very few enterprise decision-makers are ready to suddenly throw everything into a cloud delivery model. Smart concerns about security, the ROI of cloud services, legacy applications, etc., will continue to keep decision-makers cautious about widespread sudden leaps to cloud services. But in spite of concerns, cloud-enabled next-generation solutions can offer disruptive levels of productivity improvement and business enablement. We believe that our role as a service provider is to help customers appropriately deploy cloud-based solutions and to navigate around major issues and questions about security, ROI models and the true value of cloud-enabled solutions. Cognizant sees its role as an innovator/integrator/guide to help customers find the optimal balance of cloud enablement with traditional delivery methods.
Cloud enablement cuts across all lines of service from a horizontal and vertical business perspective. Increasingly, Cognizant sees itself integrating offerings such as Software as a Service (SaaS), Infrastructure as a Service (IAAS) and consulting and analytic services along with BPO to deliver an end-to-end solution for key processes. The real “over-the-horizon” take on this is that next-generation deals are just beginning to emerge at the enterprise level. These deals demonstrate a new class of solution weaving together infrastructure, applications, and business process services, and delivers business outputs back to customers via more of a consumption-based billing model. These cloud-enabled vertically aligned solutions require deep understanding of the business and leverage global service delivery and a robust alliances ecosystem to deliver disruptive levels of value to customers.
BH: What example can you use to illustrate how this happening?
PR: We have some examples of these solutions in clinical data management and analytics as a service in our Life Sciences business, and we’re actively pursuing more of these next-generation deals. Several other service providers also have examples of these solutions, and industry analysts and advisory firms are also indicating that these business process solutions are gaining traction. Based on a foundation of cloud services and traditional capabilities from providers, customers have a new opportunity to create differentiation based on innovation leveraged into more progressive service offerings. It’s early days, but these are real solutions delivering real value today—not just slideware.
BH: How is Cognizant incorporating this into its broader strategies?
Ramesh Gudalur: We don’t want this to be a flavor of the day and are using the cloud as a key infrastructure to drive thinking and improve capabilities to our customers in capital markets, life sciences, health care, finance and accounting, clinical data and other areas. The cloud is a component in our ability to create a very differential offering with a view toward client impact.
For example, envision a SAAS platform on which end users can do insurance processing or end user rights management. These solutions, as good as they are, are only an application and not an end-to-end solution. There are many pieces missing from a pure SaaS play that a service provider can and should add to the solution. Depending upon the solution, the client could still have complete access to that platform while achieving a much higher level of operational performance.
In vertical processes there is a need to change processes to drive the next level of value. For example, in health care claims, new processes have been implemented to put multiple types of claims together and analyze them concurrently rather than in a sequential manner, driving a whole new level of business intelligence. As industry wrappers are created that can change processes, you actually achieve changes in the process available on the cloud that will affect multiple companies. The result is the avoidance of significant reinvestment by clients. Buyers need to unbundle processes in a different way to drive increased value. For example, they now have the opportunity to think about “Claims in a Box” type solutions and to focus on the insights from analytics of the data rather than being a claims processor. This will help them to move from a claim-centered view of processing to an issue-based view of processing, driving higher fraud impact identification and mitigation, for example.
BH: What should clients do differently in going to market?
PR: There is an opportunity for advisors like TPI and others to help drive a new view of cloud-enabled business process services within their clients. Advisors can help their clients to understand the change to solution sets and offer clients new ways to better take advantage of these emerging technology and commercial models. IT decision-makers are starting to rightfully conclude that it is time to start thinking differently about how to utilize technology. Those advisors who keep everything entirely templatized may put their customers at greater risk because value could remain locked in the nostalgic inefficient process and technology. Cloud-enabled technology and commercial models can also provide benefits through business analytics and lowering run rates. Business and technology decision-makers should start doing several things now to take advantage of this emerging trend. First, build a vision—not just slides—for next-generation sourcing solutions. It’s a great time to clarify and refine what the true technology and business goals are and then wrap the sourcing strategy around those goals. Keep in mind that help is available. Service providers, advisory firms, etc., are all positioning to help navigate new service models and business implications. Also, get smart about next-generation solutions. Pick less-critical functionality—storage, email, platform-as-a-service (PaaS) and SaaS offerings seem to be the most common pilots—and get smarter about cloud services by trying them out. Then go search for true business solutions.
