Information Technology Outsourcing (ITO) Governance: An ...

Proceedings of the 37th Hawaii International Conference on System Sciences - 2004

Information Technology Outsourcing (ITO) Governance: An Examination of the Outsourcing Management Maturity Model Alea M. Fairchild Tilburg University [email protected]

Abstract Given a lack of experience in outsourcing contractual management, firms involved in IT outsourcing (ITO) can encounter unexpectedly poor service quality improvement. As a guidance for better ITO activities, Raffoul [1] introduced the Outsourcing Management Maturity (OMM) model, a framework established to create effective vendor management structure, create measurable and enforceable service-level agreements (SLAs), implement formal processes, and drive vendors to improve service quality. This model was developed to enable outsourcing to be managed as an investment portfolio whereby cost is reduced, risks are mitigated, IT organization credibility is established, and outsourcing benefits are materialized in a timely manner. This paper questions if one or more aspects of this OMM model may be considered necessary success factors when applied in practice, particularly in the financial sector. This research, as part of a study on drivers for IT cost optimization and outsourcing, examines the elements of the OMM model in the context of several recent IT outsourcing contracts in the banking sector to see which of its elements are actively employed in successful contracts.

1.

Introduction

Outsourcing as a concept gained common acceptance in the 1980s and is still used today to describe “a contractual relationship with a specialized outside service provider for work traditionally done in-house” [2]. IT outsourcing may be defined as the practice of one company hiring another one to run an IT aspect of its business, such as maintaining its PC or managing a data center. Market research firm Gartner Dataquest has cautioned that in 2003, half of IT outsourcing projects will fail because they have not delivered the expected value. Poor communication between client and vendor, the lack of a plan to manage the relationship between these and the constant change in business plans and technology are

cited as the main causes of customer dissatisfaction, according to research firm Gartner [3]. Organizational maturity issues could cause many of these reasons for failure. These issues may be addressed by viewing the organizational processes involved with IT outsourcing and assessing where the “immaturity” of the organization lies. META Group [1] proposes one structure that they call an outsourcing management maturity model. This model consists of five levels (vendor management fundamentals, defined service outcome, measurement, trust, recognized business value) that order a reasonable set of practices to create a maturing of an outsourcing relationship. This research explores what qualifiers of this organizational maturity model impact the successful governance of IT outsourcing contracts, using current financial services outsourcing deals in Europe as examples.

2.

Research Question and Methodology

To mature the outsourcing relationship from one level to another, META claims ITOs should improve outsourcing effectiveness in accordance with the following qualifiers: • Relationship fundamentals: To ensure the relationship management structure is established, success stories are created, and outsourcing goals are accomplished • SLAs/metrics: To ensure SLAs exist for all outsourced services, reporting arrangements are enforced, and SLA targets are met or exceeded • Formal processes: To adopt a process maturity model to constantly optimize, integrate, and automate outsourcing management processes, where applicable • Benchmarks: To continuously assess outsourced services' competitiveness, quality, and responsiveness • Credit/debit scheme: To provide an incentive to outsourcing vendors to improve service quality • Trust: To build trust between ITOs and outsourcing vendors by leveraging new technology, providing new competencies, increasing security

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effectiveness, and addressing service single points of failure • Business value: To ensure outsourcing arrangements contribute to the business's bottom line The full description of the META Group OMM model, with its five levels, can be seen in Appendix A. Therefore the research question is as follows: Are there one or more qualifiers of the META OMM model that could be considered necessary success factors when applied in practice, particularly in the financial sector? The basis for our analysis is a framework designed by the META Group [1], focusing on organizational maturity. META Group classifies outsourcing relationships as emergency-driven, high risk, stable and interrupt-driven. According to this META Group framework, more mature outsourcing relationships will avoid potential problems and increase the alignment of vendor and client. The research methodology used was a combination of literature review and case studies. The specific primary research design used in the IT cost optimization research was a comparative case study methodology [4]. The case studies were based on structured interviews on drivers for outsourcing enhanced with secondary research. A series of high level executive interviews were done to determine drivers for IT cost optimization activities in outsourcing. The questionnaires for the case studies were guided questions, targeted to senior executives familiar with the deal under discussion. The use of case studies provides the ability to examine both the motivation behind the decision to outsource and the provider selection process. The rationale for case research in this examination was to apply the model in several real world cases to examine what qualifiers are actually necessary. We examine the OMM model, based on two of these major outsourcing deals in the European financial services industry, to see which of the qualifiers might be a necessary factor for successful governance. The structure of this paper is as follows. We first examine the research literature on both maturity models and IT outsourcing. We then describe the OMM model, and using the two case studies, explore the OMM model components. We conclude with analysis and future directions for this research.

