Posts in ‘IT Finance’

Week In Review – Jul 18 – Jul 24, 2010

by Magesh Tarala on July 25, 2010

Your readiness for managing your supplier after the negotiation

by Brian Superczynski, Jul 19, 2010

Organizational needs are routinely satisfied by external vendors. Letting the vendors manage the relationship will be like the tail wagging the dog. It will lead to serious issues not limited to mushrooming cost. Vendor management includes the negotiation process before the contact is signed, having an organizational structure to manage vendors and having an mature process to monitor the lifecycle of your agreements. more…

Character and Personality #3: Orientation and Energy

by Gary Monti, Jul 20, 2010

Two major components that go into determining one’s temperament are Orientation and Energy. Orientation refers to how we prefer to interface with the outside world. The two approaches are Judging (don’t confuse with Judgmental) and Perceiving. Two possibilities for gaining energy are Extroverts and Introverts. A person can have a combination of these traits and of course these are not the only once – there is a whole slew of these. Understanding these traits will help you manage people and teams better. more…

Social Media and Tribes # 6: Changing the world is addictive

by Deepika Bajaj, Jul 21, 2010

A tribe is constituted of people who care about a specific topic or interest or looking to bring a specific change. Tribes are needed to change the world and social media has created tremendous opportunity to create and lead tribes. Read this article to understand how to gain advantage using social media and not get simply distraught by its demands. more…

Flexible Focus #11: The Principle of comprehensiveness

by William Reed, Jul 22, 2010

In this article you will find an optical illusion. As you increase your field of vision, you will be able to see more white dots. The message here is, you need the ability to see the big picture, the details and the relationships all at the same time. Mandala Chart can help us regain our bearings by seeing our business comprehensively. This will enable us see the opportunities that are never obvious, because the exist in the spaces between. more…

Author’s Journey #31: Managing and Marketing information products

by Roger Parker, Jul 23, 2010

Information products are an author’s best friend; they offer far more profit potential than authors can earn from book sales alone. Last week, Roger’s post explored the 3 main issues involved in creating profitable information products: copyright, format, and topic. This week’s post takes a look at creating a process to produce, market, and schedule information products. more….

Regardless of the size of your organization, someone is responsible for identifying the need of a service or product being purchased. One could therefore surmise this individual would also assume the ongoing ownership and maintenance of the product, providing vendor management oversight, right? Well, you might be surprised by the number of occasions on which the linear progression of identifying a need and satisfying the need becomes disconnected in technology organizations.

This disconnect often occurs when a business unit obtains approval to bring a new product to the company which in turn places new or expanded requirements on its Information Technology (IT) organization.  With their backs often against the wall, the IT department will “buy” the technology in order to meet required deadlines. What happens in this case is that the IT department ends up relying on the vendor to manage the technology, and often times let the supplier act as the IT point of contact for the “customer” – the internal business unit.  Well, as we know problems often start out small and later mushroom out of control.  This situation is no exception:  If the new product the company has developed becomes successful, IT will continue to buy more of the necessary technology for the business unit.  The next thing you know, the original contract for, say, $100,000 morphs into an agreement covering perhaps $5M in purchases – and since the vendor manages the technology, no clear internal owner exists.  A sure-fire recipe for big problems.

The process starts with the negotiation of the contract which typically initiates a rather ‘interesting” time within the organization.  The discussions with the supplier often times become stressful with both sides treating the negotiations as a form of competition to obtain the best price and terms.  This is further complicated with the coordination of the different groups who provide input and are required to approve on both sides of the agreement. For example, the finance departments will be called upon to review the financial impact to budgets and Return on Investment (“ROI”), while the procurement and legal departments review terms and conditions.  With all these organizational units involved, the final agreement ends up segregated into sections which are relevant to disparate groups within the organization, and in many instances no single person understands the agreement as a whole.  This issue can be avoided by identifying the organizational unit that owns and drives the negotiation of the agreement, and ensuring this unit also has the authority to represent the company and manage the supplier.  By insisting on thorough preparation and coordination regarding input and approval processes in advance, the individual or group acting in the vendor management capacity will not only secure a contract which is beneficial to the company but will also foster a positive ongoing relationship with the supplier.