Healthcare providers have an opportunity to take advantage of new, advanced technology in cloud computing. Given the heavy industry regulation, it is important for health professionals to determine if cloud computing can provide them a secure, reliable, scalable, and inexpensive computing platform that can be used to facilitate healthcare customers’ HIPAA-compliant applications and data. HIPAA, which protects the privacy and security of certain health information, is a national standard that all healthcare providers need to be compliant with to secure “protected health information” (PHI).
Some key steps to preparing your organization for the cloud include the following:
Rationalizing, simplifying, standardizing and reducing your organization’s application portfolio
Implementing virtualization technologies at all levels to create a portable environment ready for the cloud
Developing a cloud computing strategy to help identify business value drivers, service impact, and service capability
Creating a corporate risk profile for cloud computing adoption
Deciding where to place healthcare applications and data taking into account characteristics such as business importance, data sensitivity, processing security, and regulatory constraints
Develop business case and determine the transformational roadmap to being the process of moving healthcare data to the cloud
As the “Great Healthcare Debate” continues the acceptance of cloud computing solutions – even in privacy and security-focused industries – is gaining traction. If implemented properly, the cloud provides a computing platform that can be used to facilitate a growing healthcare customers’ HIPAA-compliant industry and healthcare applications. In my next post I will address how healthcare businesses subject to HIPAA should carefully select a service provider with the capabilities to address HIPAA Privacy, Security, and Audit as well as provide secure, scalable, low cost IT infrastructure.
The Senate bill that would overhaul U.S. financial regulations at a level not seen since the 1930’s. The legislation proposes to close holes in regulation and curtail some trading practices that many believe led to the 2008 crisis in the financial markets. The Senate bill differs from the House bill in that the Senate eliminated the $50 billion fund that firms would have been required to pay into for use as a bailout for troubled financial firms. Proponents of this bill claim that this legislation will enable the financial system to avoid systemic collapse, which they claim was avoided only with government-provided TARP funds to prop up weaker firms. Opponents state that the bill does not address Fannie Mae and Freddie Mac; not only the largest recipients of tax payer bailouts, but seen by many as the root of the problem in the 2008 collapse.
Some major components of the bill, and its potential implications for the outsourcing market, are as follows:
New Regulatory Authority
Fed regulators would be given new authority to seize and break up large financial firms – previously referred to as “Too big to fail” – that could cause systemic risk to the financial markets and the overall economy. The WSJ has noted that the ratings of firms deemed “Too big to fail” could be downgraded due to this provision and therefore would incur higher borrowing costs. These higher costs would put pressure on both margins and profits.
Outsourcing Market Implications:
• “Too big to fail” firms will need to reduce expenses to cover the shortfall in profit margins, which may be an opportunity for additional outsourcing.
Is a government takeover covered in outsourcing agreements or is this a force majeure?
As service providers see more risk in large firms, will they use price increases as a mechanism to mitigate these risks?
2. Derivatives
The bill would require most derivatives trading to be executed on a public exchange as opposed to the current market whereby derivatives trades are done privately between banks and customers. Another provision in the bill would require large commercial banks with access to a Federal discount window to spin off its derivatives trading businesses.
Outsourcing Market Implications:
Would captives need to be split up to separate derivatives trading operations?
Would existing outsourcing arrangements need to be terminated?
What would the mechanism be to separate the trading business out from a shared service center?
Will this create an opportunity for a specialized service provider to purchase and leverage a “derivatives” captive?
3. Financial Stability Council.
A new board established would recommend to the Federal Reserve stricter capital, leverage, and other regulations for large firms deemed a threat to the financial system.
Outsourcing Market Implications:
An additional level of reporting and compliance may be required to satisfy these new regulatory requirements, leading to an increased demand for outsourced systems development projects or even an opportunity for BPO /KPO service providers.
4. Hedge Funds
Hedge funds with more than $100 million under management will be required to register with the SEC as investment advisors and disclose information about their trading and portfolios.
