Rationalizing Your IT Outsourcing Capability

Computerworld - Years ago, U.S. television stations often ran a public service announcement that stressed the responsibilities of parenthood: "It’s 10:00 p.m. Do you know where your children are?" It might be time for a new one for CIOs, stressing their responsibilities in today’s IT outsourcing environment: "It’s later than you think. Do you know how well your outsourcing providers are performing on behalf of your business?"

That question is getting increasingly hard to answer as IT outsourcing grows in complexity. The experience of one company with which we worked is fairly typical. This Fortune Global 500 consumer products company had a blended IT delivery environment: Several IT functions were being sourced to different best-of-breed providers, while others were retained internally. Because outsourcing management was decentralized, IT decision-makers did not have adequate visibility across all functions and geographies. Without that visibility, overall control of operations became more challenging. If something went wrong in the delivery of IT services, the various providers did not have the means in place to escalate issues consistently or perform a cooperative root-cause analysis to isolate the problem quickly and fix it. Some providers were performing at required service levels, but others were not. Yet comprehensive performance management was really out of the question until the company gained better visibility across the whole IT environment.

What companies like this must do is to take the rationalization principles that have worked so well with their infrastructures and apply them to their outsourcing environment as well. Managing the IT outsourcing environment is now a matter of managing and rationalizing a portfolio of internal and external relationships. Better governance portfolio management is necessary if organizations are to optimize the efficiencies of outsourcing, and if they are to achieve the full business value available to them. New governance models, structures, processes and tools are necessary if IT outsourcing is to fulfill its real potential.

Four levels of effective governance portfolio management

When we assess the existing governance portfolio management capabilities of private- or public-sector enterprises, we look across four levels:

1. Organization

The work of rationalizing one’s outsourcing providers begins here, as CIOs assess their current outsourcing portfolios and the extent to which they are successfully coordinating and managing relationships and providers across functions and geographies. This portfolio view is vital. Many CIOs come to fully appreciate at this stage how dependent their business has become on IT outsourcing (it is not unusual for 50% or more of IT services to be delivered externally) and thus how important it is to understand and mitigate their outsourcing risks in totality. A multiprovider, best-of-breed approach only intensifies those risks.

At the organization level, a company specifies its high-level goals and guiding principles for governance, and then the oversight, decision rights and reporting structures that support the rationalization of the sourcing strategy and the optimal governance model.

In our experience, companies begin by rationalizing providers globally by function—making sure that contracts and service levels for each provider are equivalent whether the services are delivered in South America, North America, Asia or Europe. Companies may then work to implement a common governance framework globally across functions.