Executive Summary

The countries like Australia and New Zealand has long been considered a mature market when it comes to the outsourcing of communication technology and information market. The business leaders and their technical team are in search for the best possible options to handle the ICT related operations that could be an efficient and cost effective one.

This report covers the nuances of outsourcing of ICT that the report talks about what is the need of outsourcing the ICT and also elaborates with the help of suitable examples the various types of outsourcing that could be done and also the techniques that could be used for evaluating the right supplier according to the need of the business. In the end, the research report talks about all the possible yet avoidable  reason that could go wrong leading to the failure of the outsourcing strategy.

Introduction

ICT or Information and communications technology (ICT) stresses the role of integrating the wireless signals, enterprise software, telephone lines, computer middleware, audio-visual system and storage,  which enable users to store, access, manipulate and transmit the gathered information.

The way of managing organizations is changing constantly – markets are changing, companies are facing the challenge to survive and operate in the  global markets and to compete with the increasing number of competitors. In those conditions, strategists are trying to find the best way how to organize and lead the companies to be able to deliver value and results ICT is a very important part of the business organization in all industries. Delivering the best of breed ICT services and at the same time decreasing ICT costs is an ultimate goal for ICT managers. (Information and communications technology, 2015)

The countries like Australia and New Zealand has long been considered a mature market when it comes to the outsourcing of communication technology and information market. The business leaders and their technical team are in search for the best possible options to handle the ICT related operations that could be an efficient and cost effective one.
Getting better value from IT is increasing business value within company and vice versa. The efficiency and effectiveness of an organization’s IT function has become a source of competitive differentiation

As a result, many companies are considering to outsource the ICT departments or some of ICT services within companies  to the external partners. Within last 15-20 years ICT outsourcing has become very popular and there exist different outsourcing models. Some outsourcing deals are very successful, but there are also examples where outsourcing ICT was not so successful and companies made decision to insource ICT back into organisation. It is possible to identify reasons for such decisions and also to identify what needs to be considered prior to making decision to outsource ICT to mitigate issues and risk, and to have successful ICT outsourcing.

2 Main reasons for making decision to outsource ICT Many business organisations are deciding to take into consideration a possibility to outsource ICT to external partner(s).

Common reasons for such decisions are: –

• Companies are focusing on their ‘core’ business
• IT is too complex and technology is changing constantly
• Cost savings and cost control
• Managing IT is demanding

It is not too hard to imagine that a company which is producing toys or plastics for example does not want to manage complex and expensive IT when they need to focus on delivering their innovative new products or services to the market faster than their competitors, and are therefore considering outsourcing models and decide that ICT outsourcing suites them. Some companies have tactical reasons for outsourcing their IT and some consider outsourcing as it is popular and in trend, which usually leads to an unsuccessful deal (without getting expected value – costs are not decreasing and/or services are poor and Service Levels are not delivered). Beside those two types of companies, there are others for which ICT is a competitive advantage and a strategic function, and it is not likely that they will decide to outsource their ICT. Outsourcing IT is not a simple decision and lot of aspects needs to be taken into account to avoid making a wrong decision and wasting a lot of time and money.

1. Expected benefits

Companies are starting with such significant change process to get some benefits from doing the business differently in one or the other way. They are also expecting benefits from IT Outsourcing. From a different point of view (buyer/supplier or company which is receiving services/outsourcing partner), there are some expected benefits from both parties, and of course, there are some common benefits.

• Buyer (customer)

Expected benefits form a buyer’s perspective are

1. Enables the organizations to focus on their main line of business
2. Possibility to focus on new business development
3. Ability to change faster
4. Quality and service expertise
5. Financial advantages (lower IT costs)
6. Flexibility and Control
7. Improved service

• Supplier (provider)

In the outsourcing relationship suppliers can have their own benefits:

1. Revenue growth
2. Focus on a core competence and greater specialisation in the service provisioning
3. Economies of scale
4. Ability to deliver improved IT support
5. Acquire additional competences
6. Move to be more competitive.