Outsourcing Market Implications:
Hedge funds will face additional scrutiny from a regulatory, compliance, and reporting requirements standpoint that will provide an opportunity for service providers to bring best practices and solutions to the industry.
How do I work with the Service Provider? Should I interview the offshore resources? What are SLAs? What can I do to improve quality? These are questions we hear repeatedly from our customers. In response, we’ve developed a series of workshops to address these pressing needs. The content is structured to be delivered in ½ day to 2-day highly-interactive sessions, which allows organizations to truly understand and implement the concepts. We’ve conducted these with a number of large IT organizations on a variety of topics, including:
Managing in an Outsourced Environment (ADM Operational Management) – Organizations struggle with the transition from a staff augmentation model to a managed service model. Internal employees often have new roles and must work with Service Providers using contractual constructs such as defined pricing units and Service Level Agreements. This 1- to 2 -day course provides practical guidance on day-to-day management in an outsourced environment. It breaks down many of the contractual elements into easy-to-understand tools that front-line managers can use to measure and incent Service Provider behavior and to foster a healthy Service Provider relationship that achieves the original sourcing goals. Many of the concepts are based on the book I wrote with Jim Hussey, Managing Global Development Risk, which was no. 1 in the outsourcing category on Amazon.com last year.
Creating an Investment Mindset – IT Governance and Demand Management are two of the hottest topics in the industry but are also two of the hardest strategies to implement within an organization. This 1-day workshop focuses on IT decision rights and a practical approach to IT Demand Management focused on prioritizing projects and aligning them with business needs. The workshop also highlights the advantages of agile development in an offshore delivery model to develop a flexible team that can rapidly respond to changing business needs.
Establishing a Testing Center of Excellence or Managed Test Factory – Focused testing via a COE is quickly becoming one of the best ways to improve software quality. Service Providers are creating a potpourri of offerings to capture a slice of this rapidly growing market. This ½-day course provides an overview of the market with an operational focus on the key concepts and the necessary steps to establishing and managing your own Testing COE or Managed Test Factory.
Dedicated time with industry experts in a ½ day to 2-day workshop is a great way to accelerate your organization’s understanding of emerging sourcing trends and strategies.
Not too long ago, I shared an observation in a recent post about the Demand-Supply syndrome. I noticed that subdued demand resulting from recessionary pressures and supply exceeding the industry requirements of manpower were impacting the offshoring industry. Companies were unable to create new jobs or even sustain full operating capacity because demand in the market was so weak. Consequently, service providers needing to reduce staff shifted the balance of power to employers after several years of considerable growth and hiring in the outsourcing industry.
Now in 2010 we are again witnessing the reversal of this trend. The pendulum seems to be swinging back to the supply-side with the optimism of a reasonable increase in demand and renewed hiring plans from the service providers.
Recent news out of India from publications such as Business Outlook and livemint.com have been focused on providers’ concerns about retaining talent, debating whether or not to continue doling out hefty bonuses as well as annual compensation increases for employees across the board. Tier I providers are again talking about dusting off their hiring engines to hire employees in tens of thousands for the expected growth in demand of their services. As a result, with the scores of new job opportunities in the marketplace and employers engaging in the war for talent, the negotiations power will shift back to the employees. In weeks and months ahead, voluntary attrition is expected to rise again. The increased attrition of talent will bring back the challenges of managing the ongoing delivery to customers as well as put considerable pressure on the wage bill of the providers which constitutes the single largest middle line item on their Income Statements.
What does this signify to the industry from a macro perspective? In my view, nothing but a reflection of the fundamental economic laws related to “business cycles” and “demand-supply economics”. Wouldn’t it be naive to say this new trend will last forever (as the investments analysts would like to believe and surmise)?
Winning bidders in auctions often experience buyer’s remorse, a gnawing sense that they have paid too much for something that they don’t need and perhaps no longer want. Something similar can happen in reverse when a client selects the cheapest service provider in a competitive tender for outsourced services. For example, in today’s tough conditions, many clients are anxious to strike deals that shift fixed components of their cost base onto the provider. But this can exert colossal pressures on the provider’s operating model if the services are not fairly priced and consumption falls.
