Organisations are forced to review their IT capabilities to seek opportunities that optimise efficiencies, create value and deliver competitive advantage.
But, these challenges are increasing the demands on IT infrastructure for service continuity, flexibility, security and cost control. Information is critical to any organisation and operating the technology can be a drain on valuable resources.
To remain competitive, organisations are choosing to focus on their core business activities and to work with IT partners who understand their needs.
According to Datacentrix divisional director, Cameron Beveridge, the outsourcing market is ready for change, with the days of monolithic outsourcing deals long gone. "In the past, when IT was more of a 'grudge buy' for businesses, outsourcing as an alternative was driven by the service providers, with limited transparency to the business.
"In the current business climate, IT, and by implication, outsourcing initiatives, are now directly accountable to business and any technology decisions made must be defined in terms of measurability and defined business outputs.
"Accountability for performance is shared between the client and the service provider, and risks are managed within the context of overall governance best practices. Critical to achieving this is a transparent approach to structuring outsource deals, measured against business performance. The first point of consideration is the alignment of business and IT processes.
"IT solutions must deliver value, measure up to business requirements, determine risk and compliancy needs, and be done at an appropriate cost level. It is not considered good business practice to 'over-engineer' an outsourcing solution if an organisation cannot afford it at the time. It makes far better business sense for the solution to rather mature with the business as it grows, aligning the technology to meet the exact business needs of that company." Beveridge believes that benchmarking against the market is not a true reflection as each business has its own specific needs.
"Rather by performing a base lining exercise, the business would look at where it is in terms of cost versus delivery, service management maturity and risk and governance issues, and then focus on where the organisation needs to be in terms of performance and how it can get there. Base lining enables businesses to determine success in outsourcing by measuring continuous benefits over the life of an outsourcing contract."
The next step for consideration is service management maturity, a critical step in defining the appropriateness of the outsourcing solution in terms of the business requirements. By looking at best practices frameworks such as IT Infrastructure Library (ITIL) and Control Objectives for Information and related Technology (COBIT), a company can determine its position on the service management maturity curve and strive towards progress as part of a continuous improvement process.
"Additional points for consideration are performance-based pricing and gain share," says Beveridge. "Previously, pricing was defined for a set service, but this may not have any direct value for the business.
"A performance-based pricing plan requires suppliers to pay a penalty for unsatisfactory service levels. From a service provider's perspective, this focuses attention on the critical touch points between IT solution and business processes with a direct impact on the business value. Gain share is aligned to continuous improvement, where the service provider determines its margins upfront across the outsourcing deal, so that the cost to client decreases as the cost base is reduced but the service provider still makes the same margins."
"In order to successfully undertake an outsourcing project, an organisation must understand what makes IT strategic to the business at any given point in time," says Stewart Barker, executive director with responsibility for outsourcing.
"By appointing a strategic partner, they can then drive down the TCO of the IT solution at the requisite level of service. Looking at the service provider point of view, the outsourcing market needs dynamic thinking in order to deliver quantifiable business values and manage real risk to customers. It is only through the alignment of business and IT needs, full transparency and performance-based pricing that a supplier can be successful in this sector," Barker concludes.
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