Governance's new clothes
While sustainable cost reduction remains a key priority in 2010, organisations are moving towards IT and outsourcing governance that is more aligned to strategic business objectives, says senior outsourcing executive at Accenture SA, Donovan Muller.
He notes that during the recession, particularly throughout 2009, IT governance was driven by cost-reduction initiatives. While the knee-jerk reaction was necessary to survive the economic slump, this mindset is not sustainable and places the organisation at significant risk.
“Before the economic crisis, businesses where not completely prepared for what was coming. When the recession hit, the main priority was around containing costs, which became the single driver of IT governance thinking,” explains Muller. However, as the economy recovers, the priorities of the business have once again realigned.
“The post recession mindset seems to be more focused on concrete business functions and business results. Improving not only IT but business process through IT is certainly on the rise,” comments Gartner research VP, Jean-Claude Delcroix.
Organisations looking at outsourcing or currently engaged in the delivery of outsourcing contracts are focused on achieving balance, explains Muller, by focusing on business value, risk, cost and service levels.
“In 2010, we will see a move away from low cost thinking towards best cost thinking,” Muller predicts. He believes a more comprehensive approach is needed to drive sustainable cost savings. “This year outsourcing needs to be a lot more flexible and thinking needs to be geared towards value rather than cost,” he adds.
[EMBEDDED]Organisations need to look towards industrialised service delivery that involves continuously improved productivity and predictability while lowering the total cost of ownership, advises Muller.
Application and infrastructure optimisation to better align IT assets and employ new technology trends will also drive sustainable cost reduction, he adds. Lastly, Muller calls for better business performance enablement in which IT flexibility and agility supports changing business priorities and enables a competitive advantage.
“With outsourcing of hardware or data centre functions through cloud computing, a company can get much more agility and use resource on-demand, meaning better alignment with the business needs over time and less capital expenditures,” offers Delcroix.
Governance around outsourcing will also see an increased focus on business risk management, continues Muller. “For the CIO, ensuring the balance between enterprise risk and IT spend is a major challenge.”
According to Muller, this involves IT compliance, protecting the enterprise's data and IP against fraud and theft, anticipating and mitigating cyber crime attacks on critical IT infrastructure through sophisticated IT security programs.
Overriding all these elements is the need for market innovation. “The role of innovation is in continued cost savings. Innovation can cover new functionalities around online business, consumer mobile applications and machine-to-machine,” explains Delcroix.
Organisations will need to innovate around sustainable cost reduction in order to survive. To this end, companies will look for outsourcing deals that can be model to what works for them, concludes Muller.