ITSM Specialization Sourcing2012-2013Prof. Frank Willems

Lecture 4: Outsourcing

Agenda

• Outsourcing as a solution• Define the scope of outsourcing• Experience with outsourcing• Building a business case• Change approach for outsourcing

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

Define the scope of outsourcing

ISO/OSI framework for plotting scope

Proces

(functionality)

Application

Basic link system

(Middleware)

Control and monitoring (serverparc)

Network transport and connectivity (netwcrk)

Access (network)

Common basic infrastrucure

Office ap

plicatio

ns

Ap

plic

atio

n D

….A

pp

lication

A

Gen

eric app

lication

s

Ap

plic

atio

n E

….

Web

porta

l an

d w

eb

site

Ap

plic

atio

n B

….

Ap

plic

atio

n C

….

Ap

plic

atio

n F

….

Define scope in terms of scenario’s and staffing

Process

(functionality)

Application

Basic link system

(Middleware )

Control & monitoring

(Serverparc)

Network transport and connectivity (netwcrk)

Access (network))

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

7

8

Scope plotted on IT management model

Scenario 2

Scenario 3

DBA

Operational

Management

Information

Management

Functional

Management

Network- and

infrastructure

management

Application

Management

DirectingManagement Service

Aligning

Organizing

Implementing

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

Purchasing Risk

Is it a standard or a specialized product?

Routine

1st

generation sourcing

The scope is plotted on the Kraljic model

Wh

at i

s th

e e

xte

nt t

o w

hic

h th

e p

rod

uct

/ se

rvic

e a

dd

s

valu

e fo

r th

e b

usi

ne

ss

Le

ss a

dd

ed

va

lue

La

rge

ad

de

d v

alu

e

Standard Specialized

StrategicLeverage

Bottleneck

2nd

generation sourcing

4th

generation sourcing

3th

generation sourcing

2nd

generation sourcing

Scenario 3

Scenario 4

Outsourcing

Helpdesk & desktop

mgt

Application

management

Infrastructure mgt

outsourcing

Scenario 2

Some experiences with outsourcing

1

2

0 mths 6 mths 12 mths 36 mths

End

use

r ex

pect

atio

ns

Intention

to outsource

Contracting

Transition

First experiences

and deception

Reality comes in

SLA/$ discussions

Informal renegotiations start

Outsourcing experiences in general

1

3

Expectation of the phases in the relationship

Closing

Future

End of current contract

1 2

1. Transition (max 6 months)

2. Cost savings (efficiency improvements)

3. Improving effectiveness (innovation)

• Future will be a seamless continuation of the relation

3

1

4

Closing

Future

End of current contract

1 2

3

1. Transition

2. Cost savings

3. Improving effectiveness

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

Reality of the phases in the relationship

So….

• Outsourcing is not always a good solution• Outsourcing should be managed very professional

(directing organization at least at CMMi acq level 2)• Supplier don’t measure the expectations• Make a clear business case

Think before you decide: is outsourcing

a good solution?

Build the business case for outsourcing and fill the calculation model

Questions for building business case

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

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

3. What are the financial implications of outscourcing?

4. What are the organizational and human consequences of outsourcing?

5. What are the risks and countermeasures of outsourcing?

Example of a approach in building business case

Activities conducted in the period August and September:

1. Several discussions with stakeholders and ICT portfolio within customer organisation

2. Various observations made on the spot and existing situation in images

3. Calculation completed and validated with stakeholders within customer organisation

4. Demarcation for sourcing area and scenarios developed

5. 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

Research, current situation, scenario 0

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

SG1 SG2 SG3 GG2 GG3

Requirements Management (REQ level 2) PS PS   PS NS

Configuration Management (CON level 2) PS PS PS NS NS

Incident and Request Management (IRM level 2) S PS   PS NS

Measurement and Analysis (MA level 2) NS NS NS NS

Process and Product Quality Assurance (PPQA level 2) S PS   PS PS

Project Planning (PP level 2) PS NS NS NS NS

Project Monitoring and Control (PMC level 2) PS PS   S PS

Supplier Agreement Management (SAM level 2) PS NS   PS PS

Organizational Process Focus (OPF) PS PS NS NS NS

Organizational Process Definition (OPD) PS PS   NS NS

Organizational Training (OT) PS PS   PS NS

Quality of IT Service managent activities in terms of CMMi for Services

Research, current situation, scenario 0

• 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 of calculation

• 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

Gemiddelde jaarkosten (2008-2013)

