Consider the Source

Keys to IT Process Maturity

By Chris Pfauser, Principal Consultant, Compass

CIOs seeking to optimize operational efficiency often rely on strategies and frameworks such as ITIL and COBIT. But deploying a process improvement initiative or set of tools isn’t enough.  True enterprise-wide process maturity is characterized by clearly defined activities, functions, roles, and responsibilities. This enables the IT organization to quickly address performance issues, identify root causes, and prevent recurring problems. Perhaps more importantly, process discipline enables demand management and flexible, usage-based pricing – essential components of cloud and utility computing models.  

Here are the Top 5 keys to a successful IT process management strategy:

1. Documentation and transparency. Many organizations have pockets or islands of process maturity.  But, like chains, enterprise-wide processes are only as strong as their weakest links.  End-to-end clarity into process flow is needed to identify where and why problems and issues occur, and how best to address them.  Without this clarity, IT defaults to its traditional silo-based approach of managing the desktop or the mainframe, without an understanding of the overall system and end-to-end service.
   
   
2. Ownership and accountability. A common problem with process frameworks is that they allow individuals to use rules and guidelines to pass responsibility along down the line. The result: a “hot potato” culture where activity is defined and documented but little actually gets resolved. Commitment from IT and the business is needed to ensure key processes have owners who are responsible and accountable for results.
   
   
3. Meaningful metrics. Top-performing organizations are refining their metrics and key performance indicators to measure the end-to-end process and improve results, rather than simply track activity. The basic question is, “What are all the activities and approvals that happen between ‘I want’ and ‘I have?’” In this context, “time to resolve” is more effective than the traditional “time to respond” as a key IT functional metric.
   
   
4. A clearly defined service catalogue. A specific understanding of the composition and cost of each unit of IT service allows the business to see what’s being consumed and enables IT to see what’s being delivered, through an IT service catalog and a business service catalog. This understanding establishes a critical foundation for IT demand management.
   
   
5. Pricing tensions. Once service units are clearly defined and priced, it becomes possible for the business to see the cost implications of their choices regarding IT usage. This visibility serves as an incentive to drive smarter consumption decisions by the business, and more efficient delivery by the service provider.

Contact us for more information on IT process maturity.

New TPI Research: Baby Steps for BPO, Giant Leaps in ITO Spending

By Paul Reynolds, Chief Research Officer, TPI Momentum

Some service delivery trends and emerging client preferences were consistent across the eight specific outsourcing services lines examined in depth in the just-released TPI Momentum 2011 Market Trends & Insights Service Line Report. Buyers of ITO and BPO services alike want access to emerging technologies and service delivery options, including mobile device support, Cloud Computing and X-as-a-Service. Clients are also challenging service providers to create functionality, features and services that are tailored to their specific industry.

Changing preferences for new technologies and services didn’t stop the market, as outsourcing interest and contract activity were strong in most segments. There were a record number of BPO contracts awarded in 2010, and ITO spending was at an all-time high thanks to heavy network spending.

Here are the TPI Top 5 highlights from the TPI Momentum 2011 Market Trends & Insights Service Line Report:

1. Business process outsourcing (BPO) is attracting new clients. A record 759 BPO contracts were awarded in 2010, 20 percent more than the previous year. Many of these contracts (encompassing Contact Center Services, Finance & Accounting [F&A], Human Resources Outsourcing [HRO] and Procurement) were for limited engagements for small companies who are cautiously investigating outsourcing. New interest was especially strong in Procurement, F&A and HRO. Despite the heavy contract volume, total spending in 2010 was down 12 percent from 2009.
   
   
2. Strategic considerations slow ITO. The ITO market seemed to pause in 2010 while clients reassessed their information technology strategies. Contract award volumes declined from 2009 in part because clients were heavily engaged in evaluating options and setting plans and policies regarding mobile devices, applications and security, virtualization, Cloud Computing and other issues. ITO contract awards rose 1.6 percent in the Americas while experiencing sharp declines in the EMEA and Asia Pacific regions. The Managed Network Services service line was the unquestioned strength of the ITO market in 2010 and was buoyed by heavy telco-to-telco spending.
   
