Balancing Your IT Outsourcing Capability

Just how well you know how good your outsourcing provider are doing on behalf of your business.

 

That question is getting increasingly hard to answer as IT outsourcing grows in complexity. The experience of one company with which we worked is fairly typical. This Fortune Global 500 consumer products company had a blended IT delivery environment: Several IT functions were being sourced to different best-of-breed providers, while others were retained internally. Because outsourcing management was decentralized, IT decision-makers did not have adequate visibility across all functions and geographies. Without that visibility, overall control of operations became more challenging. If something went wrong in the delivery of IT services, the various providers did not have the means in place to escalate issues consistently or perform a cooperative root-cause analysis to isolate the problem quickly and fix it. Some providers were performing at required service levels, but others were not. Yet comprehensive performance management was really out of the question until the company gained better visibility across the whole IT environment.
 
What companies need to do is to take the rationalization principles that have worked so well with their infrastructures and apply them to their outsourcing environment as well. Better governance portfolio management is necessary if organizations are to optimize the efficiencies of outsourcing, and if they are to achieve the full business value available to them. New governance models, structures, processes and tools are necessary if IT outsourcing is to fulfill its real potential.

Four levels of effective governance portfolio management

When we assess the existing governance portfolio management capabilities of private- or public-sector enterprises, we look across four levels:

 

1. Organization

 

The work of rationalizing one's outsourcing providers begins here, as CIOs assess their current outsourcing portfolios and the extent to which they are successfully coordinating and managing relationships and providers across functions and geographies. This portfolio view is vital. Many CIOs come to fully appreciate at this stage how dependent their business has become on IT outsourcing (it is not unusual for 50% or more of IT services to be delivered externally) and thus how important it is to understand and mitigate their outsourcing risks in totality. A multiprovider, best-of-breed approach only intensifies those risks.

 

At the organization level, a company specifies its high-level goals and guiding principles for governance, and then the oversight, decision rights and reporting structures that support the rationalization of the sourcing strategy and the optimal governance model.

 

In our experience, companies begin by rationalizing providers globally by function—making sure that contracts and service levels for each provider are equivalent whether the services are delivered in South America, North America, Asia or Europe. Companies may then work to implement a common governance framework globally across functions.
 
2. Procedure

 

At the next level of governance, companies must ensure that they have the right procedure in place to deliver optimally on the outsourcing and governance strategy set at the organization level.

 

It's important for IT executives to perform an initial assessment of the processes in place at each of their outsourcing providers, comparing them to what exists already at the enterprise level, or to an ideal set of processes. Fully documenting all processes is important to improving an organization's capability to effectively rationalize and manage provider relationships.

 

3. Competence

 

At this level of governance portfolio management, companies work to ensure that their people have the skills and attributes needed to perform the processes that, in turn, accomplish the overall governance and business objectives of the outsourcing portfolio. Competency modeling is important here, as are excellent training and performance support initiatives that help people perform at the levels required to manage the overall outsourcing portfolio.

 

4. Source

 

One of the difficulties in managing and governing global IT outsourcing relationships is that automated tools have been targeted at too low a level, making it difficult to manage performance from an enterprise perspective. More recent tools now make available overarching business process governance, with plug-ins to a range of intelligence and performance management tools that help CIOs tailor a portfolio management solution that is right for their organization's outsourcing environment and adopted governance structure. With advanced tools, IT executives can gain a view into how well their outsourcing portfolio is performing in totality. Without such a view, organizations cannot effectively reap the full benefits of IT outsourcing.

The need for practical governance

Our research into IT outsourcing has shown that organizations lacking effective outsourcing governance risk losing up to 20% of the anticipated value from their business process transformation initiatives. A common obstacle in transforming governance capabilities is the beliefs that, because Tier 1 service providers are one's outsourcing partners, management of multiple relationships will be easier or will "come with the package." Not so. IT executives must be diligent and proactive in assessing their existing governance structures, comparing those to what providers have in place, and then harmonizing those structures for the good of the whole.

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