With the vendor management role clearly defined, you will avoid the most costly mistake of relying on the supplier to manage the agreement for your company.  The vendor manager will not only monitor the suppliers’ performance, but will also leverage the vendor on your company’s behalf to provide service level and performance metrics along with other valued services such as expert consulting support.  The individual acting in this role in your company can carry the title of Vendor Manager and coordinate with the technology owner(s), or this role can actually be incorporated into the technology owner’s job description.  In any event, the most important role of the vendor manager is to routinely meet with the supplier to review performance and to insure the negotiated service level agreements are applicable and are being met.  For those of you who practice ITIL, you may even want to invite your suppliers to attend your problem management reviews.  Problem Management aims to resolve the root causes of incidents and thus to minimize the adverse impact of incidents and problems on business that are caused by errors within the IT infrastructure and to prevent recurrence of incidents related to these errors.   Inviting suppliers to problem management reviews was always my favorite way to make sure the supplier understood my business and was focused on working for my company.

Identifying issues with your existing contract will insure that your company is prepared when it is time to negotiate a new agreement. This is especially critical in large organizations with dedicated procurement departments.  These procurement teams are responsible for negotiating agreements on behalf of the technology owner(s), often based upon templates and procurement methodologies meant to cover everything from bed pans to mainframes.  In these circumstances, the vendor manager must be prepared to identify and educate the procurement manager on any issues with the current supplier. This is especially true with products that the procurement department might consider as “commodities”.   (Products are referred to as commodities when the product is seen as fungible or the same no matter who produces it.)  The commodities tag can sometimes prove to be a BIG mistake, especially with technology as this term is often applied incorrectly.  I once had a junior level negotiator assigned to a request for purchase because the procurement department perceived desktop computers as fungible commodities.   That quickly changed once we were able to quickly show – from trends in our monthly product performance scorecards that we had experienced a 20% failure rate of over 75,000 desktops that had been in service less than a year.  These failures not only had a negative impact on customer service but also negatively impacted IT service level metrics with a dramatic increase in help desk calls and required additional contracted field support to fix the devices.  The vendor manager was subsequently able to successfully team with the procurement department and negotiate product quality guarantee’s which the suppliers indicated had never before been included in their contracts.

Once your suppliers are being actively managed, your organization can maintain a fully mature vendor management model by monitoring the lifecycle of your agreements.  The hallmark of a mature vendor management lifecycle model is tracking when agreements are scheduled to terminate.    Being prepared for expiring contracts is critical because your vendor manager will make sure all necessary parties are prepared to enter into a negotiation and avoid delays which result in the original agreement being extended because the organization was not ready to negotiate.  This is often times the point where organizations which are not prepared will bring in outside assistance to coordinate the competitive bid process and subsequent negotiations.  If you believe your organization needs external assistance, make sure that whomever you contract with is not only negotiating terms and conditions, but also provides an on-going vendor management model after the negotiation.

Lastly, I mentioned the importance of fostering a positive relationship with your supplier.  You want your account manager and his/her team to be the envy of the organization for account relationships.   Obviously the amount of revenue an account team brings to their organization is a major component in determining their performance within their company.  However, don’t underestimate the importance that suppliers place on their representatives to maintain healthy relationships.  Just as within your organization, you want your suppliers’ account team to be proud to be working for their company and proudly say they are servicing your company because, at the end of the day, your success is a result of performance – and support – of suppliers’ product and services.

