Outsourcing and Managed Services - Developing a Common Language Between Suppliers and Purchasers to Redu

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Outsourcing/Managed

Services: Developing aCommon Language BetweenSuppliers and Purchasers toReduce Risk

Alan McSweeney


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April 20, 2010 2

Objectives

Describe at a high-level a structured approach toimplementing outsourcing/managed services from bothservice provider and end-user organisation


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April 20, 2010 3

Scope

Provide a high-level view of a common set of processes tobe used by service providers and end-user organisations toimplement and operate an outsourcing/managed servicesarrangement


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April 20, 2010 4

What is Outsourcing

Outsourcing is delegating the responsibility for performingan information technology or business function to a thirdparty

You outsource because the outsourcing supplier will do: What the organisation currently does At the same or better level of performance For the same or lower price


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Advantages of Managed Services

Better use of staff: allows agencies to focus humanresources on strategic planning and core mission support

Cost savings: choose not to build and support IT andnetwork infrastructure available in the commercial sector;use limited capital to purchase needed service levels andreduce total cost of ownership

Ability to use optimal technologies: adjust types and mix of hardware, software, skilled labour, capital investment andtechnology to support changes in mission needs

Rapid response to organisation and business changes:supplier is measured by ability to produce solutions


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April 20, 2010 6

Types of Outsourcing Arrangement

Efficiency/Utility (Make it Cheaper) arrangement outsourcingfocuses primarily on cost control and, over time, cost reduction, withthe goal of maintaining consistency in the delivery of services

Business Enhancement (Make it Better) arrangement is aboutbusiness productivity. The organisations performance, as comparedwith their competitors, will improve, resulting in movement towarddefined business goals

Transformational (Make me Money) arrangement is characterisedby a partnership between the service provider and service recipient

that is focused on innovation and new business, changing the verybasis on which an organisation competes


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April 20, 2010 7

Benefits of Managed Services

Managed Services offers an alternative approach for a client to acquire IT or telecomsupport services

Managed services solutions are designed and delivered by service providers according to apredefined statement of deliverables and generally includes end-to-end service, service levelagreements, and assets (if desired)

A managed service typically includes monthly recurring service-based pricing offering amore predictable cost approach for the client

Ongoing visibility of operational performance is provided and managed through pre-agreedperformance parameters (known as service-level agreements)

The client may include their unique performance requirements such as degree of control andvisibility, security, availability, capacity, service continuity and other requirements as it relates tothe specific service

Because this is a core competency, the service provider is able to optimise the best balanceof facilities, processes, resources, tools, and metrics, resulting in the best overall value forthe client

Cost effectiveness is typically achieved through instituting process standards and establishing andsupporting a standard operating environment (SOE) consisting of COTS (Commercial Of the Shelf)services and solutions

Managed services can be delivered either in a BOCO (Business-owned, contractor-operated) or COCO (contractor-owned, contractor-operated) model and is largely based onclient preference


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Outsourcing Organisations - Developing a Vision for

IT Services is Required What do we do today?

What do our customers want us to do? What changes do we need to make to align with our

customers needs?

How will they pay for those services? How will we deliver those services consistently and

measure their delivery?

What kind of organisation (Governance/ContractManagement/Structures/Staff/Skills/Service Providers) willwe need to achieve it?

What service management processes we should use?


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April 20, 2010 9

Reasons Organisations Outsource17%

16%

12%

12%

8%

6%

6%

4%

3%

3%

Reduce And Control OperatingCosts

Improve Company Focus

Gain Access To World-ClassCapabilities

Free Resources For OtherPurposes

Resources Not Available

Internally

Reduce Time To Market

Take Advantage Of Capabilities

Accelerate ReengineeringBenefits

Share Risks

Function Difficult To Manage

Or Out Of Control


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April 20, 2010 10

Outsourcing Experiences

13% to 25% of outsourcing contracts are brought in-housewithin the first two years

Buyers replace 80% of their service contractors in the firstthree years

Contractors turn over 40% of their contracts each year, onaverage

Nearly 70% outsourcing organisations feel their service

provider does adequately understand what they aresupposed to do


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Key Issues For Successful Outsourcing

