The New IT Outsourcing (Part Two)

Last week we’ve discussed several reasons clients are dissatisfied with the old model of outsourcing, and are insisting more and more that service providers use advanced tools and technologies for outsourcing governance.

Today we’ll take a look at a few more interesting points clients are making, as they make the shift from traditional outsourcing to modern outsourcing governance tools.

Regulation concerns

A big concern for clients today is the tight regulatory environment we all operate in. Companies can no longer afford to “outsource their mess,” leaving their IT infrastructure as some type of a black box, with no one knowing what’s inside. Not just cost concerns (are we overpaying for services we’re not really getting?) but also regulation concerns dictate that clients know exactly what their IT infrastructure is made of.

After deploying Blazent, Barclays’ CIO, Anthony Watson, says he “can [now] go to the regulators and say we understand our environment, the infrastructure end-to-end, the servers, where they’re located, what’s… running on those servers.”

So, who should use Blazent?

Acknowledging that the Blazent technology is incredibly valuable, as it provides visibility, governance, process, efficiency and control, the final question is – who should be using these advanced technologies? Should they be used by service providers, or by the clients themselves? One interesting point that was raised in the article: outsourcing, more and more a value play and supported by technology, is becoming a collaborative process, with clients and service providers working together to get the best results.

So, one scenario could be the service provider still being 100% in charge of all things related to IT infrastructure, and using Blazent to make sure the “outsourced mess” is not so messy anymore.

Or, clients could use Blazent themselves, like Barclays does, to get a better understanding of their IT infrastructure, whether prior to outsourcing it, or to manage regulation demands better. An argument in favor of this arrangement is that many clients are typically using several service providers, so in order to have a single comprehensive view of assets, the clients should be the ones using Blazent.

In the third scenario, both sides are using Blazent to get a crystal clear understanding of the assets being managed. This has great benefits in terms of preventing any billing disputes.

The bottom line is, using advanced tools such as Blazent is good for all parties, because everyone wants to focus on growth and innovation rather than on endless, frustrating dispute resolution meetings.

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The New Outsourcing: Tools and Technologies In, Labor Arbitrage Out (Part One)

The concept of outsourcing used to be simple: in an effort to cut costs, companies in developed nations used to outsource certain functions to companies in developing nations, taking advantage of the lower cost of operating a business in a developing nation.

Value, not just Cost

But outsourcing is rapidly changing. Clients today expect more from service providers. As the world slowly emerges from the Great Recession, the main concern is no longer cost cutting. Clients now expect to get value from outsourcing relationships beyond basic savings.

A typical demand of clients from service providers is to get better understanding of their technology platform. If service providers are unable to provide clients with this information, clients will go and use advanced tools such as Blazent to get it themselves.

“It’s not simply about providing IT at a cheaper price, but also in a more intelligent approach,” says Anthony Watson, CIO at Barclays, in this interesting article.

Visibility into Assets

Another important point that Watson makes in the article is that while in the past clients had a tendency to simply “outsource their mess” instead of dealing with it, today’s highly regulated environment does not allow that anymore. Clients need, and want, to have full visibility into their IT assets and infrastructure. The data needs to be full, complete and accurate. Unless using advanced tools such as Blazent, service providers simply cannot provide this information to their clients.

The 15% Gap

It’s not that service providers do not want to give their clients full visibility into the assets being managed. It’s just that until recently, there weren’t any tools available to enable these insights, resulting in the 15% problem – governance control metrics are generally off by an average of 15% prior to using the Blazent product.

Cloud-Based, Quick Deployment, Immediate ROI

Another problem with traditional outsourcing contracts is that they are often very slow to implement and require an entire team on the client’s end. This was standard in the pre-recession days, but now, clients are looking for ways to set up a lean, fast, easy to manage outsourcing arrangement – and they realize that the only way to achieve that is through advanced technologies, including automation and cloud computing.

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Outsourcing clients today are looking for much more than simple cost cutting. And if they can’t get it from service providers, they are perfectly willing to use advanced, cloud-based technologies such as Blazent and get the information themselves. Next week we will look at several more concerns that are causing the traditional outsourcing model to rapidly change.

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Striking a Balance Between the Risk and Reward of Outsourcing

“IT Outsourcing Poses Risks,” announced a Forbes article a while back, reporting that “50% of companies reported that they regularly encountered multiple problems per month.” But outsourcing contracts also offer significant business benefits – mostly in terms of cost, efficiency and enabling the organization to focus on its business goals rather than on the outsourced tasks.

So how does one mitigate the risks in order to strike a balance between the risk and reward of outsourcing? The two main ways to ensure a successful outsourcing relationship are to base it on an accurate, transparent baseline, and to continually govern it.

