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Management Briefings

Coming of age: Dominic Trott, Pierre Audoin Consultants (November/December 2008)    
The public sector were once known as laggards in their approach to IT outsourcing but this is no longer the case. A succession of reports and initiatives, channelled into spending policy, has meant that what was perhaps an immature approach to IT outsourcing has been forced to do a lot of growing up in recent years. In particular, the local government sector has been faced with challenging targets for cost savings and efficiencies. And once initial steps such as outsourcing infrastructure, applications and business processes have been made, this area is being forced to innovate in order to generate further savings. Following the Comprehensive Spending Review period of 2004 (CSR04), during which £22 billion of savings were generated within the UK public sector, CSR07 called for a further £30 billion of savings to be made. With the upcoming Operational Efficiency Review, for which ‘back office/IT’ is one of three threads of investigation, this figure is set to grow even higher.
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Standards delivered: Lynda Cooper (August 2008)    
IT service management (ITSM) is the running of IT services to deliver value to the business – and given that services operations can consume up to 80% of an organisation’s IT budget, it is essential that this is managed well. Just as project management is used to manage projects, so service management is used to manage services. But it is important to note that service management is not about designing and building the actual hardware, software, applications or tools – this is done by a project. Instead, service management takes the technical product and manages it as a service that can be delivered to the customer to support the business. Focusing on outsourced IT service management, best practice is encapsulated in two main standards or frameworks.
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Knowledge for sale: Shamus Rae, KPMG (May 2008)    
Outsourcing and offshoring continue to develop as important business strategies. But while organisations are still trying to master IT outsourcing (ITO) and grapple with business process outsourcing (BPO), along has come a new industry trend: knowledge process outsourcing (KPO). KPO, also referred to as ‘knowledge services’, is different to more traditional outsourcing offerings and approaches in that it cuts into the main core competencies of many organisations. What’s more, while cost reduction seems to have been the prime motivator of the ITO and BPO waves, ‘intellectual arbitrage’ appears to be the main driver with KPO. Various research sources suggest the KPO industry will be worth anything between $10 billion and $17 billion by the year 2010. So while the level of optimism on industry growth varies, few doubt the fact that the industry will grow at a staggering rate. The financial services sector accounts for a major proportion of the KPO industry. Based on KPMG’s recent study Knowledge process outsourcing – Unlocking top-line growth by outsourcing the core, we expect the financial services KPO industry to be worth more than $5 billion by 2010.
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Heart of the matter: John Dean, MLG Management Consultants (March 2008)    
There is genuine interest in the potential benefits that business process outsourcing can offer companies eager to find ways of remaining competitive. However, in many ways BPO is still a relatively new and immature field. Many vendors spin convincing tales of ‘best of breed’ delivery capabilities and all the significant benefits they can help businesses achieve…well, caveat emptor! Yet there are undoubtedly many benefits to be gained from a successfully outsourced business process – whether that process is the company’s IT infrastructure, its customer interaction centre, one of its distribution or manufacturing facilities or its distribution fleet. The oft-quoted adage of sticking to one’s knitting has its attractions. Running computer departments or fleets of vehicles and warehouses isn’t a manufacturing company’s game and there are specialists who can do this better/cheaper/faster for you. But companies can be enticed with the promised financial benefits to the extent that they lose track of the many risks associated with divesting operational responsibility for a key process to another organisation.
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Poles apart?: Hugo Minney, Minney.org (January 2008)    
Return on investment is crucial in any outsourcing contract. But how do you use ROI to make the right buying decision? Having worked on both the supplier and buyer side in IT contracts, one major stumbling block is that the salesperson and the buyer involved may have completely different viewpoints – they may not even calculate ROI using the same units. Take, for example, a decision to outsource IT services. There’s a cost involved: the capital cost of purchasing equipment and legal fees; the cash cost of parallel running; the time cost in effecting the transition; the risk cost in understanding the processes and matching the culture. The service provider involved will have its own way of measuring the price of these inputs, both its own and the client’s inputs. But the client may measure only its own costs using its own measures, or make some assumptions about the ways the supplier is measuring.