At this point you’re ready to begin managing your vendors.  As we’ve seen, a successful relationship with your suppliers begins not with the contract itself but with the management of the agreement after it has been negotiated.  If you haven’t met with your suppliers recently give them a call and initiate your vendor management process by asking for an account review.  Before the review, draft a list of items you would expect them to cover when they walk into the room and then compare your list with their presentation.  You’ll quickly be able to identify gaps in your supplier relationship and use your list as a roadmap for obtaining better pricing and services from your vendor.  The results are guaranteed not only to surprise yourself but will result in new respect from your vendor.

Week In Review – Jul 4 – Jul 10, 2010

by Magesh Tarala on July 11, 2010

4 Effective cost saving techniques in a down economy

by Brian Beedle, Jul 5, 2010

In these uncertain economic times, it is imperative for businesses to cut costs to maintain profitability. Prudence in what is cut will help us be positioned to return to “normal” business cycle. With that in mind, Brian has short listed 4 simple cost saving areas that every IT organization should consider. more…

Character and Personality #1: Emotionality

by Gary Monti, Jul 6, 2010

WOW… another great  article from Gary! Strong leaders are not without emotions. But they are able to validate their emotions with their principles at play. This helps them deliver an honest expression of emotions with a statement of underlying principles (agenda). This supports communications, while emotionality tears the community apart. more…

Social Media and Tribes #5: Social by Intention

by Deepika Bajaj, Jul 7, 2010

Participating and being active on online social media does not have to be detrimental to your career. If you can watch what you say, you can create a reputation you desire. Social media is a tool to build relationships and take them offline to build stronger relationships. more…

Flexible Focus #9: The magic of mindset

by William Reed, Jul 8, 2010

Having a point of view enables us to be very clear on where we stand. But it also give us the tendency to believe our point of view is the only correct one. Inflexibility over view points can put people on the warpath. Flexible focus gives us a strategic advantage, opens your eyes and lets you frame and reframe. more…

Author’s Journey #29: Research Tips – How do other authors profit?

by Roger Parker, July 9, 2010

Very often, you don’t have to reinvent the wheel. Researching and following what other authors do to profit can be valuable. more…

In uncertain economic times, businesses are forced to redefine “business as usual” and come up with a new definition. This new definition must allow companies to not only to sustain business, but drive profitability with the face of uncertainty looming through the window. With a big bite coming directly out of Profit Margin, typically attributed to the lack of consumer spending, how is it possible for companies to survive?

Anyone with any business knowledge understands that the only way to preserve profitability when revenues are down is by reducing costs.  However, proceed with caution here and do not jump to conclusions. Keep in mind, the economic downturn will not last forever.  Therefore a company must be positioned to return to “business as usual” when the opportunity arises.  With these key points in mind, there are many different approaches to reducing costs which will allow for preserving staff, maintaining a high level of product quality, as well as maintaining the high level of customer service that is currently being delivered.

One of the primary areas that hold a great deal of operating cost savings is in the area of IT.  Here are 4 simple cost saving measures that may hold the key to a great deal of cost savings:

  • Assess Maintenance and Support Contracts: Depending on the size and complexity of an organization and whether or not a company has an asset management practice, the on-going charges for software and hardware support and maintenance agreements can compound exponentially.  Discovering software or hardware that is no longer being used, then conducting a deep dive into the current base of IT contracts and determining whether maintenance is being paid on these assets , is a great way to pulling the plug on unnecessary infrastructure costs.  On-going cost control and monitoring is an effective way for an organization to implement an asset management program.
  • Consider Re-Negotiation of License and Maintenance Contracts: Hardware and Software companies are faced with the same challenges as everyone else in the business world. They are looking for ways to sustain their businesses in a new economy.  Although we look at the down-turn of the economy as a challenge when running and sustaining business, we also need to position this as an opportunity to leverage better contracts. Take the opportunity of a down economy to negotiate better rates and terms.  Consider third party maintenance on equipment; Third party maintenance can be just as good as OEM, at a fraction of the cost.
  • Reduce Printing Costs: The average cost per page for personal B&W laser printers average around $0.04 to $0.05. Eliminate personal printers by replacing stand-alone units with more efficient network-multi-function printers. By implementing a multi-function network printer/copier, an immediate savings of $0.02 per page can be yielded.  Again, another expense that can grow exponentially.
  • Eliminate Digital Storage Waste: According to Iron Mountain, on average, unstructured data claims 60% of total storage capacity.  Even under the best circumstances, approximately 30% – 40% of data falls under this category.  On average, a company’s storage requirements may grow anywhere from 30% – 50%.  With requirements of Sarbanes-Oxley, the need to maintain inactive data has dramatically increased the storage requirements for all organizations. By outsourcing storage, companies can realize tremendous storage infrastructure cost savings and preserve a more efficient infrastructure.