Ways to Mitigate the Risks of Making the Wrong Decision

From the beginning of the preparation for the decision making process it is necessary to define all phases of the project, try to predict possible points of failure, identify risks, prepare analysis how to mitigate them, evaluate vendors, define service levels and contract.

Process flow Model of decision making:

It is proposed to all organisations that, prior to making a decision on outsourcing, they consider some very important issues such as the following:

Steps:

1. setting initiative as a project
2. defining and understanding the objectives
3. Request for Information
4. selecting outsourcing candidates
5. benchmarking
6. business case analysis (with affordability analysis, options, cost analysis, benefits, and risk management)
7. developing in house as well as outside communication strategy
8. staff transfer
9. choosing service provider evaluating all aspects
10. defining service levels
11. contract maintenance
12. Feedback

It is very important form the early beginning to analyse ‘what if’ worst case scenario happens – e.g. a customer wants to break the contract because of poor service provided or any other objective reason – it is necessary to have a back up plan for those situations.

By identifying all possible risks from the beginning of the process of consideration of the outsourcing possibility, throughout the project decision making process, the formalisation, the realisation, the managing of the relationship and monitoring performance phases, companies will be able to find out how best to avoid those risks and be prepared for such situations (putting all conditions into contracts and formalizing them). According to this Gartner analysis from 2006 the lower rate of satisfaction is identifiable for outsourcing strategy development, assessment and risk analysis, and higher rates for evaluation and selection of outsourcing vendor(s).

ICT Outsourcing Models with Examples

There exist various ICT outsourcing models with new models being developing constantly.

1. Facilities management

In this model IT assets are owned by a customer, but services and maintenance of those assets (all operational and system programming tasks, but not the development of applications) are provided by an external service provider. IT staff is transferred to the supplier. This model is sometimes not regarded as a true outsourcing model (assets are not transferred and innovation trough application development).

2. Selective outsourcing

This model is the most common one. In this model only a part of IT functions is outsourced (usually infrastructure management and support). This model if flexible and leaves the customer organization to perform a lot of work by themselves and it is less risky than the total outsourcing model (when more than 80% of IT is outsourced). A possible disadvantage of this model is spending too much time and money in managing the outsourcing projects separately. Example: HSBC once signed a 3 year long multi-million pound outsourcing deal with systems integrator Dimension Data Logistic covering the procurement and technical support for the bank’s Cisco network in 78 countries.

3. Tactical outsourcing

This model of outsourcing is referred to as contracting out or out-tasking. This type of outsourcing is adopted as a short term and rapid method to solve a particular problem. This model can be applied to specific problems that are difficult to resolve using in-house resources without delays (example: infrastructure upgrades). Example: Archstone-Smith Trust, a real estate firm based in Colorado, outsourced a revenue management application. The application was outsourced because it requires a Unix host with an Oracle database on the back end, while ArchstoneSmith uses Windows NT and SQL server for its other internal systems.

4. Strategic sourcing

The customer organization works with one or more than one supplier aiming to achieve a significant improvement in business performance on a long term basis rather than short-term costs saving basis. In this model, the customer and supplier identify and work towards a mutual interest which is commonly referred to as a partnership. Both the supplier and the customer are sharing the risk and reward and are working together to achieve success. Example: Ordanance Survey decided to spend 9 million pounds to replace its business software and implement new internal processes. A 5-year contract was awarded to Siemens Business Services to replace the existing system with ERP and CRM applications from SAP.

5. Transformational outsourcing

This model combines outsourcing of an IT department with a comprehensive reorganisation. In this model IT department can be ‘spin-of’ from the company in separate business or completely transferred to an external provider (all internal IT employees became external provider (supplier) employees). Example: Industrial group Invensys signed a 10- year deal worth up to $100 million per year with IBM Global Services to provide application management, help desk services and support for 29,000 workstations in several countries.

6. Transitional outsourcing

Companies are using transitional outsourcing to introduce huge changes like shifting from one technological platform to other.In this model any of the following three phases can be outsourced: – management of legacy systems – transition to the new technology -. operation and management of the new platform. It is usual that management of legacy system is outsourced to allow internal IT stuff to focus on new technology and develop skills.