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Doing business with an 800lb gorilla: David Butler, Triple IC (November 2007)    
Recently I was working with a very experienced and capable CIO, studying his outsource contract. He was unhappy with the supplier’s performance. So I did the obvious thing. I looked at the supplier’s performance against the contracted service level agreements. I then felt obliged to tell this CIO that his supplier was regularly hitting and sometimes exceeding the agreed SLA targets. On this basis alone, there was little to complain about. Nevertheless the CIO wasn’t persuaded. “Whatever story the SLAs tell, I’m still not satisfied,” he said. “I still don’t think I’m getting value for money. And, more to the point, neither do my CEO and my CFO.” The outsource supplier’s team were working flat out to ensure they met the agreed levels of performance. They didn’t respond well to being told they were doing just that – but it wasn’t enough. And who could blame them?
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Future of outsourcing?: Simon Scarrott, Compass (September 2007)    
The worldwide growth in outsourcing means that ensuring value for money in outsource contracts – once the preserve of senior managers – is now a key challenge for many corporate executives. Traditionally, companies have considered contractual benchmarks as a vital means of establishing value, in terms of fair market pricing in the context of industry and market standards. However, most benchmarking exercises offer only a limited perspective of value; they tend to exclusively describe value in pure financial terms at a single point of the contract term – rather than over its full term. So while benchmarking is fundamental to ensuring competitive market rates, it is not, in isolation, a sufficient foundation for a better and healthier outsourcing relationship over the long term.
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Source of success: Douglas Peden, Osborne Clarke (June 2007)    
There have never been more processes and services outsourced than there are at the moment, yet there is still a fear of outsourcing. Concerns range from the problems of data security and loss of strategic control to the cost of making redundancies and bad publicity. When an outsourcing or offshoring deal fails, the problems can take many months and even litigation to solve. As such, businesses need to consider a number of areas carefully before progressing. As with anything, it is vital to ask the right questions in order to check the viability of an arrangement. It is also sensible, at the very start of the process, to identify the potential problems you may encounter in outsourcing certain types of service, as well as the possible solutions to them. All this could help you avoid disputes in the future.
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Made for sharing: Arun Aggarwal, TCS (April 2007)    
The instinct to ‘outsource everything’ to a single supplier can be appealing, but it is often a less effective strategy. Thanks to an increasingly mature market and improved management tools and techniques, the trend is increasingly towards multi-sourcing as the model of choice for modern global business. Multi-sourcing increases the complexity of the supply chain and relationships with supplier organisations, so it’s not suitable for every organisation or process. However, with careful implementation, it has the potential to reduce cost and risk, and provide easier access to the best suppliers for a programme of work. The future of outsourcing will truly be a shared one.
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Out with the new?: Iebe Ypma, Alastor Consulting (February 2007)    
Outsourcing used to be seen as a remedy for immediate cost, service or complexity problems. This approach has often led to disillusionment. By year three of such an outsourcing arrangement, customers no longer feel the contract is relevant to their changing business requirements, and the cost benefits associated with the initial financial engineering may have ceased. For longer-term success, an outsourcing deal needs to be: appropriate for the maturity of the function being outsourced and the organisation where the function is deployed; flexible, to reflect changes in business needs, the available technology and the maturity of the organisation being serviced; and innovation-friendly, to encourage innovation in cost reduction, scope, applications and infrastructure. This article focuses on the innovation issue.
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Surviving renewal: Bahl/Rajpal/Tedakapalli, Everest Research Institute (Nov 06)    
Stakeholders in the outsourcing market have a huge opportunity and many challenges ahead of them because the outsourcing market is undergoing significant changes. This fundamental restructuring will have a direct bearing on the way buyers and suppliers structure deals. These changes are especially significant in light of the major renewal trend now underway. Everest Research Institute estimates that $118 billion of outsourcing business will be up for renewal between 2006 and 2008. With buyers and suppliers having already renewed $30 billion of that business at the time of writing, this leaves a total of $88 billion worth of business still up for grabs.