   
3. Clients are bundling up. 2010 saw a decided shift in the ratio between standalone and bundled contracts  as clients opted for more bundling of services. In ADM, Cloud Computing and F&A service lines, in particular, companies are adopting portfolio bundling, in which separate bundles of contracts for outsourcing are created in both business and technology domains. The preference for portfolio bundling and vertical niche expertise is fueling the momentum for multi-provider sourcing. Clients also bundled when they renegotiated contracts or added scope.
   
   
4. Mobility is moving the market. The general business trend toward more mobility is affecting the outsourcing industry in several ways. Demand for mobility has the most clear and direct impact on the End-User Computing service line because service providers need comprehensive solutions for supporting an ever-growing range of mobile devices. ADM service providers are increasingly called on to develop mobile apps, and network operators need to manage more traffic. Client executives want mobile access to various business applications and performance dashboards, resulting in needs for BPO service providers to address.
   
   
5. (Expert) help wanted. Clients strongly valued expertise in their vertical industry when selecting service providers in 2010. They want solutions that are tailored to their industry or business process rather than general, “off-the-shelf” offerings. Clients also prefer strong value innovation, including Cloud Computing or other emerging platforms for service delivery. Cloud Computing is now sought after both as a transformational and as a cost-reduction mechanism. Additionally there is preference for “business-process-as-a-service” solutions, in which entire functions such as payroll, recruitment and others are procured over a platform on a pay-as-you-go basis.

The complete TPI Momentum report includes individual chapters for each service line that cover these and other developments in detail. For more information contact Paul Reynolds, Chief Research Officer, at paul.reynolds@tpi.net or +1 508 625 2194.

Keys to a Smarter Help Desk

By Chris Pfauser, Principal Consultant, Compass

Most well-managed IT Help Desks are very good at meeting targets for basic performance metrics such as resolution rate and average handle time (AHT).  But while these measures assess the efficiency of agents in handling contacts, they potentially miss an opportunity to be effective in improving operational performance.

In fact, some metrics can create incentives to leave problems unaddressed. Consider: if an agent is inundated with contacts about a particular problem that’s easy to resolve, he or she may well be tempted to simply rack up high scores for resolution rate, rather than reporting the problem so that it can be addressed.

The key to an effective Help Desk: Integrate measures with other parts of the IT organization to enable problem analysis and resolution. More specifically, create incentives for agents to identify problems and incidents and report them to the business and other areas of IT so that they can be investigated.

In other words, don’t manage problems – eliminate them. Here are the TPI Top 5 measures and incentives top-performing Help Desks employ to create incentives to identify problems and improve performance:

1. Knowledge Management Incentives. Define targets for agents, such as "publishing x number of articles per period." The key is “published” so that they are incented to provide quality KM content that is worthy of being published.
   
   
2. Demand Management Incentives. Reward the Help Desk team for reductions in contact volumes for specific types of incidents and problems.
   
   
3. Incident Management Integration. Create incentives and requirements for agents to tie incidents to known existing problems. This is a key ITIL fundamental, and having a tool in place to do this is critical.
   
   
4. Problem Management Integration. Build incentives for agents to define problem attributes that will assist in diagnosis. For example, if the environment includes a Configuration Management Database, problem attributes could relate to affected configuration items.  
   
   
5. ITIL Process Integration. Align your ITIL processes to feed each other. Some Help Desks measure their top five or 10 incident types and then track progress toward eradicating them by linking reduced contact types to the incident type. Linking incident and problem management facilitates root cause analysis, thereby enabling removal of the cause of the incident.

Compass and TPI experts can help you meet your Help Desk challenges through industry experience and specialized knowledge of your industry. For more information contact Chris Pfauser, Compass.

Notable Trends in the TPI Momentum Market Trends & Insights 2011 Verticals Report

by Paul Reynolds, Chief Research Officer, TPI Momentum

Look for interesting news in the TPI Momentum 2011 review of outsourcing spending. We looked at outsourcing trends in 27 vertical and 68 sub-vertical industries throughout 2010 and found that, while overall outsourcing spending increased by five percent, conditions were highly variable across industries – with spending up or down by more than five percent in over half of the verticals.

