Clearly the Conservative government in the UK has been good for the outsourcing industry – as evidenced by this report in the FT from Babcock.
Interesting in the context of assessment of outsourcing opportunities at either a political or a commercial level. There is a key philosophical debate to be had – governments or business executives can use the cost analyses and the forecasts to justify decisions to outsource or not outsource – depending on their preferences.
For me the key question is ‘why are you outsourcing an activity’? If it’s something that does not offer you any particular advantage then why not simply pay some other organisation to perform the activity – assuming you can have it done more effectively, more efficiently, for the same or less cost? And you do this to enable you to focus resources on activities offering you some real advantage.
If you are committed to this approach then you will move ahead with outsourcing when you find the efficient, effective option. If you are uncommitted or unsure then the identification of more efficient, effective alternatives tends to be followed by a re-examination of internal processes with a view to streamlining internal processes and not outsourcing. And this may be available – but you are not philosophically committed to outsourcing/ offloading activities which do not offer real advantage.
In the case of the UK government you clearly have an entity that is committed to outsourcing activities which it believes offer no advantage to government by performing with its own resources.
Interesting post on IT Outsourcing contract enforcement.
The case referenced is: Compass Group UK and Ireland Ltd v Mid Essex NHS Trust (2012 EWHC 781 (QB). Relates to provision of hospital facilities management – but the author points out clearly the potential relevance in the case of long term IT outsourcing contracts.
The discussion of ‘in good faith’ and the judge’s ruling were what caught my attention – in particular the responsibilities on the customer.
While this blog focuses on outsourcing related to IT there is a much broader agenda for outsourcing. Recent piece in the Financial Times Horizons broaden for outsourcing groups gives a good insight. Examples include: public services, NHS, prisons, submarine yards, welfare to work.
Some examples of international players in the market referenced in the piece include: Sodexo, G4S, Interserve, Serco, Carillion and Babcock and Capita.
You have an established team – supporting hundreds or thousands of end users. Your IT team incorporates CIO, Business Analysts, Applications experts, Sys Architect, Sys Admins, support desk personnel and some field engineers. In addition you manage a number of vendors (telecomms, infrastructure components, applications software).
So in the roles of CEO and CIO what are you considering in assessing possible outsourcing some or all of these roles and responsibilities?
Possible reasons include:
- Cost savings – outsource partners may manage and support elements of the IT environment for less cost
- Eliminate exposure related to over dependence on any individual in the IT team for management/ support of specific technologies
- Allow IT management (and the business) to focus on activities offering best return for the organisation (rather than run of the mill infrastructure projects)
- Agree and implement transparent SLAs with end users/ business departments
- Potential to move to an opex rather than capex cost – with predictable recurring monthly costs
- Access to more expertise – based on outsource provider’s experience of delivering across a range of clients and industies
What are some of your concerns ?
- Risks associated with creating dependence on outsource partners – performance of partner, financial viability of partner, understanding and commitment to our business model
- Risks associated with the transition from in-house to outsourced
- Risks associated with people disruption – including potential transfer of in-house personnel to outsource partner, potential reducancies
- Incremental costs arising as lose own team and become more dependent on resources of outsource partne
Not that surprising to read this piece about migration of ERP solutions to the cloud.
When a company completes the first roll out of its new ERP solution the effort is only beginning and the costs continue to roll. Significant internal resources will be dedicated to supporting the solution, managing change, supporting users, further roll outs to other parts of the business. The further rollouts can themselves be significant capex events.
Moving ERP to the cloud can be a combination of infrastructure, platform, software and business processes. But must be attractive to companies if you can get the cost model right:
- Move to variable costs (pay for what you use)
- Replace capex with opex
- Focus on core competencies
- Reduce dependence on/ exposure to small number of key skilled personnel
Before you outsource IT you generally talk about IT as an enabler, potential source of competitive advantage – so what happens post outsourcing? If you get it right and form a partnership then this should continue. And the outsourcing provider should be bringing creative solutions to the table. But if the focus is primarily or exclusively in cost cutting then say good bye to enable, source of competitive advantage.
Read this piece some time ago: looking at the challenges of continuing to improve the experience, drive more value.
I suspect this list ill ring true for many companies – struggling to maintain the original momentum behind outsourcing. Mind you where internal IT departments have been cut each year for a number of years it is also very difficult to be creative, business enabling.
Always written up as one of the selling points for outsourcing of IT. But what are some examples?
Some which come to mind:
Providing an ITIL standard support desk – with established policies, procedures, logging, portal access, reporting. An ITIL certified vendor brings this to the table and manages all support calls through a structured process.
Providing out of hours support – potentially this may not be affordable within the internal organisation – but the vendor, already providing 24*& support to toher clients, may be able to provide this at a very competitive price.
Purchasing/ renting equipment – may be able to leverage greater buying power of the vendor.
This appears to have been a bit of a ‘Gloves Off’ match between Google and Microsoft. Based on this report from TechCrunch Google has had some success: ‘Once this migration is complete, the Department of the Interior will become the largest major U.S. government agency to switch to Google’s cloud. Other agencies already using Google Apps for Government are NOAA, the GSA, the Lawrence Berkeley Laboratory and the Idaho National Laboratory‘.
Will be interesting to watch how this plays out – now that Microsoft is also pushing strongly its own cloud offerings. Can only be good for the marketplace to have competition in the sector.