3.

Literature Review 3.1

Maturity Models

A maturity model is a method for judging whether processes used, and the way they are used, are characteristic of a mature organization.

Stage models offer insights into how computer-based IT and managerial and organizational strategies evolve and mature over time [5]. According to stage models, organizations progress through a number of successive, identifiable stages. Each stage reflects a particular level of maturity in terms of the use and management of IT in the organization. There are many maturity models shown in literature, applied to various fields such as Project Management, SPICE, People, Testing Organization, Data Management, Helpdesk, Systems Security Engineering, and so on. Most of them either refer to Nolan's original 1973 model [6] or to Software Engineering Institute (SEI) 's Software Capability Maturity Model [7]. The Capability Maturity Model for Software describes the principles and practices underlying software processes and is intended to help software organizations improve in terms of an evolutionary path from ad hoc, chaotic processes to mature, disciplined software processes. By focusing on specific processes, an organization can best leverage the resources for their improvement activities while rallying the organization around specific goals. Nolan was the first to present a descriptive stage theory concerning the planning, organizing and controlling activities associated with managing the organizational computer resource [6, 8, 9]. His research was motivated by the need for theory on management and use of computers in organizations. To see a discussion of similar organizational design stage models, see Galliers & Sutherland [10] and the MIT90s model of Scott Morton [11].

3.2

Relationship Management

In outsourcing relationships, specific investments have to be made by both parties that tie them together and specific arrangements are needed to safeguard the longterm perspective of the relationship because the transaction parties, given a chance, are naturally prone to opportunistic behavior [12]. If hierarchy is not an option, then transaction cost theory would recommend that special (contractual) arrangements are needed to make outsourcing relationships “save” despite the asset specificity. In transaction cost theory, the characteristics of the transaction itself (degree and type of asset specificity, transaction frequency, and length of transaction period), the transaction environment (uncertainty about future contingencies, extent of risks and nature of institutional environment) and the characteristics of the transaction parties (risk attitude, experience, reputation, bargaining power) need to be considered when choosing between alternative governance options (see Table 1).

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Table 1. Characteristics of the contingency factors [12] Characteristics of the transaction Degree and type of asset specificity Frequency and repetition Length of the transaction period Measurability of activities and output

Characteristics of the transaction environment Uncertainty about future contingencies Degree of market risks: institutional, environmental (rules, systems and organizations)

Characteristics of the transaction parties Information asymmetry Reputation Experience with cooperation in networks or with specific parties Risk attitude Bargaining power

Transaction cost theory, however, does not consider the possibility of using trust as a means to reduce the risk of opportunistic behavior. Williamson [13] acknowledges that the “social embeddedness” [14] of transactions has an influence on the contracting parties’ behavior and can reduce their propensity towards opportunism, but he treats social embeddedness largely as an institutionalenvironmental factor and thereby denies trust the status of a means to reduce the risk of opportunistic behavior in inter-firm relationships its own right. Van der MeerKooistra & Vosselman [12] combine transaction cost theory and trust in their conceptual model and distinguish between market-based, bureaucracy-based and trust-based patterns as three ideal types of management control patterns in inter-firm relationships. Either a bureaucracybased or a trust-based pattern of inter-firm governance can govern outsourcing relationships.

