Improving Efficiency in outsourcing of IT Services in Strategic Planning 1Prof. Dr. Majed El-Farra.

Improving Efficiency in Improving Efficiency in outsourcing of IT outsourcing of IT

Services in Strategic Services in Strategic PlanningPlanning

11Prof. Dr. Majed El-FarraProf. Dr. Majed El-Farra

Seminar ObjectivesSeminar Objectives

• Introduce outsourcing concepts• Identify current and emerging uses• Identify advantages and disadvantages• Review planning and feasibility studies• Review vendor selection and contractnegotiation processes• Review project management strategies• Identify outsourcing resources


Setting the Stage

• IT is key to strategy and competitiveness• Dramatic increase in demand• Flat or declining IT budgets• Tenure labor model and aging plant

3 Prof. Dr. Majed El-Farra

Outsourcing DefinitionOutsourcing DefinitionOne can define Outsourcing Services as a process of purchasing non essential resources (non-core activity) from others through long term contracts instead of being made within the company . To remain competitive, many companies outsource as a way to reduce costs, increase efficiencies, and refocus critical resources.TO focus on operating it in the most optimal way to achieve transformational cost savings (30% - 60%) and transformational revenue growth

The term of outsourcing has been created from the words outside –resource-using


Make-or-buy OutsourcingMake-or-buy Outsourcing

Operative focusOperative focus Part of procurementPart of procurement Operative Operative

procurementprocurement Optimizing Business Optimizing Business

area/productarea/product ReversibleReversible Supplier-consumer Supplier-consumer

relationrelation

Strategic focusStrategic focus Part of strategic org. Part of strategic org.

DesignDesign Integrate external Integrate external

resource to value resource to value chainchain

IrreversibleIrreversible Co-operation Co-operation

(company & (company & providerprovider


A Variety of Approaches

• Improving • Downsizing • Rightsizing • Renegotiating • Insourcing • Federating • Microsourcing • Restructuring ... … and Combining


Undoubtedly Outsourcing Undoubtedly Outsourcing Services is a strategic Services is a strategic

decisiondecision


Why Outsourcing IT … Really?Why Outsourcing IT … Really?

• Concerns over efficiency/ effectiveness of IT operation •Rising expectation for IT services• High deployment&operation cost •Scarcity of technical &financial resources


The Outsourcing Balancing ActThe Outsourcing Balancing Act

Cost SavingsService Levels

loss of internal intellectual capital

Institutional Strategic Direction

9Prof. Dr. Majed El-Farra

Strategic Reasons to OutsourceStrategic Reasons to Outsource

• Long term asset allocation• Sharpen institutional focus• Depending on strategic impact e.g, -only non- core activities -or Strategic partnership• Risk/profit Sharing


Tactical Reasons to OutsourceTactical Reasons to Outsource

• Short term asset allocation by : Function or by study irrespective of strategic impact•Resources not internally available• Reduce and control operating costs• Cash infusion\mix


Common Uses of Outsourcing in IT

• Transfer of assets• Disaster recovery• Data entry• Computer operations• Telecommunications• Equipment installation and maintenance• Printing and mailing• Computer leasing• Application systems• Systems management• Facility management• Strategic planning


Ten Myths of Outsourcing1. You can outsource with no investment2. You can buy essentials you don’t possess3. You can buy market share using a vendor4. Outsourcing solves staffing problems5. Outsourcing reduces management needs6. Outsourcing reduces problem complexity7. Vendors need to know your core business8. “Everyone says it’s the right thing to do”9. Outsourcing lowers overall costs10. Vendors will not do for others what they do for you


Feasibility Study of outsourcing

• Identify factors driving outsourcing• Rational points for decision-making• Identify real costs of alternative scenarios- maintaining the status quo- business process redesign- federate/unite and in source- micro sourcing• Services having well-defined service levels• Services delivered in defined time fames• Vendor providing services as “core competencies”• Vendor providing “economies of scale” 14Prof. Dr. Majed El-Farra

Diagnosis

Redesign

Implem

entation

Three steps to Establish a Novel Outsourcing Strategy


Diagnosis

Review of current capabilities and performance

External benchmarks Gap analysis based upon: - Diagnostic findings - Expected future needs Define capability sourcing strategy


Redesign

Establish project groups for Process redesign Organizational redesign Identification of non-core tasks to be

outsourced Decide on time frame Get buy-in from key stakeholders Create pilot


Implementation

Appoint project leaders Define new roles and responsibilities Refine incentives Revise resource and budget plans Establish dedicated outsourcing

infrastructure Provide specific training to accommodate

new skill set


Advantages of Outsourcing:Advantages of Outsourcing:

Allows a business to focus on core activities

Gives you access to professional capabilities Shares the risk Piece of mind that the process is in good hands (reliability) Do not have to worry about continually introducing new technologies Improves service quality Frees up human resources Frees up cash flow Increases the control of your business Makes the business more flexible to change (i.e. demand)


Disadvantages of Disadvantages of Outsourcing:Outsourcing:

The fear of the service provider ceasing to trade The fear of the service provider ceasing to trade (bankruptcy, etc) (bankruptcy, etc)

You may lose control of the process You may lose control of the process Creates potential redundancies Creates potential redundancies Other companies may also be using the service provider. Other companies may also be using the service provider.

Therefore in some cases, the best interests of the Therefore in some cases, the best interests of the service provider may be diluted with other users service provider may be diluted with other users

You may lose focus of the customer and concentrate on You may lose focus of the customer and concentrate on the product (the outsourced process) the product (the outsourced process)

The loss of talent generated internally The loss of talent generated internally Employees may react badly to outsourcing and Employees may react badly to outsourcing and

consequently their quality of work may suffer consequently their quality of work may suffer


Common Outsourcing Successes

• Contract is tight and carefully defined• Unique contracts that match institutions with vendors• Outsourcing specific functions not related to core business• Outsourcing efficient functions• Partnership to share risks and benefits• Renegotiation option in contract


Outsourcing Risks:

Approximately 30 per cent of companies that are advised are informed that outsourcing will not deliver the expected benefits

. For the remaining 70 per cent, the roadmap to a successful outsourcing deal will require many decisions in areas such as HR, IT, financial, legal, regulatory, risk management, management training and public relations.


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Improving Efficiency in outsourcing of IT Services in Strategic Planning 1Prof. Dr. Majed El-Farra.

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