Buyers typically – and often with justification – worry that the deal will come to strongly favour the provider. Here are the TPI Top 5 reasons why the opposite might be the case:
1. The service provider doesn’t understand the requirement. Buyer’s remorse is often accompanied by a feeling of embarrassment where the buyer thinks, “the other bidders must know something I don’t.” Likewise, a suspiciously low bid might indicate the provider misunderstood the scope of services or the level to which they were to be performed. Service levels can be a culprit here, as small changes in requirements can result in step-changes in cost.
2. The provider underestimates the transition and transformation effort. This is a subset of the first category, but worth mentioning separately because it is so common. Many service providers understand their own cost bases well, yet believe their products, systems and processes to be broadly standardized when, in fact, significant effort is required to adapt them to client processes and systems.
3. The provider is “buying the business.” A service provider might offer an attractive price in order to acquire a capability and client base in an attractive business area. This is rarely to both parties’ advantage and often ends badly if the provider’s expansion plans don’t result in the expected revenues. Similarly, changes in the provider’s management or business direction (or both) will lead to suboptimal behaviours that are typically focused on the provider’s profit and loss rather than service to the client.
4. The provider relies on leveraging the transferred assets. Perhaps the provider wants to subsidize the cost of, say, a data centre in anticipation of winning additional business that can be serviced from the same location. As above, this can benefit both parties, particularly if both recognise it as a fundamental part of the solution. The risk in this approach, however, can be costly if the new business doesn’t materialise or is delayed, or it if can only be won if the pricing assumes yet more growth.
5. Corporate activity. A client was able to extract a low bid from a service provider who had already announced to the market a strategy dependent on winning the business. As with any price reduction that is unrelated to a corresponding reduction in cost, clients should be wary of such an approach, as the provider’s rationale will soon be forgotten once the margins are being reported.
The lowest bid can easily turn out to be the most expensive. At best, the relationship will be strained and the service provider will try to recover costs through a self-serving reading of the contractual obligations; at worst the client might find itself depending on a bankrupt provider.
Many companies negotiate small package programs to cover the documents in small packages, but how much consideration is given to those shipments with weights between 200 and 300 pounds.
Normally a shipper will tender those shipments directly to an LTL carrier along with other shipments. These shipments are known as minimums in the LTL industry and are either tendered loose or stacked on a pallet and shrink-wrapped.
These shipments can create problems in handling simply because they command an allotted spot with other LTL shipments. They are normally stripped from the pallet and placed in holes between shipments and essentially scattered about the trailer until they are handled again.
Most small package courier companies in the US offer other services such as multi-weight and hundredweight programs geared to the shipments over 200 pounds that are handled within the small package system.
It makes total sense for an organization to look at these additional services provided by US small package couriers since most LTL carriers are shying away and pricing accordingly these type of shipments since they demand a higher degree of handling.
A complete review of your order picking practices must be done in order to reveal if it is cost effective enough and not too labor intensive to move LTL minimum shipments over to multi-weight and hundredweight programs that are offered by US small package couriers.
While the cost to deliver a unit of computing resource continues to fall, there is a “traitor” to the cause of lower costs – Software. Software, eight years ago, was typically in the 40% range of the total cost to deliver a MIPS. Now, we see software taking over more than half the spend in mainframe computing; in many cases greater than 60% of the spend. While other major cost drivers have fallen through the years, software costs as a percent of the total spend continue to rise. Why? The other two largest cost drivers – labor and hardware – have continued to fall year over year:
• Labor – As support for systems has moved offshore to a more economical labor force, labor costs have fallen through the years. Increased productivity from more effective tools and established standard support processes have also increased the efficiency of the support organization.
• Hardware – Faster and cheaper has been the path for hardware; this is expected to continue as the mainframe becomes a worthy competitor to midrange servers as the platform for hosting Linux applications.
In the meantime, software costs are rising. How did software become such a large expense? Here are some things to consider as you begin optimizing your software expense.