Many outsourcing relationships fail, are terminated early,are unsatisfactory to either or both of the service providerand the client

Outsourcing is a business issues and should be treated assuch

Many common issues, problems and concerns arise acrossoutsourcing contracts

Learn from the issues to avoid them


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Hidden Costs of Outsourcing

Transfer of knowledge Processes and procedures Documentation Personal knowledge

Quality issues and their resolution Inspection programmes Sustaining quality programmes Cost of rework

Communication Poor customer service Daily operational issues


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April 20, 2010 13

Phases of Outsourcing Relationship

Ongoing

Initiation Delivery CompletionAnalysis

For outsourcing organisation

For both outsourcing organisation and service provider


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April 20, 2010 14

Phases of Outsourcing Relationship

Management of outsourcing lifecycleManagement of outsourcing lifecycleOngoing

Close-out the service after the contract endsor the service has been terminated

Close-out the service after the contractends or the service has been terminated

Completion

Provide service and manage and measure itsprovision

Provide service and manage andmeasure its provision

Delivery

Prepare for and transition to provision of service

Prepare for and transition to provisionof service

Initiation

Analyse operations and functions toidentify those services, processes orfunctions that could potentially beoutsourced and develops the approachto be taken to source the identifiedopportunities

Analysis

Service ProviderOutsourcing OrganisationPhase


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Roles of Service Provider and Outsourcing Organisation

During Phases of Outsourcing Relationship

Initiation

Delivery

Completion

Analysis

Ongoing

Service Provider Outsourcing Organisation

Determine if outsourcing represents a businessopportunity

Prepare for service transition, transfer resources andpersonnel from outsourcing organisation and ensure

service continuity

Plan for outsourcing of selected services, evaluate andselect a service provider, create an outsourcing

agreement and transfer resources and personnel toservice provider

Define and agree requirements, negotiate contract,plan, design and deploy service, implement service

delivery

Implement the capability to manage the serviceprovider, administer the agreement and the issues,

challenges and changes that arise after the agreementhas been reached, reviewing the service providers

performance

Implement knowledge management processes,perform people management, implement

performance management, manage relationship,manage technology and manage risks and threats

Develop outsourcing strategy management, managerelationship with service provider, ensure value,implement knowledge management processes,

manage technology and manage risks and threats

Prepare for service transition, transfer resources andpersonnel from outsourcing organisation and ensure

service continuity

Plan for completion, ensure service continuity,transfer resources and personnel from outsourcing

organisation and transfer knowledge


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April 20, 2010 16

Roles of Service Provider and Outsourcing Organisation

During Phases of Outsourcing Relationship

Initiation Delivery CompletionAnalysis Ongoing

Service Provider

Outsourcing Organisation

CommonLanguage

andExpectations

Agreed Rolesand

Responsibilities


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April 20, 2010 17

Key Capabilities and Constituent Practices

Idealised set of steps for a service provider and end-userorganisations and outsourcing organisation to performwhen taking on a new outsourcing service

Provides a detailed checklist of work to be done

Each practices contains a set of activities and tasks Can be modified to suit the circumstances: scope of

outsourcing, size of service, duration of contract

Can forms the basis of a project plan for elements of outsourcing work such as initiation

Reduces risk of failure


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April 20, 2010 18

Key Capabilities Within Outsourcing Lifecycle for

Service Providers

Ongoing

Initiation Delivery Completion

PeopleManagement

PerformanceManagement

RelationshipManagement

TechnologyManagement

KnowledgeManagement

ThreatManagement

ContractingService Design

and

Deployment

ServiceDelivery

ServiceTransfer

ServiceTransfer


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End-User OrganisationsOutsourcing