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Social skills: Andrew de Cleyn, LogicaCMG (September 2006)    
As outsourcing activity grows, companies are looking for more sophisticated ways to manage their expenditure, to ensure they get the best return on investment. A recent study by Warwick Business School has shown that well-managed outsourcing arrangements based on mutual trust can create a 20-40% difference on service, quality, cost and other performance indicators over outdated power-based relationships. The survey shows that CEOs who neglect to actively manage their relationships with outsourcing partners are missing out on a ‘trust dividend’ worth up to 40% of the total contract value. In trying to identify what makes for success in outsourcing, practitioners invariably highlight ‘relationships’ – but there are few precise findings on how such successful relationships should be developed. Good relationships don’t just happen: the overall strategic business intention must determine the nature of the relationship and the contract.
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Dispelling the offshoring myths: Lisa Hammond, Centrix (July 2006)    
Many organisations have struggled to achieve lasting value from offshoring. Although it’s often presented as a ‘no brainer’, successful offshoring relies on intelligent choices about what to offshore and how to do it. Key to this is having an understanding of the truth behind common offshoring myths, to ensure your sourcing strategy delivers real and long-term benefits for your business. For many years, offshoring was seen as a tactic for reducing the cost of back-room functions such as payroll and IT, and for much of that time it attracted little attention. This started to change in the late 1990s as companies began offshoring those functions – such as manufacturing, IT applications development & maintenance and call centres – that have a greater impact on customer service and top and bottom-line revenues. Suddenly, offshoring morphed into an item on the senior management agenda.
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Hints and tips: Steve Emmett (May 2006)    
Outsourcing has been part of the business world for over half a century but despite its perceived maturity there are always aspects that can be improved, particularly in the pacesetting area of IT sourcing. The art of making your outsourcing deal successful is like any other activity; it needs to be thought through with care. Whilst the market is mature, most companies who outsource do so for the first time with little experience and a view that they are only trying to save money or focus on their core activity. Talking to existing users, suppliers and independents will allow you to gain the knowledge needed to avoid the common mistakes.
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After the ink is dry: L Campbell/C Hyatt/D Karabinos, EquaTerra (March 2006)    
Seeing the ink dry on any just-completed outsourcing deal is a cause for celebration. But then the hard work starts. You are about to launch and administer a new service provider relationship on a scale more complex and riskier than anything most companies have ever done before. A Conference Board study found that 97% of respondents who had experienced outsourcing would outsource their operations again – but would pay less attention to service levels and focus more on the contract and contract governance. This shows that businesses must be aware of the need to develop professional and highly detailed management capabilities that will help them achieve successful, effective long-term sourcing relationships.
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Opening up outsourcing: LogicaCMG (January 2006)    
Your company is considering outsourcing for the first time, and you’ve heard that it’s the non-core processes that are the top candidates. But you suspect that this would give rise only to low-level benefits, and ‘non-core’ processes sound like ‘unimportant’ ones. Do you really have any of those? What processes really can be outsourced? This article helps you to identify what can be outsourced, what it means for your business, and what kind of benefits can be expected. Start-up outsourcing agreements can benefit from knowledge drawn from the most advanced outsourcing deals.
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End game: Mike Conradi and Simon Savage, Stephenson Harwood (November 2005)    
Outsourcing agreements are complex services contracts and are usually intended to be long-term arrangements. Nevertheless, all outsourcing contracts must anticipate the possibility of early termination and not just expiry. They should contain adequate provisions for termination and allow for an orderly transition of services, whether back inhouse or to another supplier. This means the parties involved must give a great deal of thought to termination provisions and to how they can exit the arrangement. And this has to be achieved without souring the relationship before the service provision has even started. This article looks at some of the termination rights an outsourcing contract will typically contain, and provides advice on issues an outsourcing customer should consider in terminating an outsourcing contract.