Here are the TPI Top 5 highlights from this year’s report:

1. G2000 companies increase outsourcing spend. In 2010, G2000 companies spent over $72.1 billion on outsourcing services, a five percent increase when compared to the previous year. While Manufacturing and Financial Services spent the most, the Retail sector grew the fastest (with 37 percent growth) among the industries studied. New business models in Retail are driving IT investments, which is a boon to outsourcing.
   
   
2. First-timers join the outsourcing surge. A steady flow of G2000 companies signed their first outsourcing contracts in 2010 while, like the previous two years, overall outsourcing penetration increased by three percent. Twelve of the 27 vertical industries experienced at least 20 percent penetration growth.
   
   
3. Sub-verticals spearhead outsourcing momentum. While some industries showed declining or flat outsourcing activity, specific sub-verticals saw growth. For example, overall outsourcing spending plateaued in the Chemicals industry, but its Life Sciences sub-vertical grew by more than 30 percent. Similarly, the Finance Services sub-vertical grew almost 15 percent while the larger Business Service & Supplies industry remained flat.
   
   
4. Hunting-Farming dynamics shift as specific verticals boost outsourcing. The TPI Hunting-Farming Index measures opportunity across the 27 industries we track. In 2010, the Farming Index showed that both the Utilities and Retailing sectors bumped their ratings from medium to high due to recent increases in outsourcing spending among companies that already outsource.
   
   
5. Fastest growing portion of the market impacts vertical trends. In most industries, outsourcing penetration is significantly higher among larger companies than smaller ones. Much of the new outsourcing growth stems from companies ranked 501-1000 in the Forbes Global 2000.

By and large, 2010 was a year of recovery. The strength and shape of the recovery and its impact on outsourcing spending was far from consistent across industries. More importantly, the measurable activity tells us a great deal about which vertical markets offer the strongest new opportunities and which strategies will be most effective for winning in these markets.

To learn more about the TPI Momentum Market Trends & Insights 2011 Verticals Report, click here or contact Paul Reynolds, Chief Research Officer, TPI Momentum, at +1 508 625 2194.

TPI Index: Outsourcing Industry Sees Growth in Regional Markets, Restructurings

By John Keppel, Partner & President, Information Services

Earlier today, we held our 2Q11 Global TPI Index conference call, during which we discussed noteworthy trends in the sourcing market during the second quarter and the first half of the year.

Compared with the previous second quarter, the second quarter of 2011 offered some welcome lift in several metrics: Europe, the Middle East & Africa (EMEA) total contract value (TCV) was up by 13%, Asia Pacific TCV rose 55%, and Restructuring TCV grew by 30% year-over-year. However, a poor showing in the Americas’ TCV and fewer large contracts drove down the global market by 18%. Despite weakness in the big picture for the quarter and at the half, we anticipate stepped-up second-half activity that will find the market finishing the year at or near typical levels.

It is worth remembering that second quarters are typically weak in comparison with first quarters; that said, our analysis reveals that:

• TCV, at about $16.4 billion in the second quarter, represents about 20% quarter-over-quarter, year-over-year and year-to-date decreases for each comparison. A downturn in large contracts above $500 million, as well as declining values in the Americas and in IT outsourcing (ITO), largely account for these drops.

• Restructurings TCV, while up Q/Q and Y/Y, dropped a substantial 44% when compared to the significant restructuring recorded in the first half of 2010. Despite this YTD decrease, Restructuring TCV now falls within more normal historical ranges. New scope TCV in the second quarter declined by Q/Q, Y/Y and YTD measures alike.

• For the regions, the Americas TCV fell 27% Q/Q and about 50% both Y/Y and YTD. EMEA TCV, nearly twice that of the Americas for the second quarter, grew 13% Y/Y and 10% YTD. In Asia Pacific, a small quarterly drop tempered otherwise ample Y/Y and YTD gains of more than 50%.