7. Business process outsourcing

Organisations are bringing specialist service firm to manage the entire process of the business.This is not limited only to IT but also to the business process which is supported by IT. The Entire function, assets and staff are transferred to an external service provider, and commonly outsourced functions include helpdesk, call centres, document processing and storage, payroll and internal auditing. Example: Lloyds signed a 7-year, multi-million pound deal with BT Ignite to provide a range of services spanning all areas of the business including Internet banking, key financial services and service delivery. The overall aim is to improve customer service. BT provides a fully managed customer contact centre that is integrated with the bank’s customer database.

8. Joint ventures

Some customers are deciding to set up separate joint venture organisations together with suppliers instead of classical outsourcing. The new company has its own management and both organisations are providing IT staff to work in the new company. Sometimes joint venture organizations may be given the freedom to investigate new sources of revenue. Both organisations are responsible for the supply of resources to meet the objectives.

9. Benefit-based relationship

In this model the arrangement is based on both the parties make an up-front investment in the relationship with mutual sharing of both risks and returns. This model is relatively new and therefore it is hard to measure its benefits and share rewards. Example: The UK government’s Employment Service formed a Public Private Partnership with EDS to deliver IT services trough a network of 1,000 job centres and 35.000 staff. The deal links the use of IT to securing business benefits as well as a payment methodology that links EDS’s reward to realizing those benefits.

10. Insourcing (backsourcing)

Some companies in-house retaining of some of their IT activities and functions.There are also some examples when companies insource their IT departments back after unsuccessful outsourcing deals (in which is some other model was used) In this model, the customer and the supplier identify and work towards mutual interests, and commonly this is referred as a partnership. Both, the supplier and customer are sharing the risk and rewards and they are working together to achieve success. Example: JPMorgan outsourcing contract with IBM was worth $5 billion and it was signed in 2001. In 2004 JPMorgan merged with Bank One (Chicago), and company made decision to insource operations back to the company. Because of conditions signed in contracts and penalties in case of breaking the contract, this was the case of a very hard insourcing process.

11. Offshore Outsourcing

It is common to common to outsource software development and programming activities to overseas like in Israel, Russia, China, India, Ireland. sSome other IT functions like system integration, legacy system maintenance can be offshore. At the end of the 20th century, it was very popular to outsource to similar countries, but the expectation were not met – costs were higher than expected, way of developing software was not as good as companies were expecting. Still some big world players outsourced parts of their function to those countries There is also nearshore outsourcing trend – outsourcing to countries which are close in the region or share a similar culture, time zone and a possibility to travel.

Outsourcing the AS IS Process for the firm:

How the AS IS process work:

The process of AS IS initiates with the request of the  client for the consultation service from the company. The process of generating the request could be online via the company’s portal or offline by registering on the order service section or by simply visiting the office of the entity and registering the client who would like to take up the service.

Once the order request in generated, the attendant of the customer conduct an inspection whether there is availability of any specialist for the client and books the appointment accordingly through online system. This process also involves the stipulation of the details of the client, the subject of consultation and the  time for the appointment. The process would be accomplished with the client attending the appointment. The system is refreshed after the successful accomplishment of the task and the data is stored in the database for future reference.

Once the client is served, his details are stored in the system in a special file denoting their identifications as well as the other service details for future reference as well as to measure their satisfaction level.

The process starts by closely looking up to the vision of the company as it provides a better ways for carefully analyzing the changes required to be carried out in the organization.

Once this has been done, the vision of the firm is then viewed in the form of a  it perspective. It is further disintegrated into various segments and the futher detailing of the sectors is done. This helps to ensure that the best strategies are formulated that would contribute in improving condition of the company can be identified and developed. These strategies serve as a pillar to support the execution of the goals and visions of the company.

Once the above steps has been conducted, the implementation of the changes formulated is followed. The operational aspect of the changes involves steps like setting the right personnel in the vacant positions and making them utilize the resorce in an effective way. This helps in enhancing the effectiveness of the overall operations and collecting informations that could be used in future changes.