• Shiny Object Syndrome – It’s in all of us. We like the latest, fastest, neatest tool on the market today. However, over time the functionality of tools begin to overlap and you end up with multiple applications providing similar functionality. Rationalize applications to those that provide greatest functionality and look to eliminate redundant applications.
• Value Meal – It was free and probably more than you should eat. Upon implementing new systems, software publishers will offer other, complimentary products. The hope is that the customer will begin utilizing and paying for them after some promotional period. After the promotional period of time has passed, the software is charged to the customer whether it is used or not. It’s worth the effort to take a look to make sure that every module and package being paid for is actually being utilized.
• Enterprise License – Software publishers make entering into an “enterprise-wide” agreement very attractive from a unit cost perspective. However, while unit costs are low, if a volume of license far exceeds an organization’s needs, the organization can be over spending for software.
Outsourced? Consider engaging in a dialog with your Service Provider to discuss the software expenses for your systems. Facilitate a discussion that seeks to understand how software is managed, who is looking after the spend, and rationalizing its expense. If software costs are embedded in resource unit rates, consider having your Service Provider separate them so that greater visibility into software costs is provided. Set these cost up with a mechanism that – to the extent you are able to lower costs – allows you to lower these costs dollar for dollar.
Many organizations measure on a monthly basis on time carrier performance assuring both manufacturer/shipper and end-user/customer on-time delivery of product by the service provider selected.
These measurements are used in carrier selection and negotiation purposes by both the shipper, customer and service provider and being based on actual service standards set forth by the carriers.
It is important to understand what on-time performance means and to what detail you are likely to consider to drill down to capture the data provided.
Service providers capture all kinds of data, from delay’s, damages, appointments, weather conditions, line haul failures and so on.
To develop a clear and concise on time measurement program, a shipper needs to determine what data collection is needed to provide an organization good measurable clean information in order to provide a benchmark.
Keeping it as simple as possible and clearly measurable is key to both the organization and the service provider. This information should be shared on a regular basis with both the organization and service provider in order to understand what on-time performance means and how the data can be used to benefit the customer.
Remember, if you start this program continue with this program and utilize the data directly from the carrier and keep it formatted an updated for future negotiation and service issues.
2010 should bring a flurry of new acquisitions with many established companies looking to expand product lines and increase growth within the organization.
Of these companies looking to expand through acquisition, raising capital expense to fund the newly acquired business unit will be a challenging experience in ramping-up operations with manufacturing and warehousing distribution.
Many companies will be looking to outside warehousing and distribution ( 3PL’s ) assistance in order to compensate the need to either add-on to a existing building or to reorganize a current floor plan.
It makes perfect sense when acquiring a new business unit to have the flexibility of outside warehousing and distribution. With all the challenges the current organization has with product line simplification, product integrity, customer retention and merging of operations and customer service the 3PL can add much value to the company but lending it’s expertise in distribution challenges.
Having the flexibility and an open working communication with the outside warehouse and distribution facility allows valuable time to evaluate and streamline the newly acquired business unit or product line.
The organization can now grow and nurture the new product line or reduce the number of SKU and not have it interfere with the current core business.
Effectiveness, is key to competing in today’s business environment. Logistics is a process, a supply pipeline which connects you with your vendor/supplier and your customer.
Whether you compete domestically or globally competitors, vendors, suppliers and customers are worldwide.
The significant cost of logistic/distribution effects the entire supply chain. Logistics importance integrates and develops long-lasting alliance is between the vendors/suppliers and customers. Logistics contributes to a competitive advantage, viewed as a comprehensive process objective, making your product more competitive in the global marketplace.
Ask yourself how does your business unit measure up? Is your logistic/distribution network competitive? Does your current logistics/distribution network meet the requirements of your customer? Most importantly is it currently effective?
To summarize, a formal logistic program will create a competitive advantage for your business unit.
Service and cost benefits can distinguish you from your competitors.
A formal logistic network program will enhance your status as a supplier domestically and more importantly in the global network.
To approve Spend Analysis projects, project Sponsors often need to justify to their management why they need to utilize Spend Analysis providers to do the project, as opposed to internal IT resources. Some companies may not have this problem in that they don’t have IT resources available, so it is obvious they need to use outside help. But sometimes there may be conflicts internally. The simple answer is that internal IT resources usually do not have the focused experience and knowledge regarding the unique data cleansing and classification needed for Spend Analysis.