Although this article only touches on a few different ideas in which financial relief can be recognized by an organization, it hopefully provides examples as to how hidden cost saving opportunities may exist where you least expect them. Take the opportunity to seek out your own hidden treasures and you will find your company positioned strongly for the next economic up-turn.

Week In Review – Jun 27 – Jul 3, 2010

by Magesh Tarala on July 4, 2010

What can Cloud do for you?

by Marc Watley, Jun 28, 2010

The recent AT&T/iPad security debacle provided some sensational headlines. But that does not mean you should stay away from cloud computing. If you follow Marc’s recommendations in this post, you can adopt Cloud solutions to remain competitive and do so in a secure and highly available fashion. more…

Leadership and Mythology #8: Myth, Self-Discovery and Business

by Gary Monti, Jun 29, 2010

Tired of doing things you regret? Wonder why the behaviors continue even though they sabotage your position? Vacillate from submission to aggression when making business deals? Want to stop all this and just stay on your unique path? Wonder where the Hell that path is? Read this article to understand the three level of truth and how they tie to your Myth. more…

Social Media and Tribes #4: Tribal leadership

by Deepika Bajaj, on Jun 30, 2010

The word “tribe” has become part of the popular lexicon. If you have wondered what constitutes a tribe and how they function, this article is for you. People who end up as tribal leaders are the ones who leave the tribe better than they found them. more…

Flexible Focus #8: Memory is a slippery slope

by William Reed, Jul 1, 2010

Just like there is a learning curve, there is a forgetting curve. Without periodic review we forget what we learn and in a month’s time we retain only 20% of what we learned a month before. In this article William give describes how to use the Mandala Chart to improve retention. more…

Author’s Journey #28: Creating a marketing plan for your book

by Roger Parker, Jul 2, 2010

During the past 10 weeks, Roger’s post have covered different approaches to marketing your book, including list-building incentivesone sheets, and obtaining pre-publication quotes. This week’s article ties the previous 10 installments together and closes Part 3, Planning, by discussing the importance of creating a book marketing plan as early as possible. more…

What can Cloud do for you?

by Marc Watley on June 28, 2010

By now, you’re probably well aware of the AT&T/iPad security debacle earlier this month, yes?

Good.

AT&T’s security breach was cause for serious concern for iPad users and was first reported at Gawker.

Since this story, there have been scores of articles prattling on about the “vulnerability of the Cloud”, “Cloud failures”, etc.  Sensational headlines pay bills, granted, and while it’s important that security issues receive attention, I’d much rather look at this from a more holistic angle:

Why adopting Cloud solutions is unavoidable for companies who want to remain competitive?

and also…

How Cloud can be introduced into IT environments in a secure and highly available fashion?

Let’s be Swarovski-crystal clear here: This incident was a good thing, friends! At fault in the iPad incident was a poorly-secured back-end on AT&T’s side of the fence.  As Gawker’s Ryan Tate accurately points out in his story,

“AT&T exposed a very large and valuable cache of email addresses, VIP and otherwise.”

