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Different Models for Sharing or Outsourcing IT Services

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There are lots of reasons why organisations share or outsource services. These fall into four main categories.

1. Reducing organisation costs
- Gain economies of scale by using an organisation that only provides that service to many
- Forming partnerships with other organisations that require the same service and develop a single tender to gain economies of scale

2. Reducing the skills required in your organisation
Outsourcing your non core skills, reducing the need to continue training and simplify your organisation structure

3. Removing the need to maintain your own IT (asset rationalisation)
Many IT organisations now provide online systems reducing the need for maintaining internal software and development

4. Developing partnerships
Developing partnerships to explore additional opportunities for shared services

This presentation reviews the options and provides some proactical tools for use in considering the way forward. The presentation also includes a number of real life case studies and details the analysis undertaken and the decisions made.

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Different Models for Sharing or Outsourcing IT Services

  1. 1. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDDifferent Modelsfor Sharing orOutsourcingServicesConsolidation, Compromise and Outsourcing
  2. 2. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDWhy Consider Shared or Outsource Services?Reducing organisation costsGain economies of scale by using an organisation that only provides that service tomanyForming partnerships with other organisations that require the same service anddevelop a single tender to gain economies of scaleReducing the skills required in your organisationOutsourcing your non core skills, reducing the need to continue training and simplifyyour organisation structureRemoving the need to maintain your own IT (asset rationalisation)Many IT organisations now provide online systems reducing the need for maintaininginternal software and developmentDeveloping partnershipsDeveloping partnerships to explore additional opportunities for shared servicesThere are lots of reasons why organisations share or outsource services. These fall into fourmain categories
  3. 3. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDWhat Type of Services can fit this Model?You could consider outsourcing or sharing any of your services. Some of the most commonare:Outsource / shared Reason for changeCore IT applications Growth in cloud based applications to support key functions that enableyou to purchase per user rather than per organisation. Data can besegmented to make it a seamless user experienceData centres / hardware/ hostingThe expanding IT data centre services outsource market reduces the costof ownership and the need for costly in house skills. Economies of scaleare achieved the more services you buyDesktop applications Improved purchasing power for licence costsDesktop support The expanding desktop support outsource market reduces the need forcostly in house skills. Economies of scale are achieved the more servicesyou buyNetworks and telephony Improved purchasing power, considered particularly where organisationshave contact centres. Paves way for future shared contact centre modelPayment processing Improve per transaction rates for payment processors, e.g. PayPoint etc.by partnering to increase transaction rates
  4. 4. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDHow can Shared Services be Delivered?There is no single model to deliver shared service benefits. Example models can include:Internal only (public procurement)• Outsourcing elements of ICT to a public provider• Solutions unique to organisation available from market, e.g. Housing Applications on cloud based platform• Volume limited to number of internal transactionsJoint Committee Procurement• Joint procurement of IT outsource services• Solutions based on volume where economies of scale (e.g. desktop support, hosting)• Requires commitment to shared decision making, potential compromise of requirements and on-goingcontract managementJoint Venture (partnership)• Creation of a partnership organisation to deliver shared services. Jointly managed under commercialagreement• Tactical solutions that are core to your business that the market cannot deliver cheaper• Requires commitment to shared decision making, potential compromise of requirements and on-goingcontract managementOne organisation lead and provide services to another• Lead organisation provides chosen IT services for a number of others• Organisations in similar market that can buy services from existing HA• Requires relationship to be managed like any commercial arrangement and structure in place to support it
  5. 5. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDWhat Should you Consider?Is the service a key skill you require in your organisation?• Do you want to be a service provider or a buyer of services?• Is it a core skill that adds value to your organisations?Is the service readily available in the market at a lower cost than you currently pay?• Could the private sector deliver the service for less?Could you work in partnership with another Housing Association (HA) or Local Authority (LA)to form a partnership to gain economies of scale in buying?Could another HA or LA provide the service for you?• Could you become a buyer of services from an existing HA or LA?Are there any legal reasons that you should not change your working model?Do you know what your objectives are and what you would want to gain?• The various models deliver benefits in different ways. Before embarking on an approach it isimportant for you to understand the objectives you are trying to achieve• Time, cost and improved service objectives could all be nest delivered by differing optionsWhat would your new operating model look like?• Consider how you would work with a partner and the hand off points and SLA’s• Consider issues of cultural fit between organisationWill shared services or outsourcing necessitate your organisation acquiring new skills?• Outsourcing always requires the development of contract management skillsBefore embarking on a project there are a few key questions to consider
  6. 6. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDOpportunities for Cost Saving by SharingManpower savings– Less overall manpower required to deliver a shared service– Manpower reduction overall for outsourcing– Should always consider requirement for a commercial type role to manage on-going relationshipsAsset Rationalisation– Less overall assets required to serve the total number of users– In outsourcing, model can move from asset owners to pay per user model, sooverhead of asset ownership is removedIncreased purchasing power– Reduced licensing cost per user– Reduced rate per user for desktop support etc.– Reduced cost for IT support per userProcess Efficiency / Standardisation of working practices– Process of creating standard desktops etc. will identify process efficiencies– Mapping processes will identify opportunities for improvementThe following areas should be considered when gathering benefits for the project
  7. 7. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDBuilding a Business CaseThe case for shared services can look daunting as there isoften significant up-front costsTotal cost of ownership provides a simple methodology topresent the facts and take the emotion out of decisionmakingThe following model can be used to evaluate all of theoptions you are consideringTo evaluate the options open to you and provide a true comparison to ‘do nothing’ you needto consider the true life cost of the options you are considering