• By scope, ITO, at $11.5 billion for the quarter, still made up more than two-thirds of the global market, but dropped about 18% in value both Q/Q and Y/Y, and by 27% YTD. The market is not awarding the large infrastructure contracts of earlier periods. Business process outsourcing (BPO) TCV dipped for the quarter, but thanks to a strong first-quarter showing, half-year comparisons held firm.

• Despite these lackluster results, we believe the second half looks more promising. We note activity building in all three regions, supported by the $7 billion Atos/Siemens restructuring mega-deal already boosting third-quarter values in EMEA.

A replay of today’s call will be posted within 24 hours on TPI.net, where you can also view the presentation slides. I hope you’ll have a chance to listen and sound off with your own perspectives in the comments section below!

(UPDATE: The audio replay is now available at TPI.net).

Being a Hero vs. Doing Things Right

By Chris Pfauser, Compass Principal Consultant

Let’s say you’re a talented and ambitious young IT professional. Late one Friday afternoon, the VP of sales corners you in the hallway and says his laptop has crashed, just as he was finishing a presentation for a Monday morning meeting with a new customer.

Do you:

A: drop everything and restore the document, even if it means calling in colleagues and working over the weekend.

B: tell the VP to call the Help Desk and get a problem ticket.

Obviously, in this instance the right thing to do is to jump in and resolve the crisis.  However, the scenario illustrates a key challenge of managing an effective IT organization: how to reconcile individual ambition and initiative with the need for process discipline and consistency.

Many large IT organizations make a virtue of fixing crises and putting out fires. As a result, what they become really good at is fixing crises and putting out fires.  Meanwhile, the truly top-performing organizations find ways to prevent crises and fires from happening in the first place.

The “hero” culture in IT can undermine efficiency and improvement initiatives in a variety of ways.  Consider, for example, an ITIL initiative – it’s all about process standardization, consistency, and repeatability. In a sense, all those things are a threat to the IT hero, because they don’t give him or her a chance to shine, to be different and better, to be heroic.  For executives managing ITIL initiatives, it’s therefore essential to gain the support of the IT heroes and give them a stake in its success.  Otherwise, because they’re talented and ambitious and smart, they’ll find a way to derail the process. Read more.

Sourcing relationships can also fall prey to the hero syndrome. In many instances, a client organization characterized by a hero-driven, ad hoc, and reactionary approach to problem management confronts a process- and standardization-oriented service provider. When these respective approaches clash, the client’s way usually prevails, for a variety of reasons. First off, the idea that the “customer’s always right” is a powerful one. Moreover, retained staff are often more experienced and senior than their service provider counterparts, particularly in offshore environments.  Hence, the vendor team often lacks the wherewithal to push back and insist on standards and consistency. An added danger of the hero syndrome in outsourced environments is that strong personal bonds often develop between the respective teams – everyone’s in it together, striving to be heroic. So both sides feel that the partnership is strong, even if service delivery is woefully inefficient.

The way out of the impasse is for senior executives from both sides to step back and reassess the initial objectives of the initiative, and to re-commit to the steps necessary to drive improvement. Again, it’s imperative to gain the trust and support of the best and brightest on both teams, and to give them a stake in ensuring that standardization and consistency prevail over individual heroics. Read more. 

Benchmarks: More Than a Number

by Max Staines, President, Compass North America

Defined in basic terms, a “benchmark” of an outsourcing deal is simply a comparison of one set of numbers against another, with the objective of adjusting pricing terms to more closely reflect market standards. 

But benchmarking can and should be much more than a discrete exercise aimed at cost reduction. Used properly, benchmarking allows you to demonstrate an ongoing and proactive commitment to quality and continual improvement.

Here are the Top 5 ways to make the most of benchmark analyses:

1. Think big. Consider benchmarking a core part of your operational strategy, an engine that drives incremental improvement as well as transformational change. A benchmark is less about adjusting prices than it is about changing the behavior of all parties in positive ways and improving your sourcing relationship.

2. Take a long-term view. Let’s say a benchmark finds that you are paying significantly more than market rates for storage technology. If the high costs are driven by unique business requirements, and by obsolete data processes and myriad legacy systems, a simple short-term cost reduction would prevent your vendor from providing effective support and expose you to the risks of an inadequate data storage environment. In this instance, the benchmark should chart a roadmap toward a future state aligned with your needs; specifically, toward a transition that replaces legacy systems with more streamlined storage platforms, and implements an information management strategy that categorizes and prioritizes data access throughout the enterprise.