That said, the pundits do have a point, which is that this incident has implications regarding security – in this particular instance with the underlying AT&T Cloud infrastructure powering the iPad.  Responsibility for security with Cloud services is a critical one and falls on all parties involved: the device manufacturers, application developers, and service/infrastructure providers, who must provide and maintain a secure environment as well as immediately resolve all issues when discovered.  Same goes for the end users. Thankfully in this case, only one person outside of Goatse Security (who were evidently behind the “attack”) was provided the list of 114,000 email addresses after having leaked the flaw to AT&T where it allegedly went unaddressed for almost a day.  That person was Ryan Tate at Gawker, who broke the story. While white hat groups like these are sometimes criticized for their “alternative disclosure process”, they actually do more help than harm.  The more ‘holes’ like this found, the more secure Cloud solutions will become available for all of us in the long run.  I say “hats off” (sorry couldn’t help that one!) and keep up the good work.

So, should these security issues be taken seriously?

Hell yes!

Should you hold off moving any of your company’s IT infrastructure to the Cloud as a result of incidents such as “iPadgate”?

Absolutely not!

Both consumers and small businesses alike have, en masse, placed their trust in Cloud-based solutions, much to the degree that services like GMail and GoToMeeting, for example, have become core to day-to-day life – both in personal and business settings.  At the enterprise level, CIOs and CTOs worldwide are rapidly climbing aboard the Cloud train as well, deploying various solutions within their organizations. These highly scalable, on-demand solutions can help businesses to deploy additional infrastructure quickly with reduced capital costs and refreshed technology – often helping to optimize operating costs as well. The rate of adoption in the business community is increasing rapidly: Gartner forecasts that, by 2012, some one in five businesses will own no IT assets, and that by 2013 businesses will be spending some $150 billion on Cloud services.

Question is, how can businesses take advantage of high-level Cloud solutions right now and still retain some peace of mind relative to availability and security?  Fairly easily, and in a just a few steps. Whether your organization is a startup or an established enterprise, Cloud solutions can play a key role in your IT organization. Risks related to security, control, and availability with Cloud services are not dissimilar from those in any IT environment, and can be mitigated through careful provider selection and sound planning. Here are a few steps that might be helpful in your adoption of these services:

First : Strategize. Plan. Then plan some more.

Devising a sound strategy and planning effectively is a sure first step to approaching and taking advantage of Cloud solutions for your business. The one thing you can’t afford to do is to get this stuff wrong.  This is especially true if your company itself is a service provider of one form or another, as most businesses today are.  It would only take one mishap – say, the inability to quickly test and release a patch to your popular online game, or having physicians who are unable to access their patients’ electronic medical records, etc. – to realize the importance of effective planning and smart Cloud provider selection.  If you need a hand with strategy vetting the  providers and options, don’t be afraid to ‘phone a friend’ – there are many IT consultants and brokerage firms out there fluent in Cloud who are objective and can be helpful from strategy through to implementation, often saving you both time and resources.

Planning for the deployment of Cloud services such as storage or rich content delivery is fairly straightforward, as the related services – Amazon’s S3 storage or EdgeCast’s Content Delivery Network (CDN) services, for example – are more or less plug-and-play and can be segregated from the rest of your infrastructure.  Those services that include compute functions however (Cloud-based servers and related infrastructure) will take a bit more time and detail at the planning stage.  Most businesses considering Cloud deployments of this type spend the necessary time to analyze existing and future needs around each of their main environments, which typically fall under:

  • Development
  • Testing
  • Quality Assurance (QA)
  • Production

Evaluating Cloud services by IT discipline is smart, since there are many available options for compute power (CPU), memory, storage, and networking – and the build requirements within each environment will likely be varied.  A good strategy should include a thorough understanding of the resources you currently have in place by spending the necessary time to evaluate the needs with each of your IT environments.

