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  • 1. IT Infrastructure Outsourcing for Government Sector in Latvia Aivis Rozenfelds MicroLink Latvia Systems Maintenance and Management department director [email_address] April 2006
  • 2. Content
    • IT Outsourcing - general
    • IT infrastructure outsourcing
    • IT Outsourcing and Managerial issues
    • Summary
  • 3. IT outsourcing definition
    • “ An IT outsourcing arrangement is a long-term contractual arrangement in which service provider assigns the responsibility of managing part or all of a client’s infrastructure and operations ( at a pre-determined price and according to a pre-determined criteria )”
    • Source: Gartner Dataquest
  • 4. IT outsourcing drivers Business drivers Cost saving Focus on core competencies Positive experience from non-core activity outsourcing Internal IT drivers IT resource shortage Requirement to improve effectiveness IT industry drivers Outsourcing – one of biggest growth area’s for IT companies Effectiveness trough volume and shared IT infrastructure More and more of IT services are standardised
  • 5. Outsourcing classification Strategic Value Tactical Value BPO Application outsourcing Infrastructure outsourcing
  • 6. Outsourcing classification – Lattelekom approach
    • Infrastructure – all group companies outsource to Microlink
    • Non-core – all group companies outsource to Microlink
    • Core – at the moment keep inside in each company
    Infrastructure management Core Business Applications Non-core business Applications
  • 7. IT infrastructure outsourcing
    • Typical arrangements:
      • Assets belongs to company (servers, PC’s, etc)
      • Data center facilities owned by service provider
      • Help Desk facilities, specific software (monitoring, backup) owned by service provider
      • Outsourced IT are infrastructure management
    • Advertised vision - IT infrastructure as utility – more complex arrangement (but available for simple resources – virtual servers, web hosting etc.)
  • 8. IT infrastructure outsourcing benefits
    • Quality
    • 7x24 support and monitoring
    • IT Help Desk service
    • Industry standard Data Center, backup facilities
  • 9. IT infrastructure outsourcing benefits
    • Quality
    • Implemented appropriate IT infrastructure management processes (ITIL)
    • Measured service (KPI’s and SLA)
  • 10. IT infrastructure outsourcing benefits
    • Peace of mind
    • Management time to focus from operational issues to development
    Maslow's Hierarchy of Needs
  • 11. IT infrastructure outsourcing benefits
    • Competitive price for high quality service
  • 12. IT outsourcing in business environment
    • Outso u rcing represent ~30% of average IT budget
    • Manufacturing company outsource 70-80% of it ’s finished product
    Source: Cullen S., “Information Technology Outsourcing practices”, 2001
  • 13. Typical differences between CEO and CIO
    • CEO – see the benefits
      • Outsourcing - strategy that makes the company more flexible and adaptable to rapidly changing business and market conditions
    • CIO – see the risks
      • The IT systems are your brain. If you take your brain and outsource it then any adaptability you want becomes a contract negotiation
    • And – both of them are right !
  • 14. Gartner on IT outsourcing “ By 2007, more than 80 percent of IT sourcing decisions will be made at a business level (board or business unit) as part of business transformation or business process sourcing decisions (0.7 probability). ”
  • 15. Findings from IT outsourcing study
    • Study by Center of Research on IT at University of California (data on 860 outsourcing arrangements):
      • Clients accrue a higher return when labour-intensive services are outsourced ;
      • The returns to clients and vendors are increasing in the relative size of the contract ;
      • Clients with a strategic intent of business impact accrue higher returns than clients with a strategic intent of IS improvement .
  • 16. IT outsourcing and management issues
    • Outsourcing is very powerful management tool
    • Outsourcing is a management challenge:
      • Rewards are high and risks are high
    • Outsourcing forces management to:
      • Determine core competencies that should be kept in-house rather than outsourced ;
      • Align outsourcing with overall corporate strategy ;
      • Use outsourcing to support transformation and restructuring strategies .
  • 17. From outsourcing to BPO
    • The shift form functional oriented view to process centric view;
    • When process thinking view applied, it is called BPO;
    • In BPO case assets are owned by service provider (including IT assets – e.g. payroll outsourcing)
    IT Sales Finance …
  • 18. BPO
    • Typical for large corporations (and applicable to government)
    • This is part of transformation process where each service is evaluated and deployed based on:
      • Embedded in business - if they are applicable only to that unit or more effectively delivered in that unit or provide that business with unique competitive advantage
      • Shared services (or internal outsourcing) - if services can be leveraged across multiple business and performance can be improved trough common processes and systems
      • Outsourced - where shared services unit is not cost-competitive or cannot deliver at the needed quality level
  • 19. Outsourcing and IT industry competitiveness
    • 7 from 10 countries joining EU are promoting IT outsourcing services
    • Government support for IT in India:
      • One of 5 top priority industries in India
      • Significant investments in infrastructure with the establishment of Software Technology Parks in many cities
      • Regulatory environment which allows:
        • - 10 years Tax Holidays for IT Companies
        • - Rebate on duties for Import of Technology
      • Today in India are ~1M IT professionals (and projected 2M by 2008)
  • 20. IT outsourcing in government
    • Question – from economic point of view – what is better:
      • 100 IT professionals employed by government?
      • or
      • The same 500 IT professionals employed by business entity and providing service to government?
  • 21. Summa r y
    • Outsourcing is powerful and essential management approach
    • Effective IT outsourcing is part of overall outsourcing strategy (or part of transformation process)
    • IT infrastructure outsourcing is good (and safe) starting point in IT outsourcing journey
    • Effective outsourcing strategy at government would significantly increase Latvian IT industry competitiveness
  • 22. Thank You! Questions?