The IT outsourcing market has experienced relatively low growth in the past three years – but there is now evidence of an upswing, with more than 40 per cent of organisations looking to increase application outsourcing and 25 per cent planning to increase infrastructure outsourcing during the next two years. When asked to identify benefits sought from outsourcing, organisations consistently rate their top three business drivers as access to resources not available internally, reduced costs, and flexibility to buy IT services and capacity on demand. While these benefits are likely to continue as the prime drivers for most, some have instead opted for business transformation outsourcing – an approach that gives pre-eminence to less common benefits such as responding to major organisational change and access to innovation.
These organisations take an approach that is strongly business-centric, and use outsourcing as a catalyst. This often involves significant initial investment to fund the transformation process, including the cost of new technologies and business process re-engineering. For investments of this nature, the downstream business benefits need to be clearly articulated and measured. They may include quantifiable savings related to cost and staff reductions, as well as qualitative benefits such as improved staff mobility, reduced customer response times and increased business agility.
When is business transformation outsourcing an option? For most organisations, this will be driven by a compelling business event such as disruptive competition, mergers and acquisitions, or a cost-saving imperative. Opportunities also arise where the organisation has aged, fragmented and outdated technologies requiring major overhaul.
Given the business and IT risks, planning is paramount and can be distilled into five essential steps.
Step 1 What are the strategic objectives? Articulate the business and IT objectives. This typically represents the "wish list" of business and IT executives, but should be validated against external market intelligence to test for both possibilities and also for feasibility. For example, the business may not be aware of an emerging technology that could dramatically benefit its operational and business models. On the other hand, the technologies to support a specific objective may exist but may not yet be proven .
Step 2 What are the strategic priorities? Analyse the required objectives in terms of current capabilities, costs and major issues, and use this to define the strategic priorities. A "straw man" of the strategic priorities should be developed based on potential business impact and the associated economics, including required investment funding.
Step 3 What business benefits are sought? Identify business benefits and various design scenarios to test potential outcomes with the supplier market during the process. Benefits descriptions should be expressed in business-friendly language and regularly reviewed during the process. Business benefits may be expressed by statements such as productivity improvement (for example, rationalisation and standardisation of defined business processes), enhanced client experience (e.g. offer seamless interactions with clients) or business partner collaboration (e.g. provide easy-to-use electronic work flow and secure data exchange). The scenarios are then put into the business context and used to discuss alternatives and impacts with suppliers.
Step 4 What are the future-state requirements? Articulate these to achieve the strategic priorities and conduct a gap analysis against the current state. This is a critical step designed to translate the business objectives into IT requirements and identify the level of change that will be required. Where the gap is large, the process is likely to involve generational change in the underlying IT architecture, technologies or solutions to support the required business transformation.
Step 5 What is required to succeed? Identify the IT transformation requirements that will be outsourced, as well as the internal changes required to achieve the future-state requirements. This delivers the blueprint for the transformation plan, including time frame, key milestones and dependencies. Success criteria should also be identified to measure, monitor, and manage the achievement of business benefits, including traceability back to the objectives and strategic priorities. The internal change is crucial. In many cases, the benefits will not be fully realised until a range of business initiatives is undertaken, and this may involve fundamental change across the organisation. Don't underestimate the effort required.
A business transformation outsourcing process ensures a business-driven "top-down" outcome. It requires strong business participation and a high degree of market involvement to ensure solutions are viable and will deliver the required transformation.
To comment on this article, please email the editor.
Sign up to receive CIO newsletters.
Follow CIO on
Click here to subscribe to CIO.
Send news tips and comments to email@example.com
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.