StrategyManagement

GovernanceManagement


ValueManagement


PeopleManagement

OutsourcingPlanning

OutsourcingAgreements

SourcedServices

Management

OutsourcingCompletion

OutsourcingOpportunity

Analysis

Ongoing

Initiation Delivery CompletionAnalysis

Knowledge

Management

OrganisationalChange

Management

Threat

Management

OutsourcingApproach

Service

Transfer

ServiceProvider

Evaluation


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Service Providers and End-User OrganisationsOutsourcingCapabilities

and Skills

Analysis Initiation Delivery Ongoing Completion

OutsourcingOrganisation


ServiceProvider


ServiceProvider


ServiceProvider


ServiceProvider

OutsourcingOpportunity

Analysis

OutsourcingApproach

ServiceTransfer

ServiceTransferContracting

Service Designand

Deployment

ServiceDelivery

OutsourcingCompletion

SourcedServices

Management

OutsourcingPlanning

ServiceProvider

Evaluation

OutsourcingAgreements

ServiceTransfer

KnowledgeManagement

PeopleManagement

PerformanceManagement



ThreatManagement

OutsourcingStrategy

Management

GovernanceManagement


ValueManagement

OrganisationalChange

Management

PeopleManagement

KnowledgeManagement


ThreatManagement


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April 20, 2010 24

Analysis Phase

Service Provider Concerned with analysing operations and

functions to identify those services,processes, or functions that couldpotentially be outsourced

Understanding the current, or as-is, state of the client organisations structure andprocesses

Identifying the relevant criteria for selectingoutsourcing opportunities

Identifying outsourcing opportunities tomeet outsourcing objectives and criteria Organising options for outsourcing Developing and validating the Business Case

for each outsourcing option Identifying the outsourcing approach and

governance model for the proposedoutsourcing action Performing impact and risk analyses of theproposed outsourcing action

Making the decision whether or not tosource the proposed outsourcing action


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Initiation Phase

Service Provider Concerned with preparation for and initiation of

service delivery

Gather requirements Perform due diligence to validate customerinformation

Assess if and how the requirements can be met Prepare for negotiation Negotiate and sign contract Confirm assumptions Confirm responsibilities and commitments Design the service Review the service design Create service specification Deploy the service Transfer resources - personnel, technology,

infrastructure, applications Transition of service

End-User Organisation Concerned with preparation for and initiation of

managing outsourced services

Preparing for service selection by developing thesolicitation and criteria for selection Soliciting and evaluating potential service

providers Preparing for negotiation by having an

organisational position on cost, quality and othertopics that need to be negotiated

Defining the formal service level agreements andservice provider performance measures

Understanding service providers capabilities bygathering information about the service providerand confirming the assumptions that impactcommitments

Establishing a formal agreement with serviceproviders that clearly articulates the clients andservice providers responsibilities andcommitments

Providing feedback on the service design in orderto ensure that the services are meeting theclients requirements and the agreed-uponcommitments

Managing the effective transfer of resourcesneeded for service delivery, including personnel,technology infrastructure and work environment


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Delivery Phase

Service Provider Concerned with service delivery including

management of service delivery, verificationthat commitments are being met andmanagement of costs associated with theservice provision

Planning and tracking the service deliveryactivities

Delivering services according to the agreedcommitments

Managing the finances associated with the servicedelivery

Identifying and controlling modifications to theservices being provided

Identifying and controlling modifications toassociated service commitments

Identifying problems that impact the servicedelivery and taking both preventive andcorrective actions

End-User Organisation Concerned with monitoring the service

providers service delivery capabilities, includingthe ongoing monitoring of service providerperformance to verify that commitments arebeing met, monitoring changes, management of the finances and agreements associated withthe service provision, fostering realisticexpectations and performing value analysis

Planning and tracking the outsourcingmanagement activities

Ensuring that services are delivered according tothe agreed-upon commitments

Managing the finances associated with the servicedelivery

Identifying and controlling modifications to theservices being provided or to the associatedservice commitments

Facilitating problem resolution for problems thatimpact the service delivery

Reconciling performance against expectations andensuring that the service provision returns valueto the client organisation


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Ongoing Phase

Service Provider Management functions that need to

be performed during the entireoutsourcing lifecycle

Manage and motivate personnel toeffectively deliver services

Manage relationships with clients,suppliers and business partners

Measure and review the organisationsperformance and taking action toimprove it

Manage information and knowledgesystems so that personnel have accessto the knowledge needed toeffectively perform their work

Identify and control threats to theorganisations ability to meet itsobjectives and client requirements