Internal IT resources typically have…
Familiarity with the corporate data sets and applications
Familiarity with the Corporate IT environment
Familiarity with a Corporate Reporting tool
Internal IT resources likely do not have (and Spend analysis providers have in spades)…
Related to (1) above…. IT resources can easily provide data files, but Vendors are more experienced to integrate and reconcile organizational data to specific Spend fields needed to properly drive meaningful Spend Analysis. Significant relationships exist between Spend data, and vendors know what to look for. They also have structured tools to process the data effectively.
Related to (3) above – IT resources can help with getting cleansed and classified data back into the company reporting environment, if a company reporting tool exists. Companies can also utilize vendor “Smart” Reporting, which is tailored for detailed Spend visibility and opportunity assessment.
Experience with cleansing data – for example, we have over 50,000 cleansing rules built over 12 years across over 200 projects and customers in many industries, already defined.
Experience with Supplier Grouping.
Experience optimizing Supplier data enrichment from vendors such as CVM Solutions or D&B.
Experience with data classification, handling numerous taxonomies for analysis, and grouping Spend data into meaningful sourcing categories. For example, we have a master library of over 100,000 master rules for items and categories we have seen across all those projects mentioned above.
Experience with structured data “refresh” and handling the nuances of combining, re-cleansing, re-grouping, and reclassifying data with rigor to all the taxonomies in use.
Experience in foreign languages and associated data processing and translation.
Experience in mining and reporting in-depth level s of “savings opportunity assessment and identification” versus basic pivot tables and cubes.
Internal IT resources usually do not have authority across divisions and countries to get data, so a vendor can help to make the integration and change happen.
Spend Analysis vendors provide focused tools and resources to implement advanced Spend Analysis within your organization, and can be utilized effectively in place of internal IT resource. And the cost is usually less than 1 or 2 full time equivalent headcount, which is a bargain as you discover savings opportunities.
An article in the Wallstreet Journal provides a wonderful example of how implemented best practices and process improvement programs like Six Sigma can go astray after experts move to other projects, Managers relax accountability and excitement fades. The cartoon depicted below by Leif Parsons, gives the perfect illustration of what happens in the progression of these engagements.
The article reveals how at one aerospace company this implementation was executed then returned to the old poor practices.
The first step, as with any improvement program like AA or Six Sigma, is admitting and identify that you have a problem.
In the Aerospace company example, the second step was to bring in help by utilizing an expert in Six Sigma that energized the staff and helped them to understand where they needed to improve. They provided accountability in assigning tasks to these improvements. Employees embraced the new processes and implemented them. At first it slowed productivity, but quickly, as they became more accustomed to the new methods, productivity returned to normal levels. Once the goals of a department were reached, they were communicated with the company as a whole. This empowered the employees and gave them ownership of the project and their achievements. They are also rewarded with other rewards such as, restaurant gift cards, bonuses and exposure through notices in corporate newsletters.
After goals of improvement had been reached in one department, the expert and Managers would move their attention to another project or department assuming the success would sustain itself without continued support. This is where accountability loosens and enthusiasm for the process starts to revert to old practices. You can see this progression in the cartoon.
If you are one of these companies struggling to understand why these programs aren’t continuing to demonstrate results, ask yourself a simple question….What accountability and continued support am I providing my teams so they don’t revert? Think outside the box. You don’t need an expert to solve this problem. You need an expert to identify and fix it originally. The same goes for eSourcing technology deployments. Vendors can diagnose the opportunity and implement the technology properly, but sustainability needs to constantly be addressed with either internal or external resources.
Telecom is normally one of the largest spend categories that is over looked within large multi-national corporations. Most CIO’s don’t have the knowledge or background to understand the spend they have in Telecom. This lack of understanding leads to very ineffective Telecom sourcing projects.
According to research conducted by Forester Consulting, “80% of all telecoms sourcing projects are not as efficient as they should be, and large organizations globally are feeling the effect to the tune of £12bn annually.”