Understanding your existing financial exposure and budget for Cloud solutions during this stage is also important.  Some questions to consider:

  • Hardware: What is the current value of existing hardware per environment, and how close are you to needing hardware refresh? What are the capital costs associated with such a refresh?
  • Network: What are the current monthly costs for networking/IP bandwidth, per environment?
  • Labor: What are the current human resource costs associated with operating each environment (operations, monitoring, support, etc.)?
  • Roadmap: What are the hardware, infrastructure, performance, and human resource requirements, per environment, over the next  18-24 months needed to support growth demands?

From these and similar questions, you should be able to arrive at total monthly operating costs – both for your current environment and at scale.  (Consultants can be helpful here as well, many times providing that second set of objective “eyes”.)   With your Cloud approach now defined, you’ll likely see immediate capital  and operating cost reductions, the ability to quickly scale infrastructure commensurate with usage and growth, and the ability to reallocate human resources to support more business-critical IT functions. Still with me?  Alrighty then…on to finding and selecting the right providers.

Next : Thou shalt do thy homework.

There might be as many shops hawking Cloud services today as there were candy and toy shops selling Beanie Babies many years back…craziness! As you step through your due diligence with potential providers, beware the Cloud pricing that sounds too good to be true…because, as the adage dictates, it probably is.  When you dig below that wow-this-provider-is-30%-cheaper-than-the-others! pricing, don’t be too surprised at what you’ll likely find.  The provider in question might indeed have some of the shiny bells and whistles you’re after, but perhaps only one datacenter…so if the ground opens up during an earthquake and swallows it whole, or a tornado carries it away Dorothy-and-Toto-style, well…don’t say I didn’t warn you.  Other low-cost leaders tend to lure you in with great pricing, but have limited resources on hand (meaning they’ll need to go out and buy those Bugatti Veyron-grade servers you’re after and will charge huge setup fees accordingly).  Also, ensure your provider-to-be is well-certified and maintains full regulatory compliance (typically SAS-70 Type II at a minimum) with your organization.  So, let’s move those “life on the B/C/D-list” providers right into the rubbish bin, shall we?  Right.  So now we’re left with the few real players – names you’ll likely recognize: Amazon, Google, Joyent, Microsoft, Rackspace, Rightscale, Terremark.  (These are but a few of the many A-list providers available.) Spend time with each prospective provider; ask tough questions, ensuring the selected provider has ridiculously good support, lots of IP bandwidth options, and security features that exceed your own requirements.  Take a good, hard look at the providers’ pricing, negotiating wherever possible and comparing to your existing cost structure.  When it comes to final selection time, take a well-organized approach to this as well.  My colleague Matt Carmen recently broke down in detail the process of selecting the right outsourced IT provider, which I would recommend checking out.

Finally : A phased approach.

Now that you’ve got a good head for the Cloud services and options that will best suit your business, it’s time to get tactical.   A best practice when approaching any Cloud solution is to pilot, evaluate, then implement in phases.  Select which of your IT environments will work best for a pilot.  The pilot should be brief, but long enough to provide a thorough evaluation…30-45 days is usually enough time.  We’re still on the leading edge of what Cloud can provide, and solutions are constantly evolving.  Providing feedback during a pilot period is key – try to break the solution and be as granular as possible with your providers as to how their service can be improved.  The good providers will work with you and incorporate your feedback into their services…and everyone wins.

Post a successful pilot, make the move into a full launch window with the same, sure-footed project management aplomb as you might with releasing a new product to your customers. You’ll find here again that the provider(s) you’ve selected will work hand-in-hand with your team, ensuring a smooth transition and quickly addressing any issues.

Congratulations!

Now that wasn’t so bad, was it? Your organization is now among a rapidly growing number of businesses who have embraced Cloud solutions and whose IT organizations have realized increased availability, efficiency, and productivity as a result. Once you’ve got one environment successfully ported and humming right along, you’ll likely see the benefits of deploying the rest of your environments in similar fashion.

Stir. Repeat. Enjoy.