  8. 8. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDTotal Cost of OwnershipUp-front IT costs Up front solution costsProject delivery costsProject costs including personnel and upfront process mapping activityPartnership set up costsCost commitment to create partnershiparrangementProcurement costsWhere public procurement is included,personnel costs of managing processTraining & deployment costsCosts to train all new users and any costs ofdeployment (inc. Communications etc.)Licence costs (annual costs) Annual Licence costs if anySupport costs (annual costs)Annual support costs, include any fterequired to carry out supportUpgrade costs (annual costs) Any costs related to future upgradesFuture changes (annual costs) Costs to make future improvementsOn-going training costs(annual costs)Costs to train new users and all users onupgrades to systemOn-going resource costsAnnual costs for resources required tomanage arrangementNumber of years of use Number of years the solution will be used forTotal Cost of ownership= (total upfront cost / number of years) +annual costUpfrontcostsDirecton-goingcostIndirecton-goingcostTCOTotal cost of ownership of a solution takes into account the direct and in-direct costs(training, support, future change etc.) of the solution for its full lifecycle.
  9. 9. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDMaking it HappenClear set of objectives of what you are trying to achieve by doing this, forexampleCost saving/service improvement/access to new technologyClear definition of what is and what is not included in the projectSenior/shared governance in place and committed to deliveringFully documented processes for all elements considered for sharedservice/outsourcingFull understanding of the end to end technical architecture and who hasownership for maintaining each elementAppropriate skills in place to deliverProcess, project delivery and commercial skillsDo not underestimate the cultural change involved in implementing ashared service modelEnsure project takes into account the business change aspects of deliveryRegardless of the model you choose there are a number of things you need in place tomake this work
  10. 10. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDWhat can Go Wrong?Not clear on what it is you are trying to achieveToo much change whilst trying to deliver, scope of services notclearTrying to do too much at onceDo not understand the skills within the organisation required tomanage this modelProcesses and hand-offs not documentedNo clear ownership, roles and service levels between partners– Even as part of a partnership you are still a service providerThe following are the main reasons that projects of this type fail
  11. 11. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDExample A: Online V OwnershipCompany A owned a CRM system that they had not maintained due to the complexity and costs involved.It was not providing useful information or the tracking and reporting requiredKey objectives:Clear reportsUp to date tracking of customersProfiling of customersEasy to use and maintain systemKey consideration:Cost of ownership over a five year period. Hardware, software, maintenanceand developmentProtection and security of customer detailsSkills required to deliver and implementOption 1Buy new system and hardware andmaintain their own system.Cost of system and configurationCost of hardware and replacementUpgrades of the systemNew skills for maintaining/supportOption 3Buy new system and host externallywith a 3rd partyCost of system and configurationMaintenance and developmentCost of hostingSupport requirementsOption 2Online hosted CRM with softwareproviderMonthly licence cost per userSystem configured by the providerUpgraded regularly at no costAccess online 24hr system & supportConclusion: Online Hosted SystemOn first review the cost of licences were considerably more expensive than licences for owning the system, but when the totalcost of ownership over a five year period was calculated, it made the decision easyThe costs of support and upgrades, the initial hardware and replacement at three years and maintenance and developmentfar out weighted the increased cost of licencesThe cost of ownership was 44% less than internal ownership and the flexibility of reducing and increasing licences based onuse would increase this
  12. 12. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDExample B: Payment ProcessingCompany B processed regular weekly payments through the post office. Project initiated to tender fornew payment processing solution to reduce cost per transactionKey objectives:Availability of outletsIntegration of internal systemsCost per transactionEasy to use and maintain systemKey consideration:Cost per transaction over a five year period. Hardware, software,integration costs, maintenance and developmentPayment security and regulatory complianceSkills required to deliver and implementOption 1Re-negotiate current contractNo upfront costs/technologychangesPotential for some reduction in pertransaction costOn-going management of providerOption 3Utilise outsource providers buyingpowerImprove transaction cost throughincrease transaction volumeSome upfront costManagement of existing providerOption 2Tender for new payment providerImprove transaction cost throughcompetitionUpfront implementation costsOn-going management of newproviderConclusion: Utilise Outsource Provider Buying PowerOn initial review the set up costs seem prohibitive, however the significant reduction in cost per transaction made significantsavings over a five year periodPayment processing is not core to the organisation and the market provided it at lower costReduced the specific technical skills required internally to manage the contracts
  13. 13. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDExample C: Desktop Support ConsolidationCompany C is an organisation that includes a number of diverse businesses which are run independently.Desktop support was initially managed separately by each businessKey objectives:Reducing cost of desktop supportConsolidation of licensingImproved response timesImproved compliance to securitypoliciesKey consideration:Differing requirements of different organisation unitsVery different SLAs required, some critical emergency fix requirements,some 9-5No single IT security policy across the groupSkills required to deliver and implementOption 1Consolidate into single team as a provider for allDesktop standardisation and process consolidationConsolidation of internal teams and company re-organisationOption 2Consolidate and outsourceImprove transaction cost through competitionUpfront implementation costsOn-going management of new providerConclusion: Consolidate and OutsourceAudit to achieve standard desktop alone achieved significant benefits. Duplication of licensing was found in particular instandard desktop applicationsImplementation of standard desktop and processes applies to 80% of organisation, there is always specific requirements.Ensure effort is focused on delivering benefits from the 80%Market cost of buying this service is significantly lower and service level higherComplexity of change is not in IT delivery but in cultural change in moving to a single team and moving the service outsidethe organisation
  14. 14. COPYRIGHT © 2010 NAVIGATION PARTNERSALL RIGHTS RESERVEDAny Questions?Contact us:liz.stewart@navigationpartners.co.ukMarian.selby@navigationpartners.co.ukTwitter: @navpartnerswww.navigationpartners.co.uk

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