Importance of the steps:

All these are steps will ensure that whatever change that has been created can be made sustainable at the end of the program which could be done by ensuring that there is constant monitoring and evaluation of the activities taking place within the organization. The process is accompanied by fixing a benchmarking program aimed to determine the quality of operations that are being performed. Ultimately, these steps will help in evaluating the goals as well as checking the effectiveness and performances of the strategies that has been formulated so far.

This ensures that the process is smoothly carried out and there comes no glitches while moving from a particular operation to another one and also, to reduce the uncertainty that are linked with such transitions. The proper and clearly stipulated outcome  is ensured at the end of every operation performed.

How Outsourcing will help

The effective managing of entire process requires an additional capital, space and manpower which could be outsource to reduce the efforts done by the company and to provide it the freedom to focus entirely on its core business. Although, a close watch is required to keep a tab on the activities of as third party vendor and the time to time review of their working will help.

Proposed suppliers for the solution:

The shortlisted supplier for the outsourcing is:

Company Name: Dimension data

Known to provide features like:

1. Intelligent routing of call:including last routing of the agent, agent skill/profile based routing, service level routing, interaction-based routing ,
2. An advanced and sophisticated workforce optimization suite:this includes proper recording of calls, performance management, workforce management, e-learning and quality monitoring
3. data encryption:encrypting the sensitive information appropriately
4. advanced customer feedback:using multiple channels to gather the competitive insight and customer intelligence
5. desktop analytics and advanced text and speech : provide a better insight of the interactions done with the customer through speech and text  Also, keep a tab on the desk activity of the employees to ensure the effectiveness and efficiency of the operation with the help of desktop analytics services
6. multi-media suite, comprising e-mail and  text messaging, web chat: multi-channel approach to manage non-voice interactions
7. Soft and hard dialer options, including progressive, preview, predictive: This feature of the vendor provides a platform for creating and managing the outbound campaigns and various customer communication strategies used for the best customer experience and engagement for a long term.
8. MIS (management information system): The vendor is known to offer a real-time reporting support, along with the performance dashboard and historical reporting that ensures that the best strategies are formulated for the future. (Home)

Common Reasons for ICT Outsourcing Failure

Outsourcing is a complex business venture and it is difficult to get it right. Most organizations are not satisfied with services that they are receiving from the outsourcing partner due to various reasons (big expectation, provider failures to deliver good services…) It is possible to identify different reasons why outsourcing fails.

1. Unsatisfactory outsourcing relationship

The breakdown of the overall relationship between the two stakeholders in the contact could be the major failures in such an outsourcing deals. Lot of different reasons are within this: – loss of shared vision – staff changes may influence in not sharing common understanding – operational concerns dominate – less value add of outsourcing and service improvement missing – lack of good communication from the beginning – outsourcing may be considered as a treat in customer organisation – complaints received by the customers for not being attended effectively and for being ignored from the provider -when financial and legal consideration are dominating relationship.

2. Changes in the business environment

Majority of outsourcing contracts does not have the capability to accommodate the changes to businesses that will occur over the life of contract. Outsourcing deals are usually long term contracts (5-10 years) which is too long a period and changes are expected during that period. It is almost impossible to predict future company structures, mergers or acquisitions, forecast the impact of new technologies on the development of the market place. Significant changes to business strategy and directions are resulting with changes of objectives for IT services. Contract and agreements needs to be built to facilitate continuous change which is not so simple to achieve.

3. Unsatisfactory outsourcing contracts

 A clear, financially viable and practical contract defines the parameters of the outsourced services, performance measures that facilitate effective monitoring and procedures for processing changes and resolving problems. There are number of pitfalls in this area: – having a fair deal that represents proper balance between parties – if for example, supplier pushes too hard to deliver high levels of services with low profit margins -having clear service expectations and understanding between customer and supplier organisation. – proper sponsored outsourcing deals (from top management) and proper specialists included into negotiations, customer IT department support is also important.

4. Lack of flexibility

Lack of the flexibility within an outsourcing contract also may cause pitfalls. It is necessary that the contract allows both, the supplier and the customer to instigate changes and to be aware that it is not possible to forecast everything during the long term contracts.