Week In Review – Jun 20 – Jun 26, 2010

by Magesh Tarala on June 27, 2010

3 Steps to making the Outsourcing choice

by Matthew Carmen, Jun 21, 2010

It is now rare to find a company, of any size, that hasn’t outsourced some portion of their IT functions.  This could be as small as an application or as large as the company’s entire IT department.  If you’re considering outsourcing within your own organization, Matthew’s article will help you think through the next steps in detail.  more…

Leadership and Mythology #7: Zeus, Greed and Change

by Gary Monti, Jun 22, 2010

Being greedy can lead to disastrous results. Nurturing your network and cultivating abundance is critical for sustained success and peace of mind. Greed and its consequences show up in Greek mythology. The lessons are quite relevant today especially in a complex, chaotic business world. more…

Social Media and Tribes #3: Mob mentality

by Deepika Bajaj, Jun 23, 2010

Contrary to popular conventions about the Web opening minds, people are more likely to read information or participate in social groups that reinforce what they already believe. A tribe can show dramatic increase in the undesirable action compared with doing nothing at all, because it demonstrated that lots of others engaged in the behavior. But if your message to your tribe is right, you can make positive change happen.  more…

Flexible Focus #7: Inside the lines

by William Reed, Jun 24, 2010

Thinking outside the box is a synonym for creativity. Although this metaphor has captured the popular imagination, the real challenge is to engage in applied creative thinking that solves real problems. Just like tennis is a game that is played entirely within the box, the most exciting and productive creative work is often produced and performed inside the box. In this article William explains how to use the Mandala chart to expand your thinking and stay within the lines.  more…

Author’s Journey #27: Building relationships with your readers

by Roger Parker, Jun 25, 2010

It is increasingly obvious that the whole point of writing a book is not to sell books, but to build long-term and profitable reader relationships. Consider your book the core of your long-term self (or business) marketing plan. In this scenario, your book becomes the hub of a relationship-building strategy that begins long before your book appears and continues for years afterward. more…

3 Steps to making the Outsourcing choice

by Matthew Carmen on June 21, 2010

Outsourcing.  If you undertake this beast solely for financial savings, you will be disappointed. After a decade and a half of IT finance experience in the consulting, healthcare and entertainment industries, I tend to liken outsourcing to medicine:  The skill or portion of your business that you are looking to outsource is the headache, and the act of outsourcing is the aspirin.  In many cases, one has to be willing to spend extra money to get rid of the headache.  Spending extra money is not always the case, but when it is, it still could be the right decision in the long term.

It is now rare to find a company, of any size, that hasn’t outsourced some portion of their IT functions.  This could be as small as an application or as large as the company’s entire IT department.  So now you’re considering outsourcing within your own organization…but where to start?

Step 1: Once the CxO has signed off…

Once the CIO and/or CFO (hopefully with inputs from many other departments) has decided to look at the outsourcing option, where does the team – consisting of representation from finance, procurement, legal, operations, the user community and executive leadership – start?  As an example, let’s say a company is looking at outsourcing their mainframe environment:

The first thing that needs to be done is to figure out what assets the company has dedicated to its mainframe environment.  These assets might include:  applications (software), storage, facilities, labor and the actual mainframe equipment.  According to my colleague Brian Superczynski’s article, “More bang for your IT buck: Three keys to success”, published on March 15, 2010, well run organizations have accurate asset management, contract management, vendor management, activity based costing and other systems to make this an easy endeavor (my article  Lifecycle Management: Knowing what your company owns, how it’s being used, and where it lives, published April 12, 2010, delves into these areas more deeply), if not, there are many small and large consulting companies that can come in and do this assessment.  Most small and midsized companies do not have these capabilities in house.  Even large companies may want to bring in an outside expert to do this work, as to keep politics out of the decision making process, as much as possible.  Once this task is complete, the finance person assigned to this project will build a cost model, showing what the company spends on its mainframe environment.