3. Insist on transparency and collaboration. Doubts or questions about a benchmark invariably complicate the ensuing negotiations and increase the likelihood of rancor. Clearly defined and detailed terms in the agreement can address potential errors, omissions, and misunderstandings. Focus on transparency — not only into the results, but into the benchmarking methodology, data, and analytical process applied. Remember too that a collaborative approach facilitates open discussion rather than contentious confrontation. 

4. Define appropriate comparators and adjustments. All parties should agree on the benchmarking criteria, such as, for example, the simple mean of six of the best data points available. Balance the need for meaningful, apples-to-apples comparison against unrealistically narrow and specific requirements. Criteria for data normalization should openly address issues raised by either party.

5. Get your timing right. A benchmark analysis should be conducted prior to a sourcing transition, and subsequent analyses should be conducted every other year. Benchmarks conducted too late in the contract term risk becoming an instrument of last resort to arbitrate conflicts, rather than a means of facilitating dialogue.

Compass, an Information Services Group company (ISG) (NASDAQ:III), is the premier independent global provider of business and IT benchmarking, performance improvement, data and analytics services. Contact us for more information on benchmarks and performance improvement. 

Amazon’s Outage: Architecting for Failure in the Cloud

By Stanton Jones, Chief Information Officer, TPI

 

The uproar surrounding the partial outage of Amazon’s EC2 cloud services platform got some new life last Friday, when the company released a detailed post mortem of the incident. The summary includes a surprising level of detail into the root cause of the outage, information on a service credit for impacted customers, and, finally, an apology from Amazon.

To recap: on April 21^st, Amazon made a configuration change during a network upgrade that caused a cascading series of events that resulted in what it calls a “re-mirroring storm.” As a consequence, Amazon’s storage service was essentially “stuck” and unable to locate new storage space for either new or existing customers. This led to a significant period of degraded functionality and downtime for major Web 2.0 sites such as Reddit, Foursquare and HootSuite, as well as a plethora of bad PR for Amazon, a cloud computing pioneer.

Interestingly, though, some other sites were only moderately affected, or not affected at all, most notably Netflix. Why did some sites sink, while others sailed through the storm? As with any complex system, there is no one answer. However, organizations that “architected for failure” tended to fare better than those did not. Netflix, which recently released its lessons learned from the outage, built its platform around the assumption that services and/or zones within EC2 could be unavailable for extended periods of time.

Clearly, not every EC2 customer has the technical chops to build Netflix-like applications, and Amazon needs to make it easier to increase redundancy by taking advantage of multiple availability zones. However, this is a public cloud platform, and customers that did not take full advantage of Amazon’s redundant architecture, or that did not create their own replicated solutions, ended up paying the price.

While architecting for failure in the cloud may appear to be a purely IT responsibility, it’s not. TPI views cloud as one component of your service delivery strategy, and regardless if they are delivered in-house or are outsourced, effective planning across all components is vital.

Business continuity planning (BCP) and Disaster Recovery (DR) are two critical parts of this planning process. Unlike a traditional outsourced agreement, in which the supplier takes on a significant level of responsibility in the delivery of the BCP and DR plans, the public cloud requires that customers retain a significant amount, if not all, of this responsibility, as well as the associated risk. In return they get a highly scalable, cost-effective and fast-to-provision computing platform.

Bottom line: Some organizations are finding out the hard way what happens when they don’t integrate cloud with their overall service delivery strategy. By including business continuity planning and disaster recovery in the cloud architecture design process, enterprises can significantly reduce the risk of business disruption.

 

 

Rules of Thumb for Selecting and Managing ERP Service Providers

By Bob Krohn, Director, TPI; and Kirk Teal, Senior Partner, STA Consulting

Editors note: In February the parent company of TPI, Information Services Group Inc., acquired STA Consulting, a premier independent information technology advisor serving the public sector. This TPI Top 5 is co-authored by one of our STA Consulting colleagues.