Manage the technology, systems andapplications infrastructure used tosupport delivery of service

End-User Organisation Management functions that need to

be performed during the entireoutsourcing lifecycle

Manage and motivate personnel toeffectively deliver services

Manage relationships with clients,suppliers and business partners

Measure and review the organisationsperformance and taking action toimprove it

Manage information and knowledgesystems so that personnel have accessto the knowledge needed toeffectively perform their work

Identify and control threats to theorganisations ability to meet itsobjectives and client requirements

Manage the technology, systems andapplications infrastructure used tosupport delivery of service


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Completion Phase

Service Provider Concerned with closing down the

engagement at the end of the outsourcinglifecycle

Manage the transfer of resources to thenew service provider, whether it is to theclient or to another service provider

Ensure service continuity during transfer Identify and transferring the knowledge

critical for the delivery of service

End-User Organisation Concerned with closing down the

engagement at the end of the outsourcinglifecycle

Planning for closing down a outsourcedservice and managing the agreement duringthe close-down period including managingthe agreement during terminationproceedings, during renewal, or during

normal completion Managing the transfer of resources to thenew service provider, whether it is to backto the organisation or to another serviceprovider including the potential transfer of people, technology infrastructure andintellectual property

Ensuring service continuity during thetransfer of responsibilities for serviceprovision

Identifying and transferring the knowledgecapital critical for the delivery of service


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Sample Activities by Service Provider and End-User

Organisation Threat Management in Ongoing PhaseOngoing Phase

Threat Management

Service Provider End-User Organisation

Risk Management

Engagement Risk

Risk Across Engagements

Security

Intellectual Property

Statutory and Regulatory Compliance

Outsourcing Risk Management

Organisational Risk Management

Intellectual Property

Security and Privacy

Compliance

Business Continuity

Disaster Recovery


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Threat Management - Risk Management

Service Provider Risk Management Scope

Establish and implement a policy on riskmanagement

Activities Provide support for creating and maintaining a

policy for managing risk Document and implement a policy for managing

risk

Support the implementation of a policy formanaging risk

End-User Organisation Outsourcing Risk Management Scope

Establish and implement procedures to identify,assess and manage outsourcing risks

Effective risk management is particularly critical inthe early stages of a outsourcing initiative, whererequirements are being organised and service isbeing designed to meet those requirements

Problems encountered here can impact thesuccess of service delivery and associatedbusiness benefits throughout the life of theinitiative.

Activities Provide support for creating and maintaining the

procedures for identifying, assessing andmanaging outsourcing risks

Document and implement the proceduresrequired for identifying, assessing and managingoutsourcing risks Support the implementation of identifying,assessing and managing outsourcing risks


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Service Provider Engagement Risk Scope

Identify, assess and manage risks specific to theclient engagement


work products and tasks for identifying, assessingand managing engagement-specific risks

Document and implement the work products andactivities required to identify, assess and manageengagement-specific risks

Support the implementation of identifying,assessing and managing engagement-specific risks

End-User Organisation Organisational Risk Management Scope

Establish and implement procedures to managerisks across multiple outsourced services andservice providers

Effective identification and assessment of risksenables the client organisation to take mitigatingactions to lower the impact should a risk eventoccur

Effective risk management improves thestakeholders confidence in the clientorganisations ability to maintain needed servicesand service levels


procedures for managing risks across multipleoutsourced services and service providers

Document and implement the proceduresrequired for managing risks across multipleoutsourced services and service providers

Support the implementation of managing risksacross multiple outsourced services and serviceproviders


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Service Provider Risk Across Engagements Scope

Establish and implement proceduresto manage risks across clientengagements

Activities Provide support for creating andmaintaining the procedures formanaging risks across clientengagements

Document and implement theprocedures for managing risks acrossclient engagements

Support the implementation of theprocedures for managing risks acrossclient engagements


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Threat Management - Security and Privacy

Service Provider Security Scope

Establish and implement procedures to meetsecurity requirements


procedures for meeting security requirements Document and implement the procedures for

meeting security requirements

Support the implementation of the procedures formeeting security requirements

End-User Organisation Security and Privacy Scope

Establish and implement procedures to meetsecurity and privacy requirements

Breakdowns, such as security breaches, canimpact the client organisations ability to providebusiness continuity, thereby damaging therelationship and making the involved partiesvulnerable to legal action

