A Guide to Value-Based Outsourcing: The Value Health Check · broader outsourcing relationship....
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ECPweb.com News and independent reviews of asset and service management issues, practices and tools Value-based outsourcing programs start with a clear definition of what value means to the customer’s business. Understanding what the business wants to achieve from the outsourcing relationship, along with the customer’s priorities, will establish the baseline for the services. To ensure that desired business results are achieved and that targets are adjusted as business needs change, we recommend that customers conduct regular “value health checks” on their outsourcing program. This allows the outsourcer, the customer and interested stakeholders to continually monitor the pulse and vitality of the relationship — and to make adjustments to ensure alignment and continued focus on business value. The following are four questions that managers should consider as part of their outsourcer-relationship review process. Are we focusing on the right things? To understand if you are focusing on the right things, you need to begin by consider- ing the degree of alignment between your IT organization and your overall business objectives, and those of the outsourcer. The degree of divergence is an important indicator of the health of your relationship. The clearer and more cohesive your short- and long-term perspectives are, the stronger the bond between the two organizations. One fundamental factor supporting a long-term outsourcing relationship is the sharing of responsibility for joint success. Focusing on this factor helps to ensure that the relationship is dedicated to win-win objectives and delivering what is needed for the success of the customer’s business. Moreover, the decisions and directions taken through an outsourcing program should correspond to the values and impacts on the business. Understanding the portfolio linkages between decisions and impacts, and how the outsourcing program and business priorities change over time, helps to guide necessary changes in both the contracts and the broader outsourcing relationship. Plus, a strong linkage between these elements can significantly increase the contribution of the outsourcing program to the bottom line. Are we managing the outsourcing program? When looking at an outsourcing program, consider the following: Does the service provider have a comprehensive approach and proven methodology for portfolio management that takes into account the ongoing day-to-day operations required to support my business as well as the tactical and strategic aspects of my IT-business initiatives? The more integrated the vendor’s approach, the more consistent and higher quality the results will be. A Guide to Value-Based Outsourcing: The Value Health Check By Joan Conway 1 2
Transcript of A Guide to Value-Based Outsourcing: The Value Health Check · broader outsourcing relationship....
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Value-based outsourcing programs startwith a clear definition of what value meansto the customer’s business. Understandingwhat the business wants to achieve fromthe outsourcing relationship, along with thecustomer’s priorities, will establish thebaseline for the services. To ensure thatdesired business results are achieved andthat targets are adjusted as businessneeds change, we recommend thatcustomers conduct regular “value healthchecks” on their outsourcing program. Thisallows the outsourcer, the customer andinterested stakeholders to continuallymonitor the pulse and vitality of therelationship — and to make adjustments toensure alignment and continued focus onbusiness value.
The following are four questions thatmanagers should consider as part of theiroutsourcer-relationship review process.
Are we focusing on the rightthings?
To understand if you are focusing on theright things, you need to begin by consider-ing the degree of alignment between yourIT organization and your overall businessobjectives, and those of the outsourcer.The degree of divergence is an importantindicator of the health of your relationship.The clearer and more cohesive your short-and long-term perspectives are, thestronger the bond between the twoorganizations. One fundamental factor
supporting a long-term outsourcingrelationship is the sharing of responsibilityfor joint success. Focusing on this factorhelps to ensure that the relationship isdedicated to win-win objectives anddelivering what is needed for the successof the customer’s business.
Moreover, the decisions and directionstaken through an outsourcing programshould correspond to the values andimpacts on the business. Understandingthe portfolio linkages between decisionsand impacts, and how the outsourcingprogram and business priorities changeover time, helps to guide necessarychanges in both the contracts and thebroader outsourcing relationship. Plus, astrong linkage between these elementscan significantly increase the contributionof the outsourcing program to the bottomline.
Are we managing theoutsourcing program?
When looking at an outsourcing program,consider the following: Does the serviceprovider have a comprehensive approachand proven methodology for portfoliomanagement that takes into account theongoing day-to-day operations required tosupport my business as well as the tacticaland strategic aspects of my IT-businessinitiatives? The more integrated thevendor’s approach, the more consistentand higher quality the results will be.
A Guide to Value-Based Outsourcing:The Value Health CheckBy Joan Conway
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Managing an outsourcing program requiresdiscipline, risk management skills and the abilityto align the program with your organization’sculture. A successful program also relies onestablished means for communicating businessand system changes consistently throughout thelife of the outsourcing relationship.
Are we getting the desiredbenefits?
You get what you measure, so it is critical tomeasure the right things. For example, if theoutsourcing-program measurements focus onlyon cost reduction, that is what will be reportedand delivered. Other business benefits — internaland external customer satisfaction, improvingtime-to-market rates for new applications — maybe missed if they are not measured, and this canlead to dissatisfaction with the outsourcingprogram.
Focusing on short-term results may compromiselonger-term business objectives by minimizingthe current business cycle and ignoring what thenext cycle is likely to be. Are you reacting tocurrent pressures (e.g., reduce costs by 30percent this year), or are you trying to get aheadof the game to create business value andcompetitive advantage for the organization?
Getting the desired benefits also requires havinga governance process in place to “harvest” thebenefits. Governance plays a crucial role in along-term relationship because it impacts thedesired outcome, particularly as service levelsare reviewed and changed in response toevolving business priorities. The value ofgovernance must be understood, acknowledgedand communicated to the stakeholders as partof managing their expectations and satisfactionwith the outsourcing program.
Are we continuously improving?
In addition to a well-run, cost-effective and up-to-date IT operation that delivers sustainablebusiness value, you will want to tap into theoutsourcer’s expertise and ability to bring ITinnovation and industry best practices intoongoing operations and program management. Acollaborative relationship offers more than justcost efficiency or a better way of doing things; itcan have transformational benefits. While thesebenefits can be hard to measure, looking at howcontinuous improvement is incorporated intoexisting services will put you on the right track.Do service-level agreements and contract termsencourage the vendor to bring forward value-added services? Ask yourself if the pressure todemonstrate immediate and significant savingsjeopardizes additional investments.
Joan Conway is the global director of managedservices for Fujitsu Consulting. Conway workswith IT organizations on outsourcing transitionand engagement management, migration anddecommissioning of legacy systems, andimplementation of business [email protected]
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Reprinted from the March 2004issue of Technology AssetManager. Copyright 2004 ECP.All rights reserved.