Transparency

In order to succeed, an outsourcing relationship must be fully transparent. It needs to be established on an accurate baseline. When the baseline – the foundation of the relationship and of the outsourcing contract – is inaccurate, the result is disagreement and constant disputes around billing. If you can’t get an accurate baseline manually, or if it’s too time consuming and expensive to do so, use Blazent. Establishing an outsourcing relationship on an inaccurate baseline creates a significant risk to both sides, in terms of time wasted on managing billing disputes.

Governance

Outsourcing relationships need to be governed. Both sides, enterprise IT and the service provider, need to define expectations and constantly verify performance. Unfortunately, most of today’s outsourcing relationships do not have measurable controls in place.

The result is that enterprise IT has no way of making sure it is getting the services it’s paying for. There are constant billing surprises and too much time is wasted trying to resolve these issues with the service provider. On the other side of the relationship, the service provider may find itself in a place where it consistently under-bills its clients. The main issue for service providers is that they find themselves delivering services that the client doesn’t pay for becuase the contract was set without an accurate baseline and because of continued inaccurate accounting of managed assets.

How Blazent Mitigates Risk

Blazent aggregates, cleanses, and reconciles multiple sources of IT and financial data to deliver a single, reliable, and trustworthy inventory of IT assets, helping both sides to the outsourcing relationship to reach their mutual goal of increased transparency.

The result is not just business efficiency, with the client getting exactly what they paid for and the service provider getting compensated for the work performed, but also a much smoother outsourcing relationship, freeing both sides to focus on business goals rather than on manually managing their outsourcing relationship.

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Outsourcing Trends in 2011

We enjoyed reading CIO Online’s recent article on outsourcing trends to watch for in 2011. One trend that was of particular interest to us: “Diving for Dollars.” The author explains that “Facing a slow economic recovery, IT leaders will continue to scour their existing outsourcing arrangements for savings. There’s a pot of gold in every contract, and in some cases we have found a pot worth millions… IT services clients may reconcile their invoices with their original contracts with an eye toward under-delivery or over-payment, for example.”

We agree. We have found that many outsourcing agreements are based on an inaccurate baseline. This can happen for many reasons, but most often happens because assets are spread across an incredibly complex infrastructure and there’s no realistic way to run a wall-to-wall inventory – at least not manually.

Of course, once the very basis to the contract is invalid, the result is billing mistakes, and – inevitably – billing disputes. In this blog post on outsourcing problems, we’ve discussed a case where the service provider was the one suffering from the inaccurate baseline – it was under-billing its client $1.1 million per year! 1750 desktops were miscounted, and at $50 per desktop per month, the annual loss for this service provider was significant.

In other cases, it’s the IT department that’s being over-billed by the service provider. It is our belief that no one wants to cheat, by the way. In the vast majority of cases, both sides to the sourcing agreement are very honest – but they lack the tools to accurately outline, then manage, the relationship.

With 15% of all outsourcing measurements being wrong, there’s absolutely a pot of gold in every contract, and with Blazent, finding that pot of gold – even when data is incomplete – can be done quickly and efficiently. Once it is found, using Blazent to manage the outsourcing relationship will ensure that it continues to run smoothly and no new billing disputes are created.

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Outsourcing and Marriage: Not That Different!

We loved the marriage analogy in “The expression barrier in outsourcing: say what you mean!”

It’s true – just like marriage, outsourcing is a relationship, and a complicated one. And just like divorce, ending an outsourcing relationship can be messy, so it’s worthwhile for everybody to make it work.

We also agree that often, the sides to the outsourcing relationship are not being fully transparent about what they want (the clients) or what they are willing to give (the provider). Needless to say, establishing an outsourcing relationship (or a marriage) without being fully transparent about its terms and provisions is a bad idea that may help seal the deal faster, but quickly leads into lengthy, costly disagreements and inevitable mistrust.

Outsourcing agreements should be established using an accurate baseline and with a clear understanding of what each side expects. once an outsourcing relationship has been established, it’s very important to govern it. Outsourcing governance gives both parties a common “language” and a framework to say what they mean about many aspects of the contract.

For example, in this Outsourcing Governance Success Story, the outsourcing contract between the provider (our customer) and their client was established on an inaccurate baseline, which resulted in time wasted on disputes, including bi-weekly billing calls. The lack of trust, and inability of both sides to communicate efficiently and solve the issues, was placing a great strain on the outsourcing relationship.

After using Blazent, the parties suddenly had a common language that they could use to communicate effectively. The service provider, our customer, was relieved. They said, “For the first time in this relationship, we were finally able to say, ‘here’s an accurate account of all the assets under management.’ It became a fact-based discussion – we have found these assets, they are real and billable. The dispute was over.”

Just like marriage counseling, Blazent steps into strained outsourcing relationships, and gives the parties tools to get the relationship back on track.

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