Effective security is essential for meeting privacyrequirements and protecting intellectual property Security requirements may come from the clientorganisation or statutes and regulationsgoverning the service being delivered


procedures for meeting security and privacyrequirements

Document and implement the proceduresrequired for meeting security and privacyrequirements

Support the implementation of meeting securityand privacy requirements


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Threat Management - Intellectual Property

Service Provider Intellectual Property Scope

Establish and implement procedures to protectthe intellectual property of stakeholders


procedures for protecting the intellectualproperty of stakeholders

Document and implement the procedures for

protecting the intellectual property of stakeholders Support the implementation of the procedures for

protecting the intellectual property of stakeholders

End-User Organisation Intellectual Property Scope

Establish and implement procedures to protectthe intellectual property of stakeholders

Inappropriate use or disclosure of intellectualproperty can damage the relationship withstakeholders, may cause financial loss and makethe client organisation vulnerable to disputes orlegal action

Organisation should have a formalised policy onthe protection of intellectual property that is usedto provide direction for creating the procedureson protection of intellectual property


procedures for protecting the intellectualproperty of stakeholders

Document and implement the proceduresrequired for protecting the intellectual propertyof stakeholders

Support the implementation of protecting theintellectual property of stakeholders


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Threat Management - Compliance

Service Provider Statutory and Regulatory Compliance Scope

Establish and implement procedures to complywith statutory and regulatory requirements


procedures for statutory and regulatorycompliance

Document and implement the procedures for

statutory and regulatory compliance Support the implementation of the procedures forstatutory and regulatory compliance

End-User Organisation Compliance Scope

Establish and implement procedures to complywith applicable standards and statutory andregulatory requirements

Client organisation must implement proceduresto address governance, risk and compliance

Procedures ensure that they comply withstandards, statutes and regulations that impacttheir outsourcing capability and their outsourced

services in order to meet statutory, regulatoryand stakeholder requirements and to avoidstakeholder dissatisfaction and legal or auditissues


procedures for complying with applicablestandards and statutory and regulatory

requirements Document and implement the proceduresrequired for complying with applicable standardsand statutory and regulatory requirements

Support the implementation of complying withapplicable standards and statutory and regulatoryrequirements


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Threat Management - Disaster Recovery and

Business Continuity Service Provider Disaster Recovery Scope

Establish and implement disaster recoveryprocedures Activities

Provide support for creating and maintaining theprocedures for disaster recovery

Document and implement the procedures fordisaster recovery

Support the implementation of the procedures fordisaster recovery

End-User Organisation Business Continuity Scope

Establish and implement procedures to ensurebusiness continuity of outsourced services Prepare for possible disasters in order to minimise

their impact on the client organisations ability tocontinue business activities

Preparation covers service delivery, security, theprotection of intellectual property, crisismanagement and the safety of personnel and

promotes confidence in the client organisationsand service providers ability to react effectivelyto adverse situations


procedures for ensuring business continuity of outsourced services

Document and implement the proceduresrequired for ensuring business continuity of outsourced services

Support the implementation of ensuring businesscontinuity of outsourced services


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Benefits of Structured Approach

Service Provider

Minimises problems

Provides common language

Provides common understanding of roles and responsibilities

Provides mechanism for resolvingissues

Know what is expected and whatshould be done

End-User Organisation

Provides structured approach toevaluating and adopting outsourcing

Demonstrates due diligence inselecting outsourcing partner

Provides common understanding of roles and responsibilities

Provides mechanism for resolvingissues

Knows service to be provided andmeasures delivery


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Summary

Outsourcing experiences and implementations has beenpoor

A structured approach to implementing outsourcingarrangements by both providers and end-users can enableeffective outsourcing

A common language and a common understanding of rolesand responsibilities will reduce problems and assist inissue resolution


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More Information

Alan [email protected]

Documents

Outsourcing and Managed Services - Developing a Common Language Between Suppliers and Purchasers to Redu