Sourcing Lecture 3 Outsourcing

ITSM specialization 2009-2009 Outsourcing as a solution

Agenda

Outcome of the Digital Self test

What is outsourcing?

Define the scope of the outsourcing objects

Build the business case for outsourcing and the fill the calculation model

Prepare decision making

Start the outsourcing approach

Define the terms of reference and requirements

Some experiences with outsourcing

Outcome of the Digital Selftest

Outcome of the Digital Selftest Test should be made on http://www.twynstragudde.nl/tg.htm?id=8635 10 24 24 19 19 Rebin 18 20 24 24 10 Gideon 16 19 24 24 13 Egbert 20 19 35 10 12 Jaime 22 14 10 39 11 Michiel 19 24 16 18 19 Thijs 14 21 23 26 12 Raage 10 23 21 26 16 Sofia 15 19 21 24 17 Ibrahim 14 28 13 24 17 Joanmis/Ioannidis White Green Red Blue Yellow Name

What is outsourcing?

What is outsourcing

Outsourcing is the decision taken by an organisation to contract or sell the organisation assets, people, process and/or activities to a third party supplier, which in exchange provides and manages assets and services for monetary returns over an agreed period of time.

Definable components of your business to be done by a third party, that you did yourselves before

Outsourcing trend coming years Outsourcing decreases Outsourcing increases Source: Giarte Topmanagement and IT research 2008 Outsourcing applicationmanagement Outsourcing desktops/ office equipment / Helpdesk Outsourcing infrastructuremgt Hiring System Integrators for projects Hiring temporary employees

Define the scope of outsourcing

Always define 3-5 scenario’s

Scenario 0 : Current situation

Imaging current situation: for comparing the different scenarios

Scenario 1: professionalisation scenario

The implementation of the recommendations. None sourcing

Scenario 2: outsourcing of ICT services

The outsourcing of ICT facilities (desktop management, network management, infrastructure, server and hardware monitoring, hosting web sites)

Scenario 3: outsourcing of ICT services and application mgt

The outsourcing of ICT facilities (desktop management, network management, infrastructure, server and hardware monitoring, hosting web sites), data management and application management

Scenario 4 : Collaboration

In the ICT field (desktop management, network management, infrastructure, server and hardware monitoring, hosting web sites, data management and application management) collaborate with more of the same organizations

ISO/OSI framework for plotting scope Common basic infrastructure Office applications Application D … . Application A Generic applications Application E … . Webportal and website Application B … . Application C … . Application F … . Access (network) Network transport and connectivity (netwcrk) Control and monitoring (serverparc) Basic link system (Middleware) Application Proces (functionality)

Define scope in terms of scenario’s and staffing scopeparts: Infrastructure and application component Staff Component Operational management System management Netwerk- and Infrastructure Management Functional Management Information Management 1 FTE DBAGegevens 1 FTE Application 1,06 FTE / 0,88 FTE Helpdesk 1 FTE Head of Division 1 FTE Network Specialist (1 FTE) Application Specialist hardware (1 FTE) Own company Hired Scenario 2 Scenario 3 Access (network)) Network transport and connectivity (netwcrk) Control & monitoring (Serverparc) Basic link system (Middleware ) Application Process (functionality)

Scope plotted on IT management model Scenario 2 Scenario 3 DBA Operational Management Information Management Functional Management Network- and infrastructure management Application Management Directing Management Service Aligning Organizing Implementing

The scope is plotted on the Kraljic model Purchasing Risk Is it a standard or a specialized product? Routine 1 e generation sourcing What is the extent to which the product / service adds value for the business Less added value Large added value Standard Specialized Strategic Leverage Bottleneck Outsourcing Helpdesk & desktop mgt Application management 2 e generation sourcing 4 e generation sourcing 3 e generation sourcing 2 e generation sourcing Infrastructure mgt outsourcing Scenario 2 Scenario 3

Build the business case for outsourcing and fill the calculation model

Questions for building business case

What are the possible scenarios in the outsourcing of ICT function?

What are the arguments to make choices from one of these scenarios?

What are the financial implications of outscourcing?

What are the organizational and human consequences of outsourcing?

What are the risks and countermeasures of outsourcing?