Applicaties 238.323 238.323 238.323 238.323 156.558

Afschrijvingen 31.431 75.059 24.256 24.256 31.431

Projecten 1.426 1.426 1.426 1.426 1.426

Lease - 59.054 53.745 53.745 59.054

Communicatie 217.108 156.065 156.065 156.065 196.233

Mobiel werken - 42.720 42.720 42.720 42.720

Personeel 280.103 280.103 280.688 228.234 228.521

Inhuur 281.681 281.681 187.724 456.715 184.157

Uitwijk - 23.832 5.250 5.250 -

Overige kosten 60.426 55.744 52.375 52.375 52.396

Gemiddelde jaarkosten (incl indexatie) 1.110.499 1.214.008 1.042.573 1.259.110 952.497

Per werkplek 2.398 2.622 2.252 2.719 2.057

Per medewerker 1.282 1.402 1.204 1.454 1.100

Proc. besparing tov 0 scenario 0,0% -11,3% 3,2% -14,7% 5,8%

Terugverdientijd in jaren - >6 4 >6 4

Inzet personeel

hoofd ICT 1,00 1,00 1,0 1,0 1,0

ICT specialist (servicedesk) 1,00 2,00 1,0 2,0 1,0

gegevensbeheerder 1,00 1,00 1,0 - 0,5

applicatiebeheerder 1,03 1,00 1,0 - 0,5

systeembeheer 2,22 2,22 - - 1,0

Totaal fte 6,25 7,22 4,0 3,0 4,0

scenario 40 scenario scenario 1 scenario 2 scenario 3

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 change approach

32

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

CIOClient …

Characteristics

of interaction

Characteristics

of employees

Characteristics of

products, pro-

cesses & structure

Clients,

Governance &

suppliers

History

Rea

son

Environm

ent

View on changeKick 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

33

Change components

Systems and technology

Structure and processes

Governance and culture

Rationalisation, systems, harmonizing management processes

Culture scan and specifying functions, governance, and competences

Functions/competencesCulture scan/ change analysis and organizing control

Architecture and process implementation

Aligning strategy plan, control and supplier selection

Developing collaboration/ managers and building cases

Stable services portfolio

Knowledge guarantee

Organizing structure, securing processes, starting sourcing and appointing staff

Mobility and training of staff members, showing results and achieving goals

Mix organizing and change C

ahange and Develop

Design and organizing

Strategy Design and decision making

Making plans Contracting Transition and

collaboration

Optimization

ActorsSponsors, advisors and mgt.

Sponsors, advisors and mgt.

Mgt., control and advisors

Sponsors, mgt., supply, control and advisors

Mgt., control and supply, collaboration team

Supply, mgt., control

CommunicationStrategy paper

Change plan Steering committee

Sounding board

ProtocolStudy groupSocial plan

NewsletterEmployee participation

Closing document

Migration planUser boardAccount mgt.

Collaboration letter

Service reportUser boardChange board

ResultsChange strategy

Sourcing strategyApproach and planning

Sourcing choice Sourcing design Governance choice

Decision

Program of requirements, Organization planFormation planGovernance model

Game simulation

ContractDeal sheet

StandardsSLA, DAPEmployment agreement

MigratieOverdracht AssetsServices ingerichtSecuring knowledge

Game simulation

Continuous orientation towards change and grip on costs

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

Context

Reason

View

Beheren en exploiteren ICT services

Management and use facilities

Use and exploitationmanagement

Operating

Ontwerpen en plannen ICT service

Design and implementationfacilities and informationsupply and control

Design and implementationmanagement

Arranging

Bepalen strategieICT service

Define strategyfacilities and informationsupply and control

Define strategyand management

Aligning

ServiceControlManagement

Beheren en exploiteren ICT services

Management and use facilities

Use and exploitationmanagement

Operating

Ontwerpen en plannen ICT service

Design and implementationfacilities and informationsupply and control

Design and implementationmanagement

Arranging

Bepalen strategieICT service

Define strategyfacilities and informationsupply and control

Define strategyand management

Aligning

ServiceControlManagement

This part is usuallyqualified foroursourcing

35

Example of detailed outsourcing approach

Publication

award

Publication

award

• Drafting and

publication

places for

publication.

Tender

Electronic Daily

Drafting

selection

document

• 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

• 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.

• 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

•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

•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

•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 candidatesInvitation or

Publication

Selection AwardingProcurement

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

EU Tenderlaw period minimal 37 days

10-04-2023