CIO conversation summary Max IT out: New thinking on how to

CIO conversation summary
Max IT out: New thinking on how to
maximise the value from IT outsourcing
Facilitator:
Kevin Nevrous
Summary of the
discussions from the CIO
lunch on 4 August 2011
Questions:
Q1. In your
experience, what are
the most pressing
concerns regarding
your outsourcing
arrangements?
Q2. What do you
see as the cause of
this concern, and
where do you feel the
responsibility for fixing
the issues rests?
‘IT adopts a very process centric
view in responding to the business
requirements and also planning for
the future. To enable the organisation
the ability to respond to various
situations, CIOs need to be able to
manage suppliers just like managing
a personal investment portfolio.’
Quote from Stephen Tame CIO,
General Manager IT/Jetstar Airways
Imagine two organisations that have outsourced
substantial IT operations to a highly experienced
and reputable provider. They have similar operational
requirements and desired outcomes and both have
provided similar upfront scopes.
The first organisation is extremely happy with their
provider. The provider always meets their KPIs and
consistently delivers value. Their responsiveness to
any issue is always positive. The provider works
with them and toward their future. The provider
is considered a reliable business partner.
The second organisation has had the opposite
experience. The relationship has tension and
key measurements are not always met. The CIO
is constantly criticised by peers and colleagues
regarding the provider’s performance and there
is constant stress and confusion in trying to complete
tasks with what seems like little or no consideration
for the future.
What makes each of these experiences so different
when the basics are virtually the same?
1
Peter Barta, Principal at Deloitte Consulting,
shared his extensive experience on ‘both sides
of the table’ as service provider and as an advisor
to buyers of services from vendors. He illustrated
a three dimension model in maximising value
capture from IT outsourcing.
• Control performance – these are the
measures to check that you receive what
you have been promised.
Sometimes referred to as ‘vendor
management’, this function is variously
performed by functions such as Legal,
Procurement, Finance or even IT management
themselves. The activities tend to be a ‘look
in the rear-view mirror’ with a compliance
and problem resolution focus. The skills and
capabilities for doing this are readily available
in today’s marketplace with ‘plug and play’
toolsets, which make it easy for organisations
to rapidly gain capability maturity. However,
due to its dominant focus on yesterday,
ongoing delivery assurance is generally not
able to be driven from this domain.
• Manage performance – these are activities
closely related to the day to day management
of operations, and they leverage the required
skills and processes that would address
the challenge of delivering quality
services consistently.
CIO conversation summary: Max IT out: New thinking on how to maximise the value from IT outsourcing
The focus is on the immediate road ahead. It’s based
on a good understanding of what the job at hand is,
and the business reasons for the activity. Standards
such as Information Technology Infrastructure Library
(ITIL) simplify these challenges somewhat due to
the embedded process consistency and behavioural
predictability. However, maintaining accountability
and continuity is a challenge when multiple service
providers are involved. Because of the dominant focus
on today, the imperative to prepare for the future
and plan related change initiatives is not able to
be effectively discharged in this domain.
• Plan for the future – these are activities which are
probably the most difficult but exciting to maintain
in the outsourcing context as they are driven not just
by internal business requirements but also by external
market forces.
The efforts are outward-focussed and forwardlooking and require the ability to understand
the emerging needs of the business and a deep
understanding of what outsourcing levers to pull
to achieve future objectives; as well as the requisite
authority to drive the plan’s execution across the
delivery organisation and to directly integrate
that with the business. This combination of skills
is difficult to assemble and, unlike the other two
domains, there are no generally accepted standards
for achieving this. Complications such as unique
circumstances and future uncertainty create an
additional imperative to maintain balance between
the finite resources allocated to IT and the growing
demands of the business. While this function is
certainly difficult to implement and maintain,
leading practitioners show us that effective
investment in these capabilities and structures
is the key to unlocking sustainable value capture
from outsourcing.
A recent Deloitte report entitled ‘The Outsourcing Vendor
Management Program Office (VMPO): Art, science,
and the power of perseverance’, considered this issue.
This publication reports the results of a survey on
vendor management practices that polled business and
IT executives at global enterprises that outsourced IT and/
or telecommunications services. The survey results, as well
as our interactions with clients across industries, indicate
that companies still continue to struggle with operating
effective vendor management program offices (VMPOs),
– even though they understand the need for VMPOs and
invest in them. Among the key findings:
2
• Sixty-seven percent of respondents reported that
they had established dedicated VMPOs, suggesting
a growing awareness of the importance of actively
managing service provider relationships
• Many companies are showing an increased
interest in adopting a broad approach to vendor
management, as evidenced by the fact that most
respondents have adopted practices that incorporate,
in some fashion, Deloitte’s approach to leadingpractice vendor management functions
• Despite adopting dedicated VMPOs that focus on
broad vendor management functions, only fiftyseven percent of the respondents rated their VMPOs
as very effective to effective – a significantly lower
percentage than our experience working with
clients would suggest.