Approach in building business case

Activities conducted in the period August and September:

Several discussions with stakeholders and ICT portfolio within customer organisation

Various observations made on the spot and existing situation in images

Calculation completed and validated with stakeholders within customer organisation

Demarcation for sourcing area and scenarios developed

Concept Report completed

Research, current situation, scenario 0

Financial:

Staffingcosts € 555.140

Other automation costs € 149.744

ICT infrastructure costs € 139.055

Application costs € 777.124

Total € 1.621.063

Staffing (in FTE’s):

Direct Indirect

Operations manager 0,89 Information manager 1,00

Systemmanager 3,00 Functional management 4,50

Helpdesk 2,00

Qualitative

ICT management and operational processes only implemented by means of tooling (TopDesk) and on CMMi Services level 2

ICT infrastructure is relatively modern, especially the servers and remote connections are state-of-the-art, active network components, cabling and workstations questions in the medium term to focus

There is relatively much hired and there is still limited own occupation for ICT department; high degree of vulnerability

By outsourcing much attention should be spent on professionalisation of direction in the field of contract, demand and supplier management, capacity planning and quality control

Research, current situation, scenario 0 Quality of IT Service managent activities NS PS PS PS Organizational Training (OT) NS NS PS PS Organizational Process Definition (OPD) NS NS NS PS PS Organizational Process Focus (OPF) PS PS NS PS Supplier Agreement Management (SAM level 2) PS S PS PS Project Monitoring and Control (PMC level 2) NS NS NS NS PS Project Planning (PP level 2) PS PS PS S Process and Product Quality Assurance (PPQA level 2) NS NS NS NS Measurement and Analysis (MA level 2) NS PS PS S Incident and Request Management (IRM level 2) NS NS PS PS PS Configuration Management (CON level 2) NS PS PS PS Requirements Management (REQ level 2) GG3 GG2 SG3 SG2 SG1

The calculation is not yet take into account the initial costs. These include migration and transition costs

Migration Cost: one-time costs that must be made to transfer from the current situation of management to the situation with outsourcing, these costs can probably be negotiated or recovered by TCO reduction (scale benefits outsourcing)

Transition costs: These costs consist of disintegration (current overhead which no longer cover) and friction costs (vacancy housing and replacing staff). With friction expenditure must be taken into account, these are not yet quantified

Principles

Period 2008-2013

The appearance of costs and depreciation are based on a calendar year

Scenarios are developed separately from each other

Financial source file that is used for the calculations are total ICT budget and personnel

Costs are based on a 'frozen' situation. It is assumed that in the coming years, no details are made that affect the operating costs of ICT

Depreciation hardware are linear and the maturity is 3 years * Depreciation software are linear and the duration is 2 Year * *= based on assumptions

Calculation results

Prepare for decision making

Practical tip 1: Create a Crisis Plan

This will deliver a lot of information for decision-making and the

business case:

Clarity about the essential functions of the organization

Understanding the dependencies of the organization

Understanding risks, opportunity and the countermeasures

Translation of vital ICT components in the essential functions properly (and equal documented)

Clarity about responsibilities and behavior in emergencies (and who really has to say)

And what matters and visibility of the professionalism at this moment

Practical tip 2: Develop a Pro forma SLA and Terms of Reference

On the basis of the crisis plan it is clear what ICT services are important and which less

With users it will be clear what requirements they set for services

Services are classified in importance for business and market transparency for completion of appropriate cooperation

The quality of the services need to be checked, for example with CMMi

The Program of Requirements and the SMART requirements will be visible and gives guidance in the selection process

Investigate the Change Colour of the stakeholders

What is the dominant colour of the stakeholders and the decision makers

What is your personal colour

What intervention should be made to convince the stakeholders and the decision makers

Draw up your conclusions

Example

Outsourcing of ICT is necessary, the security of ICT services is under such pressure that continue current situation is not justified. There are also innovations that have major implications for the way ICT should be organized

By transfer of staff (up to two FTE), we expect complicating factors in the procurement and matching of profiles with the market (future supplier)

Withinthe organisation the future direction of the outsourcing professional organization and the need for the commission spatial information shoul be organized more professional

Draw up your advice

Example

Choice for scenario 2, saving between 10-20% (compared with

scenario 2), but:

Standardizing on applications

Standardizing on workstations, which allow remote management

Servers outdoor placed at supplier

Bring people tendering in accordance with social status

No surrender current contracts

Professionalization of supplier management and demand side

In the long term scenario 4 is possible, especially for innovations

Start the outsourcing approach

An Change approach for Sourcing … . Change idea Intervention-oriented communication about plan and implementation Support by Change help desk Assessment by Change board Consultation with Sounding board group CIO Client … Characteristics of interaction Characteristics of employees Characteristics of products, processes & structure Clients, Governance & suppliers Histor y Reason Environment View on change Kick off Change analysis + Culture scan DD MM YYYY Change goals Aligning structure and processes Organizing control and and prepairing sourcing Contracting and realizing sourcing Culture change and competence development Learning to collaborate Inter- ventions And (re) planning Reconsider- Ing goals Measuring progress Plateau 2 Inter- ventions and (re) planning Reconsider- ing goals Measuring progress Plateau 1