This is a large amount of savings missed because of poor visibility and understanding when running these projects. This is a complex category in which IASTA has had enormous success in continually producing savings. We have continually been able to provide at least an 8% savings to clients in this one category alone. This small percentage in savings equates to a large dollar savings when looking at the total spend in Telecom.
As the article goes on to state, “this issue is one of getting in the right people who understand the technology and the objectives of a telecoms sourcing strategy.”
Take a close look at your internal knowledge base of Telecom and see if this is an area that is not producing optimal results when it should.
While ITIL, the most widely accepted collection of best practices for IT Service Management (ITSM), has taken an important first step in evolving its guidance on outsourcing within the context of ITSM in its 2007 Version 3 release, it may have fallen short on providing the breadth of advice required in today’s market. Of particular note is the introduction of a few integral sourcing-related frameworks, including Service Provider Types in the Service Strategy core book and Service Delivery Strategies in the Service Design core book. Service Design has also consecrated a separate process to Supplier Management aimed at addressing service provider selection and relationship management activities.
While these additions can be seen as improvements over ITIL V2, the overall approach to engaging with suppliers in ITIL V3 could be construed as overly procurement-focused and lacking in sufficient guidance on the level of integration and governance required across the service delivery value network and service life cycle. Also unclear is the extent of the inter-mediation required of the client- retained IT organization to effectively integrate outsourced IT services and translate them into value for its business customer.
To help navigate the new sourcing related ITIL V3 guidance and bridge your ITSM and outsourcing strategies, consider these 5 tips:
1. Ensure service management integration is appropriately resourced in the client-retained IT organization. While Supplier Management can serve as the point of contact for relationships with external service providers, these resources typically do not have the skills or capabilities to integrate service management processes across organizations in an outsourced model. When service management remains a client-retained function, we recommend giving ITIL service managers the responsibility to integrate outsourced IT services to ensure effective end-to-end service delivery, separating this from the Supplier Management responsibilities in the organization.
2. Take a pragmatic approach to integrating ITSM processes and tools. When entering into outsourcing agreements, be sure to define the integration points, handshakes and required inputs and outputs across all ITIL processes and functions — particularly Service Desk, Incident Management, Problem Management and Change Management — between organizations in the service delivery model. Bear in mind that external service providers will have their own processes and tools, which will need to align with those of the client-retained IT organization. Do not over-engineer this integration but do consider moving to the service provider’s methodologies if they are more sophisticated. Note that this exercise becomes increasingly complex the more service providers in the service delivery model (see tip number one). At a minimum, make sure all parties are clear on who is ‘leading’ and who is ‘following’ and make sure these roles are documented in the various outsourcing agreements.
3. Implement a business-focused Service Catalog. Define your Service Catalog first in terms of the services delivered to the business customer (Business Service Catalog) and then work backwards to define the contributing IT component-based view (Technical Service Catalog). This will help ensure that the right resources and capabilities to deliver to the business service requirements are identified and will clarify the optimal sourcing mix for the service. Do not use the external service provider’s Technical Service Catalog as your Business Service Catalog.
4. Negotiate a Service Level Agreement with end-to-end service levels. Do not begin service level discussions with suppliers without having first implemented a formal Service Level Agreement (SLA) with your business customer. Formalize end-to-end service levels in a business-focused SLA and define the IT component service level targets in Underpinning Contracts with external service providers and Operating Level Agreements with internal service providers. Always ensure that the combination of these targets will meet the service levels agreed to in the SLA. Lastly, remember that an Underpinning Contract is never a surrogate for an SLA with your business customer.
5. Look beyond ITIL for IT governance. Against the backdrop of corporate malfeasance and recent legislation aimed at preventing it, corporate governance — of which IT governance is a subset — has taken on a renewed focus in business. While ITIL V3 does broach the subject of IT governance, particularly in IT Service Continuity Management and Information Security Management, Supplier Management provides only limited guidance on IT governance related to sourcing. For this, a number of other frameworks can be consulted. Of particular note is COBIT (Control Objectives for Information Technology), which is prescriptive on what to monitor and control and serves as a compliment to ITIL, which advises on how to implement monitoring and control as process activities.
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