3.3

Trust

3.5

QoS – Quality of Service

Business Value

An important issue in understanding the business value of information technology is expressing the benefits of IT investment in a manner that senior executives (particularly, financial executives) can relate to. Quantification of the business value of IT in terms of traditional financial calculations such as NPV may not capture all factors that need to be considered [22, 23, 24]. One important, relatively intangible, benefit that has been associated with IT investments is improved responsiveness [25, 26]. Responsiveness can be defined as the ability to quickly react to changes, and is one of several different types of flexibility [27]. Within a strategic business alliance, two companies can each create business value for each other by focusing on core capabilities where they have a competitive advantage. Entering into a partnership, a company can achieve cost savings by outsourcing its IT functions, use the relationship to differentiate its own products and services from those of its competitors, and even find new paths to market for its products and services through the alliance. To make this goal a reality, the relationship must abandon the older customer-vendor model and create an alliance that ties the success of the allies individually to their mutual success acting and working together. Each brings to and concentrates in the alliance their own core competencies, and incentives and penalties are incorporated to motivate win/win behavior.

4.

Trust and risk are closely interrelated [15]. Trust can be seen as the coordinating mechanism that binds the relationship together, provide the necessary flexibility [16, 17, 18], reduce transaction costs [19, 20, 17] and reduce the complexity of the relationships. Zucker [21] discusses three forms of trust: institutional-based trust that flows from legal and financial systems that feature safeguards against and punishments for malfeasance; process-based trust that flows from past interactions and reputation; and characteristic-based trust that is tied to ethnicity or familial ties, or ties to a particular institution.

3.4

seen between QoS and performance metrics, as well as customer satisfaction.

OMM Model

This exploratory research examines the META model by decomposing its framework into seven qualifiers of the model, defined by META Group Each of the levels within the OMM is defined as follows (details are in Appendix A): • Level 1: Vendor management fundamentals • Level 2: Defined service outcome • Level 3: Measurement • Level 4: Trust • Level 5: Recognized business value We map the qualifiers, as previously discussed in the Research Methodology section, to the five levels of the model, as shown in Table 2.

Quality of service (QoS) is focused on guaranteed timely delivery of specific application data or resources to a particular destination or destinations. QoS may be better assured by outsourcing partners who control more of the elements that affect quality. Direct relationships can be

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Table 2. OMM model mapped to Qualifiers and Process Areas Level Level 5: Recognized business value Level 4: Trust

Qualifier(s) Business Value

Level 3: Measurement

SLAs/Metrics, Credit/Debit scheme Formal processes, Benchmarks

Level 2: Defined service outcome Level 1: Vendor management fundamentals

5.

Trust

Relationship fundamentals

Key Process Areas EVA, TCO, innovation,

Innovation through shared processes, new technologies, increased relationship security Performance analysis, cost reduction, optimization Process ownership, cost containment, project management Contractual arrangement Review period Definition of contract Payment terms Cost savings, clarity (ROI)

Description of Case Studies

confident that our employees are joining a partner who can offer them better development opportunities in their field of expertise than we can as a bank." [28] This outsourcing deal has IBM managing back office and business process functions across some of Deutsche Bank's European operations. IBM will take over the operations of a new data center in Germany's Rhine-Main region, and offer up new "on demand" computing services to Deutsche Bank (and other companies as well) by remote provisioning of computing and enterprise applications on a utility basis. On-demand services for Deutsche Bank include integrating business processes and systems across the bank's major divisions. From the interview, it was clear that Deutsche Bank was impressed by IBM's e-business on demand technology, which will allow Deutsche Bank a more flexible answer to the changing financial services arena by integrating core business processes and systems. Deutsche Bank felt comfortable outsourcing its data processing operations because IBM “have proven that they can provide sufficient uptime and security”, according to Deutsche Bank spokesman Herr Thoma. IBM was seen as a strong partner to overall manage technological and operational risks and to ensure long term technological innovations.