Sourcing considerations in ERP environments are not that dissimilar from those of traditional Application Development & Maintenance (ADM) environments in many ways. Yet there are also unique challenges and nuances that are especially applicable when sourcing ERP service providers. Note these TPI Top 5 rules of thumb for selecting and managing best-fit ERP service providers: 

1. Determining the sourcing strategy: The business drivers for multimillion dollar investments in ERP systems vary by organization but generally include the need to: 1) reduce cost; 2) mitigate risk of aging, often poorly documented, legacy systems; 3) increase efficiency in business processes; 4) introduce new functionality to obtain a strategic advantage; or 5) any combination of the preceding factors. The blend of these drivers will ultimately drive the IT sourcing strategy that an organization pursues.

2. Selecting service providers: When deciding to implement an ERP package organizations will inevitably bring in external parties at some stage of the process. Selection of the appropriate service providers is a key decision that should be supported by a qualified sourcing advisor. Organizations should weigh their evaluations based on the relative importance of price and quality. Key components of the quality attributes of service providers that should be evaluated include: 1) their experience with newer modules and relevant industry solutions; 2) the account team; and 3) the implementation methodology. Subcategories of the implementation methodology that should be considered include their approach to: 1) data migration; 2) training; 3) stakeholder communication; 4) change management; and 5) benefits realization.

3. Defining pricing methodology for ERP sourcing agreements: The most common mechanisms that ERP service providers use for projects are: 1) fixed fee; 2) time and materials; or 3) a creative combination of the two. Although at first glance these mechanisms appear to be very different, experience shows that service providers use similar methodologies in their pricing. ERP providers tend to build their price quotes from the "bottom up" and include a risk premium. In a fixed fee proposal, the premium is included in the base quote. In a time and materials proposal, it is either included in the base hours or as a contingency line item. A useful technique in negotiating ERP projects is to isolate this risk premium and attempt to minimize it. In most instances, application maintenance and support for ERPs should be contracted as a managed service. There are a variety of methods for pricing ERP support contracts, but much like other managed service transactions, pricing should be based on applicable resource units.

4. Managing the quality of implementation deliverables: Managing the key quality aspects that were indentified in selecting the service provider is instrumental in determining whether or not an organization achieves the goals of its ERP projects. In general, the established ERP service providers all possess the necessary technical competency and capacity to meet customer needs for ERP implementation maintenance and support. The differentiator is often management of the other less technical aspects of the delivery model described in bullet 2.

5. Evaluating the incumbent maintenance and support ERP service providers: Not surprisingly, proper sourcing management is a critical success factor in effective relationships with ERP service providers. The relationship between an ERP provider and its customer is often termed a "partnership" and is sometimes even compared to a marriage. Although the marriage analogy has some merit, it is often over-used. ERP customers need to recognize that the effectiveness of their service providers should be routinely and formally evaluated and that contractual agreements should be structured that reference these evaluations. Service providers should also understand that if they fail to meet predetermined expectations, the customer has a formal evaluation process that could lead to a change.

For more information on selecting and managing ERP service providers, or on any aspect of ERP-related decision making, contact Bob Krohn, Director, TPI, or Kirk Teal, Senior Partner, STA Consulting.

Please share your thoughts about this post in the comments section. Do you feel that you got the best value possible from your ERP contract negotiation? Have you had an ERP project go off the rails? What would you do differently if you could do it over again?

Outsourcing Trends, the Underlying Factors – The FT Speaks to TPI

The FT’s Connected Business series of podcasts examines how business leaders can use IT to improve performance and exploit new opportunities for growth. In the latest podcast, the FT’s Stephen Pritchard talks to Duncan Aitchison, Partner & President, TPI, EMEA about the latest outsourcing trends both globally and in EMEA and examines some of the underlying factors that are influencing companies and decision making today.

Click here to access the podcast - http://podcast.ft.com/index.php?sid=25  Stephen’s discussion with Duncan starts 7 minutes and 56 seconds into the podcast, which also includes an interview with Microsoft’s CIO, Tony Scott and a look at O2’s use of technology to monitor and cut its carbon footprint.