During the forum, we tabled the two questions and
the participants feedback was discussed and debated,
with the participants sharing their own experiences and
opinions.
Q1. In your experience, what are the most
pressing concerns regarding your outsourcing
arrangements?
There was a general consensus from the participants
that having a contract that is fit for purpose is essential to
most outsourcing arrangements. However, the contract
will not in and of itself solve the day-to-day issues and
demands on the outsourcing arrangements. Some of the
key concerns presented include:
• Difficulty in implementing comprehensive
arrangements that assure access to both base
services and also to any new, ad-hoc, or value
added functions as may be required. Performance
management becomes difficult for both parties
if this flexibility is not baked in from the start.
• Unstable relationship between the business
stakeholders and service providers could lead
to gaps in the service delivery and misaligned
expectations. The participants highlighted that
trust and confidence are also important aspects
of the outsourcing arrangements which would
require both parties to invest time understanding
each others’ business model, operations and also
their future aspirations for the relationship. Further
discussion centred on the suitability of incentivising
suppliers to contribute to the growth and progress
of the business.
CIO conversation summary: Max IT out: New thinking on how to maximise the value from IT outsourcing
• Flexibility or scalability of the outsourcing
arrangement can become an issue to both
the provider and the business if not managed
appropriately. While some argued that at times, a
‘gentleman’s agreement’ is more flexible as it is built
on relationship and past experiences, many felt that
this was not appropriate business practice. However,
the view was that at the other extreme, an iron-clad
contract could become cumbersome to manage
and will not provide room for flexibility or scalability
when needed
Overall, the participants concur that because it is an
important supply source for limited resources in the
face of significant demand, especially in IT, outsourcing
will continue to be relevant to CIO’s; and that outsourcing
will continue to evolve to support the ever changing
needs of organisations. There are certainly risks and
concerns in dealing with outsourced providers, however
with careful planning and management, as well solid
investment in the capability to maintain good foresight,
the relationship can become a solid foundation of growth
and progress for both parties’ benefit.
• There were competing views regarding whether
innovation should be an obligation under the
contract or implicit in the service delivery’s
continuous improvement obligations. The difference
being whether additional innovation funds should be
allocated in the contract. It was generally recognised
that whatever the approach, obtaining access to new
methods that promote efficiency and cost savings
were also important sources of outsourcing value.
CIO’s can learn from the key success factors identified
in high-performing outsourcing deals; and how those
buyers’ create the levers to ensure ongoing value capture
from their outsource arrangements:
• Maintain sufficient ongoing investment in tools,
information and skills to fully empower each
corner of outsourcing’s Iron Triangle, namely:
Q2. What do you see as the cause of this
concern, and where do you feel the responsibility
for fixing the issues rests?
The participants highlighted various causes of the
concerns raised in the first question. Of most significance
was the lack of clear articulation of the business case
and/or translation of that into the requirements for the
outsourcing arrangement. This was sometimes due
to management embarking on the journey without a
detailed understanding of their needs, the metrics
to measure the performance of providers and incomplete
financial modelling.
Some participants highlighted that the situation becomes
aggravated over time when missed expectations become
severe and the ‘blame game’ starts. It was generally
held that the responsibility to fix the issues and concerns
remains primarily with management; however, the
service providers need to demonstrate that they have the
capability and capacity to respond to the issues in order
for the outsourcing arrangement to succeed. This often
can be a key driver of service provider preferences.
3
–Measure and control contract
outcomes received
– Manage service delivery for today
– Plan for the future
• Ensure requisite skills are deployed and sustained
• Clearly identify, and invest in collaboration
and transparency with, those suppliers that
are important to future strategic success
• Ensure the organisation is empowered to act and
connect supply with the business’ needs for today,
tomorrow, and beyond.
CIO conversation summary: Max IT out: New thinking on how to maximise the value from IT outsourcing
Contact us
Kevin Nevrous
Partner – Melbourne
Tel: +61 (0) 3 9671 7745
knevrous@deloitte.com.au
Kurt Proctor-Parker
Partner – Melbourne
Tel: +61 (0) 3 9671 6423
kproctorparker@deloitte.com.au
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