5.2

ABN AMRO / EDS

Table 3. Summary of two case studies Bank / Technology Provider Deutsche Bank / IBM

Type of Outsourcing

Outsourced

Horizontal – Functional

Computing data centers

ABN AMRO / EDS

Vertical – Line of Business (LOB)

Wholesale Client Services (WCS)

5.1

Size and length of deal Euro 2.5 billion, 10 year deal US$ 1.3 billion, 5 year deal

IBM / Deutsche Bank

Deutsche Bank has been using IBM technologies for several years, including automated OS/390 mainframe data centers. By outsourcing its data centers in Europe in this way with partner IBM, Deutsche Bank believed it would allow the bank to reduce its costs considerably, while at the same time improving flexibility in the use of resources and facilitating migration to new technologies and the standardization of its computer infrastructure. "Deutsche Bank expects to save around EUR 1 billion (approximately US$1 billion) over 10 years, largely converting what until now have been fixed costs of operating our own computer centers into usage-based, variable costs," said Hermann-Josef Lamberti, chief operating officer, Deutsche Bank. "In addition, we are

ABN AMRO negotiated a contract with EDS to provision technology services and applications development in the major countries in which Wholesale Client Strategic (WCS) business unit operates. WCS provides investmentbanking services to corporate, institutional and public sector clients worldwide. ABN AMRO evaluated several long-term IT service relationship partners and chose EDS over IBM, Accenture and Perot Systems after a year-long process. The services provided will include midrange devices through desktop support, local Web servers, LAN devices plus held desk support, and all software engineering (applications development, maintenance). An interview with Mike Hampson, Exec. VP for ABN AMRO's Wholesale Client (WCS) Strategic Business Unit, led to a discussion of how strategic IT investment projects have been traditionally a very low percentage of the total portfolio. Once the group realized that many parts of the infrastructure were either discretionary or mandatory for business operations, they focused on how to reduce the total return to shareholders (TRS) by cost transparency and accountability in the service delivery model. “Transparency of costs and governance were some of the key drivers for the outsourcing activity. This was due to our performance culture and need to create management for value (MFV) metrics by doing “smart sourcing” to control cost and risk more effectively” said Mr. Hampson.

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As their partner, EDS saw the ABN AMRO drivers for outsourcing as cost reduction, core and supportive functions, and necessary performance metrics for the bank to measure transactions against service levels. “ABN AMRO, in common with many institutions, sees outsourcing as a way to "variable-ize" costs”, said Coley Clark, senior vice president of the financial industry group at EDS. [29] EDS themselves monitor service using a "service dashboard," which indicates client satisfaction using different colors, e.g., green (good), yellow (fair), red (unacceptable), based on information from the client site.

Table 4. Analysis of Findings Level

Qualifier

IBM/DB

ABN AMRO /EDS Too early in this contractual relationship

Level 5: Recognized business value Level 4: Trust

Business Value

Too early in this contractual relationship

Trust

Purpose of deal was process outsourcing

Longer term based on results


SLAs/Met -rics, Credit/De -bit scheme Formal processes, Benchmar ks

Part of deal assessment




Relationship fundamen -tals



6. Analysis of Case Studies using OMM Framework From the perspective of traditional IT cost, the cases show an expectation towards innovation via a reduction of expenses. As the market has been down for quite some time, reducing cost to increase flexibility is a particularly pressing issue in the securities and investments space. In the post-dot-com world, financial services institutions (FSIs) increasingly use ROI models to increase the likelihood that projects achieve targeted returns. FSIs also base outsourcing decisions on qualitative factors, including information security requirements, operational risk considerations and process control. Outsourcing IT by FSIs is more likely to be sought for a mix of cost reduction, service improvement and control of contextual determinants of transaction costs, including human and capital resource allocation. The drivers towards the higher levels of the model are more quantitative, tactical and tangible in nature, not the qualitative and longitudinal areas as described in the model. Using the qualifiers of the OMM model with the case results, we present the following initial findings:

Level 2: Defined service outcome

Level 1: Vendor managem -ent fundamen tals

Key Process Areas EVA, TCO, innovation, cost savings over time period Innovation through shared processes, new technologies, increased relationship security Performance analysis, cost reduction, optimization Process ownership, cost containment, project management Contractual arrangement Review period Definition of contract Payment terms Cost savings, clarity (ROI)

From the interviews, the content descriptions of the deals and secondary materials, one may say that the IBM / DB deal may be seen as a level 4 relationship, as DB has released both human and capital assets to IBM to manage across a functional part of their business operations. Whereas the ABN AMRO / EDS deal, being more complex, can be seen as level 3, progressing to level 4 based on the outcomes of the outsourcing in the near term. ABN AMRO mentioned in the interviews the interest in retrieving these operations in the medium term, and then outsourcing another segment of the business to achieve similar results as to WCS. Again, the drivers from the research towards more complex relationships in outsourcing are more quantitative in nature (financial, core competency and tangible asset management), not the qualitative and longitudinal areas as described in the model. Business partnering with IT service providers based on long-term relationships appears to be a key aspect of not only selection, but also the basis for the decision to leveraging risk in a controlled manner.

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7.

Conclusions

To reach the highest maturity levels, META recommends that user companies take the following steps: •

Establish defined rules of accountability and performance reviews.

•

Develop and implement constructive models for conflict and dispute resolution.

•

Continually ensure operational alignment with outsourcing vendors.

To gain cost savings from outsourcing significant processes, companies must have a sufficiently mature internal process orientation and management capability. In fact, user organizations typically must make changes in their own operations to effectively exploit offshore outsourcers (and these changes will consume time and resources). Outsourcing of operations activities (e.g., database administration, systems management/monitoring, call centers, help desks) also requires a sophisticated level of process maturity that most companies have not yet achieved. Before moving forward, user organizations considering outsourcing these types of activities must evaluate their level of process maturity as well as the consequent impact of proposed outsourcing arrangements on their current processes [30].

8.

Summary and Future Directions

In their assessment of Nolan’s stages model, King and Kraemer [31] criticize the stages model for being an ‘evolutionist’ theory. Evolutionist theories emphasize the direction of change (typically as a succession of stages in which each stage is a precursor for the next one) through which an entity increases its complexity or perfection over time, ultimately reaching an end state. King and Kraemer [31] criticized Nolan’s model for its belief that integration (the end state) will eventually be achieved. King and Kraemer [31] argued that an evolutionary perspective would be more appropriate in specific instances. Evolutionary models view progressive stages as a necessary optimization of an entity’s features for ‘survival’. In this sense, each new stage represents a set of features that are superior to the old features. A state of equilibrium results if the features of the entity are adequate for survival. We concur that the META OMM model, designed by a market consultancy, views the evolution of outsourcing maturity as a given. This ‘stages’ model, given our preliminary findings with a limited number of real examples, can better be seen as an evolutionary path,

especially since no one appears to have yet reached the pinnacle of level 5. Perhaps a model more in line with CMM with more details metrics for measuring maturity would be more widely accepted. For example, the Information Systems Audit and Control Association (ISACA ) uses the CMM style for its IT Governance Maturity Model within its Control Objectives for Information and Related Technologies (COBIT ), which is widely used for IT governance auditing. COBIT provides a more detailed description, process by process, on the criteria for each level. [32] Our work in IT cost optimization has led to interesting conclusions on drivers for outsourcing, which we are extending with smaller banks and other FSI in future research.

9.