5. Higher costs than anticipated

When organisations are outsourcing IT services costs are more visible then they were internally (internal costs like salary and overheads sometimes are not seen by senior management). Particular problems arise when the customer organisation finds out that they are paying extra for services that they believed were covered by the outsourcing contract. Some companies are finding out that costs are higher than expected and they are considering insourcing IT back into organisation.

6. Poor service levels

 It is necessary for customer organisations to monitor supplier’s resource levels and business knowledge to avoid delays and protracted difficulties in resolving service issues. It is not unusual that suppliers change support teams and with that decrease business knowledge to provide proper service to customer.

7. Unsatisfactory performance measures

As it was emphasised earlier, it is necessary that proper performance measures are in place and that they are constantly monitored by customer. Adopting unsatisfactory and inappropriate measures can have damaging impact to the overall relationship.

8. Inadequate contract management

To have a successful IT outsourcing which delivers benefits, a customer needs to focus to have proper governance structures in place, supported by sufficient resources. Poor contract management arises in different cases.

9. Monitoring user satisfaction

As mentioned earlier, managing ICT outsourcing relationship and monitoring are very important parts of the outsourcing and without it, it is likely that the relationship will not be successful. The relationship is based on contract(s), but those contract(s) and fulfilling the conditions needs to be managed regularly and controlled to assure good services.

(NOOR HABIBAH ARSHAD, 2015) (ICT outsourcing: The rise of the Network Service Integrator, 2013)

New delivery models and their impact on Business and IT organisations

In the era of new technologies like virtualizations, new approaches like software as a service (SaaS) and other IT utility service will probably significantly influence on all IT organization.

Gartner identified 14 new delivery models:

• Business process utility
• Capacity on demand
• Communication as a service (CaaS)
• Community source – Grid computing
• Infrastructure utility
• Remote management services
• Software as a service (SaaS)
• Software streaming
• Software based appliances
• Storage as a service – User-owned devices
• Utility computing
• Web platforms

 All those delivery models are still not fully developed, but they will evolve and influence all ICT – outsourced or not. IT outsourcing partners (suppliers) need to prepare a strategy for those delivery models to be able to react to buyers’ demand for some of those new delivery models, and consider in which way and in which period to adopt this new models.

Conclusion

The most important step, which each company which is thinking to start process of ICT outsourcing, needs to take is a careful evaluation of possible outsourcing models, their benefits and associated risks. A decision needs to be made only after a serious analysis has been made and it shows that that expected benefits are more significant than possible risks. ICT outsourcing is present and it will be present in future.  

Appendices:

Preparation of a Journal

Evaluation Methodology

RFI

INTRODUCTION

Through this RFI, we invite the group of companies and vendors to submit proposals for outsourcing our ICT service.

After the process, respondents shortlisted for further considerations are requested to demonstrate their systems and service in from of our Chief Executive Officer. All questions and inquiries regarding this RFP/RFI should be directed to:

Mr. David Stark

Operation Executive

Street 10

Queensland

Phone: 1237394928334

E mail: david@ic.com

Expected Time Frames for Vendor Evaluation and Selection Process

The evaluation criteria:

• Meet the technical and functional requirements of ICT supplier and software demonstration.
• Propose a solution which is cost-effective.
• Is able to provide a timely modification in the existing program in accordance with the change in the industry’s needs and regulations.
• Is able to offer a quality level of technical support and customer service throughout.

Profile of the Vendor

1. contact details of the company
2. Brief overview of the vendor
3. description of the clients served.
4. Industry award/ recognition received (if appliacable)
5. Current users of the services.
6. Summary of short and long term goal of the company.
7. 3 references for background check.

SYSTEM IMPLEMENTATION AND TECHNICAL SUPPORT

Breifly explain the following:

1. Your typical plan for implementation.
2. The experience of your team working on board
3. Outline the training modules used by the firm.
4. Where us your technical support centre located.
5. Hours of providing the customer support.
6. The methods used to handle customer request for a customizations
7. Company’s policy regarding installation and further support.

SYSTEM PROPOSAL

The vendor needs to provide a detailed proposal including:

1. The hardware and software provided.
2. The training module to be followed by the vendor including the time and location commitment.
3. The costing of the service and support.