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Offshoring grows up: Paul Morrison, Alsbridge Europe (October 2005)    
Offshoring is old news. It is now over five years since the offshore outsourcing of services first hit the headlines in the UK and US, and decades since the first multinationals made pioneering investments in locations such as India. But while the novelty of offshoring and the accompanying media hype may have receded, the market for offshore services has not been standing still, with new players, new types of deals and new types of offshore activity. In short, offshoring is growing up – yet for the most part, corporate understanding of offshoring remains incomplete and out of date. Many executives are unaware of the trends that are shaping the maturing offshore marketplace, and as a result are unaware of the risks and opportunities presented by global sourcing. This article picks out the five most important trends shaping the offshoring market, and their implications for decision makers: offshoring is no longer a minority pursuit, but should now be a mainstream consideration for almost all businesses.
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Outsourcing: the aftermath: Linda Berry, Capgemini (September 2005)    
Outsourcing is the fastest growing sector of the IT services market, and has evolved to the extent that companies now outsource activities that were once the preserve of inhouse operations. Outsourcing can enable companies to focus on their strategy, gain service improvements whilst reducing cost, and increasingly tap into transformational outsourcing services which provide a catalyst for organisational change. But to achieve the true potential of an outsourcing agreement, it is essential that the buyer and supplier have the right relationship, contract and commercial partnership from the outset - at the very beginning of the decision to outsource.
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Transparent needs: Amy Chalfen, Geo (August 2005)    
Increasingly, outsourcing is one of the options companies consider when reviewing any business function. And the areas where companies opt for an outsourced structure are not just peripheral, non-critical functions. Key products and strategic implementation areas such as IT are a major outsourcing growth area. There are two main benefits that outsourcing should bring – cost reduction and service improvement. Typical concerns about outsourcing centre around the amount of control maintained by the end user. There is a fine balance to be struck between cost and control when outsourcing to a third party; and there is an overarching need for transparency and twoway communication between both supplier and the end user. In a survey carried out at the National Outsourcing Awards in November 2004, 65% of users and 63% of suppliers agreed that communication is the most important factor when outsourcing. Considering that even the least strategic activity becomes critical when problems are experienced, transparency is vital for a successful outsourcing relationship.
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For better or for worse: Mark Sukiennik, Orbys Consulting (April 2005)    
Outsourcing is no longer just a contract signed between two parties – it’s the start of a long and complex relationship that needs to be nurtured and developed. Successful outsourcing relationships not only require a lot of professionalism and good management but also regular audits to keep them healthy and productive for both clients and providers. Typically, outsourcing customers and providers enter into agreements with optimistic intentions and breathe a big sigh of relief when the contract is signed. The customer is looking forward to quality service, fresh ideas and extraordinary responsiveness from a supplier that intuitively understands their business and cares about its success.
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Look before you leap: Roy Barden, Catalise (April 2005)    
Offshore locations are an increasing part of organisations’ location and sourcing strategies, especially in regard to back-office activities such as finance & accounting, IT and HR. The debate is even becoming political: offshoring was an issue for both candidates in the 2004 US presidential elections. A special report on offshoring in The Economist in December 2003 found that the US accounts for about 70% of work offshored (despite political attempts to discourage it and some restrictive legislation). The next most significant country is the UK.
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Multi-sourcing: David Muir, Acuera (April 2005)    
Outsourcing continues to be the major source of growth in IT services, and has become a mainstream business practice for companies of all sizes. According to research analyst Gartner, outsourcing will account for 56% of the IT services market by 2007. “Outsourcing is becoming the dominant way that enterprises buy IT services,” said Allie Young, research vice president for Gartner’s sourcing group. But both outsourcing buyers and suppliers face challenges in implementing effective delivery mechanisms that achieve the cost reductions they seek and achieve the appropriate levels of service for their customers: Gartner also found that 50% of outsourcing deals in Europe fall short of expectations.
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