References

[1] Raffoul, Wissam. (2002) “The road to outsourcing success.” ZDNet Tech Update, provided by Meta Group, March 4, 2002. Article available online as of May 28, 2003 at http://techupdate.zdnet.com/techupdate/stories/main/0,14179,28 51971,00.html. [2] Corbett and Associates (2002). “Outsourcing’s Next Wave”. Article available online as of May 28, 2003, at: http://www.firmbuilder.com/articles/19/50/752/. [3] Lui, J. (2003). “Advice to outsourcers: It's good to talk”, Special to CNET News.com, posted on March 31, 2003. Available as of 28 June 2003 at: http://news.com.com/21001011-994771.html [4] Yin, R. (1994). Case study research: design and methods. 2nd edn, London, Sage Publications. [5] Lyytinen, K. (1991) Penetration of information technology in organizations. Scandinavian Journal of Information Systems, 3, 87–109. [6] Nolan, R.L., 1973. "Managing the computer resource: a stage hypothesis," Communications of the ACM 16:339-405. [7] Carnegie Mellon, Software Engineering Institute. Capability Maturity Model® for Software (SW-CMM®). Retrieved on Sept. 14, 2003 from: http://www.sei.cmu.edu/cmm/ [8] Gibson, C.F. & Nolan, R.L. (1974) Managing the four stages of EDP growth. Harvard Business Review, January–February, 76–88. [9] Nolan, R.L. (1979) Managing the crises in data processing. Harvard Business Review, March–April, 115–126. and Cognition: a New Foundation for Design. [10] Galliers, R. & Sutherland, A. (1991) Information systems management and strategy formulation: the 'Stages of growth' model revisited. Journal of Information Systems, 1. [11] Scott Morton, M. S. (Ed.) (1991). The Corporation of the 1990s: Information Technology and Organizational Transformation. New York: Oxford University Press. [12] Van der Meer-Kooistra, J & Vosselman, E. G. (2000). Management control of interfirm transactional relationships : the

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case of industrial renovation and maintenance, Accounting, Organizations and Society, vol. 25, pp. 51-77. [13] Williamson, O.E. (1993). Opportunism and its critics, Managerial and Decision Economics, vol.14, pp.97-107. [14] Granovetter, M. (1985). “Economic action and social structure: a theory of embeddedness”, American Journal of Sociology, vol.91, pp. 481-510. [15] Mayer, R. J., Davis, J. H., & Schoorman, F. D. (1995). An integrative model of organizational trust. Academy of Management Review, 20, 709-734. [16] Buttery, E. and Buttery A. (1994). Business Networks: Reaching new markets with low cost strategies, Longman Business and Professional, Melbourne: Australia. [17] Fukuyama, F. (1995) Trust: the social virtue and creation of prosperity, Free Press: New York. [18] Larson, A. (1992) “Network Dyads in Entrepreneurial Settings: A study of the governance of exchange relationship”, Administrative Science Quarterly, Vol. 37, p. 76-104. [19] Reve, T. (1990) “The firm as a nexus of internal and external contracts”. In Aoki, M. Gustafson, B. and Williamson, O. (Eds) As a Nexus The Firm of Treaties, pp. 133-161, Newbury Park: Sage. [20] Cummings, L.L. and Bromiley, P. (1996). “The Organizational Trust Inventory (OTI): Development and Validation”. In R.M. Krammer and T. Tyler (Eds.), Trust in organizations. pp. 68-89, Newbury Park: Sage [21] Zucker, L.G. (1986) The production of trust: Institutional sources of economic structure. In B.M. Straw and L.L. Cummings (Eds.) Research in Organizational Behavior, Vol. 8: p. 55-111, Greenwich, CT: JAI Press. [22] Clemons, E K and Weber, B ‘Strategic information technology investments: guidelines for decision making’ Journal of Management Information Systems, Vol 7 No 2 (1990) pp 930. [23] Dixit, A and Pindyck, R. (1994). Investment Under Uncertainty, Princeton University Press, Princeton NJ, USA. [24] Dixit, A and Pindyck, R (1995).‘The options approach to capital investment’ Harvard Business Review, (May-June1995) pp 105-115. [25] Brynjolfsson, E. (1994). ‘Technology’s true payoff’ Information Week, (October 10 1994) pp 34-36. [26] Lucas HR and Olson M ‘The impact of information technology on organizational flexibility’ Journal of Organizational Computing Vol 4 No 2 (1994) pp 155-162. [27] Sethi A K & Sethi S P ‘Flexibility in manufacturing: a survey’ The International Journal of Flexible Manufacturing Systems, Vol 2 (1990) 289-338. [28] IBM (2002). “ Deutsche Bank and IBM sign outsourcing contract”, IBM Press Release, December 2002, Retreived on Sept. 14, 2003 from URL: http://www.ibm.com/software/success/cssdb.nsf/CS/KCOE5PCKSQ?OpenDocument&Site=default [29] Banktech (2002). “ABN AMRO Buoys EDS”. Online edition of Oct. 4, 2002. Retrieved Sept 14, 2003 at URL: http://www.banktech.com/story/whatsNews/BNK20021004S000 5 [30] META Group (2002a). META Report: Offshore Outsourcing Fueled by Budget Pressures. Available at URL:

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[31] King, J.L. & Kraemer, K.L. (1984) Evolution and organizational information systems: an assessment of Nolan’s stage model. Communications of the ACM, 27, 466–475. [32] ISACA (2003). COBIT Model. Available as of Sept. 14, 2003 at URL: http://www.isaca.org/cobit.htm.

Appendix A: OMM Framework Level

Description

Level 1: Vendor management fundamentals

This state represents the worst-case scenario. It is characterized by a narrow contract management focus, misaligned expectations, absent SLA reporting, nonexistent processes, and no foundation to build trust and create value. The remediation strategies revolve around changing vendors constantly, but with limited success.

Level 2: Defined service outcome

To reach this status, the following conditions must be met: • ҏEstablish remediation strategies to address vendors' miscommunication issues, redefine roles and responsibilities, and reset expectations with outsourcing vendors • ҏEstablish a relationship management structure to create a winning relationship • ҏEstablish SLAs for all outsourced services to quantify service outcome • ҏEstablish SLA tracking process to detect and address target deviations • ҏEstablish engagement management processes to request new services from • outsourcing vendors • Enforce benchmarking strategies in outsourcing contracts to constantly assess Outsourcing competitiveness

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Percent of companies within the category, according to META research META Group research indicates that 25 percent of IT organizations fall within this category.

META Group research indicates that 50 percent of IT organizations fall within this category.

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Level 4: Trust

This level can be reached by fulfilling the following criteria: • SLA targets are reported regularly • Outsourcing vendors have implemented a balanced scorecard (or its equivalent) to ensure SLA prerequisites are met • Change management processes are implemented to ensure outsourcing vendors adhere to enterprise architecture principles • Escalation management processes are established to address service malfunction with outsourcing vendors • Business continuity processes are implemented to ensure outsourcing vendors' disaster recovery services meet business requirements • Outsourced services are benchmarked at least once per year • Service single points of failure are identified • Business and IT measures are correlated and reported regularly

META Group research indicates that 20 percent of IT organizations fall within this category.

Level 4 can be attained by meeting the following conditions: • Vendors' security arrangements are proven to be in line with industry standards • Success stories are identified, whereby outsourcing arrangements reduced cost, improved service quality, and increased responsiveness • Service-level agreement targets are met continually • Capacity management processes are established to issue yearly capacity plans, track monthly usage against forecasts, and alert IT organizations and business units to service upgrade timing and cost implications • Vendors' command-andcontrol processes are integrated and automated • Benchmarking costs are reduced by replacing extensive benchmarking studies with third-party

META Group research indicates that 5 percent of IT organizations fall within thiscategory.

•

• •

Level 5: Recognized business value

consultants validating selected outsourcing proposals Vendors' delivery processes are based on operations excellence best practices, or their Equivalent Service single points of failure are addressed The IT organization's contribution to business metrics is reported regularly

The following conditions are required: • All outsourcing goals are accomplished • Service-level agreement targets are continuously exceeded • A process maturity model is adopted to evolve outsourcing management formal processes • Outsourcing vendors' unit prices are competitive, and at least 90 percent of new proposals are cost effective • New technology is leveraged to enable strategic business initiatives • Vendors' new skills are provided whenever demanded by business units • Outsourcing arrangements' contribution to businesscost reduction and performance improvement strategies is quantified

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META Group research indicated that no IT organization has yet attained this level.

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