Mix organizing and change Veranderen en ontwikkelen Design and organizing Governance and culture Structure and processes Systems and technology Mobility and training of staff members, showing results and achieving goals Organizing structure, securing processes, starting sourcing and appointing staff Stable services portfolio Knowledge guarantee Developing collaboration/ managers and building cases Aligning strategy plan, control and supplier selection Architecture and process implementation Functions/competences Culture scan/ change analysis and organizing control Culture scan and specifying functions, governance, and competences Rationalisation, systems, harmonizing management processes Change components

Milestones of the Sourcing change approach Yellowprint phase Blueprint phase Redprint phase Greenprint phase Change components In enneahedron Governance model Organization plans Agreements Declaration of collaboration Current situation Desired situation Chosen final situation Possible forms of collaboration Service report User board Change board Migration plan User board Account mgt. Collaboration letter Newsletter Employee participation Closing document Protocol Study group Social plan Change plan Steering committee Sounding board Communication Strategy paper Migratie Overdracht Assets Services ingericht Securing knowledge Game simulation Mgt., control and supply, collaboration team Transition and collaboration Continuous orientation towards change and grip on costs Contract Deal sheet Standards SLA, DAP Employment agreement Terms of Reference an Program of requirements, Organization plan Formation plan Governance model Game simulation Sourcing choice Sourcing design Governance choice Decision Results Business cases Sourcing scenario’s Change strategy Sourcing strategy Approach and planning Supply, mgt., control Sponsors, mgt., supply, control and advisors Mgt., control and advisors Sponsors, advisors and mgt. Actors Sponsors, advisors and mgt. Optimization Contracting Making plans Design and decision making Strategy Context Reason View

The deatailed outsourcing approach Publication award

Drafting and publication places for publication. Tender Electronic Daily Drafting selection document

Application by August 6 Selection Document send Submit questions candidates Letter of Information Drafting qualificationdoc Drafting PVE

Questionnaire submission by candidates (minus 37 Days) assessment References Tender award to applicants (21 dgen) Consultation due transparency drafting PVE Drafting terms of reference.

Sending RFP PVE Submit questions Letter of Information Drafting assessment doc

RFP submission by bidders (minus 40 Days) RFQ Review (21 Days) Provisional award (deadline 15 days) OR involvement in provisional award advice (term appointment) Filing

Final award disclosure File Agreements and Procedures (DAP) Focus Financial Arrangements (DFA) Products and Services Catalog (PDC) SLA's tuning DAP, DFA, PDC and SLA usually after signing

Sign up candidates Invitation or Publication Selection Awarding Procurement Minimal 37 days Minimal 40 days a.s.a.p. Stage I Stage II Stage III Stage IV Stage V Stage VI Start 30 june September October November/December January

Define the terms of refererence and requirements

Requirements should be SMART

Example for picking up Helpdesk phone by supplier:

When using questions (which are not interference) on the applications of the standard workplace, the following deadlines for handling:

80% of the questions is within 5 (five) minutes to reply;

90% of the questions is within 2 (two) hours response;

100% of the questions is within 1 (one) day a reply or a workable solution offered or indicated how, when and by whom the issue is picked up.

Example for service window:

Guarantee the availability of 98.5% of the systems and networks on workdays from 8:00 am to 18:00 pm

Table of content for terms of reference document

1 Introduction

1.1 Objective

1.2 Terminology and note

1.3 Abbreviations

1.4 Definitions

2 General Conditions

2.1 Implementation SLAs

2.2 Norms and Standards

2.3 Licenses and property

2.4 Scope of service

2.5 Communication and information

2.6 Amendments to the SLA's and Procedures

3 General Services specifications

3.1 Duration of the Agreement

3.2 Organization of service

4 Requirements for Workplace Support

4.1 Workplace and Workstation

4.3 Changes in hardware and software

4.4 Configuration and License

4.5 Specifications workplace support

5 Requirements for Systems and Network

5.1 General

5.2 Availability Guarantee

5.3 calamities and crises

5.4 LAN Manager - WAN infrastructure and Data

5.5 E-mail and the Internet

5.6 Backup and restore

5.7 Support for management software

5.8 Information security

5.9 Documentation

6 Technical Requirements for application

6.1 General

6.2 Specifications

7 Requirements for supplier

8 Requirements for consulting services and reporting

9 Migration requirements and implementation plan

Some experiences with outsourcing

Outsourcing experiences in general 0 mths 6 mths 12 mths 36 mths End user expectations Intention to outsource Contracting Transition First experiences and deception Reality comes in SLA/$ discussions Informal renegotiations start

Expectation of the phases in the relationship Closing Future End of current contract 1 2

Transition (max 6 months)

Cost savings (efficiency improvements)

Improving effectiveness (innovation)

Future will be a seamless continuation of the relation

3

Reality of the phases in the relationship Closing Future End of current contract 1 2 3

Transition

Cost savings

Improving effectiveness

Future will be based on the success of effective use of IT

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