Secondly, obtaining data on what other companies (similar to your size and/or industry) are spending on their applications, labor, storage, etc., is very valuable.  As with asset analysis, there are many companies out there that can provide this information –  Gartner Group and Forrester Research are two of the leaders.  Make sure to buy only the services that you need.  This information can get pricy, but it is definitely needed to make a sound business decision that will affect the company for many years to come.  This information, in conjunction with the corporate costs, will show where the negotiations with the outsource provider will take priority.  Labor is always high on this priority list, due to the fact that a provider should be able to do the outsourced activity more efficiently.

Step 2: Selecting and engaging outsourced solutions

Upon completion of Step one, the company is now ready to develop a Request For Information (RFI).  This task is usually performed by the procurement team, with help from operations, finance and legal.  This document is used to gauge the interest of prospective outsource providers.  By asking the right questions regarding the providers’ mainframe capabilities, the company looking to outsource can figure out who are the viable candidates, based predominantly on operational viability and sustainability.

Once The RFI has been responded to, hopefully by many outsourcing providers, the company will make some determinations on who they want to bid on the project.  What is becoming more and more popular is multiple outsource providers getting pieces of the outsource initiative – known as multi-sourcing – can come into play as well at this juncture.  Once the company knows who and how they want to bid on their outsourcing project, a Request For Pricing is developed (RFP).  This document, with many parts of the RFI document included, is meant for the vendor community to bid on the wants and needs of the company.  These wants and needs can get very complicated, the company looking to outsource may want upgrades to many of their applications and systems, that they cannot do themselves, or they might want equipment upgrades, etc.  These needs will add costs to the total vendor bid.

The vendors that choose to participate in this possible outsourcing initiative will respond to the corporate RFI/RFP – a timeframe you specify but usually within 30 to 60 days. Now is when the real nuts and bolts work starts.  Everything is a negotiation.  The company will need to decide what is a priority and what becomes secondary.  Service Level Agreements (SLA’s) must be agreed to, cost structures for outside work, i.e. new functionality, future usage, etc, need to be agreed to, as well as hundreds of seemingly minor points that if not discussed can come back to bite the company.  Once all the costs, service levels, etc. are agreed to, a decision can be reached.

Step 3:  Reaching the final decision

In order to reach a final decision, a business case must be built.  There is no set form in doing this, each company is different.  This business case needs to contain the information necessary to sell this undertaking to the decision makers in the corporation.  Financial models, growth estimates, industry information, etc all help make the case.  What the decision will come down to is where the ‘most bang for the buck’ can be realized.  Is the company getting the same services for less money?  Are more services provided for more money?  Are future costs controlled?  The answers to these questions in the business case will lead to a conclusion and facilitate the final decision.

Once the business case is presented, a decision is made.  Outsourcing may or may not make sense based upon all of the evidence provided.  If outsourcing does not make sense at a particular time, this does not necessarily mean it should not be looked at again in the near future.  The business environment or technical needs of the company may have changed, services pricing may have decreased, etc.  If outsourcing is the chosen direction, the company needs to put processes and people in place to manage the engagement in a positive way, in most cases this can be done through a reallocation of the labor that has been outsourced.  Issues will come up and having process in place will help mitigate them in a way that is beneficial to all involved.

I hope this information is helpful in your organization. Remember that this is a broad outline of the undertaking of an outsourcing relationship.  Each company will have different needs, levels of service, etc.  Make sure you have or contract the best expertise to provide all the information needed for your company to make the best decision for its business interests.  In most cases, outsourcing should only be considered for non-core activities, such as Information Technology, Customer Service, vendor management, etc.  Outsourcing can be a huge benefit to an organization on many levels, but should never be taken lightly; always make sure that due diligence has been conducted, sound planning exists, and ultimately that internal monitoring and coverage exists in order to address any issues that may arise.  It’s your business – fuel it properly to ensure success

Week In Review – Jun 6 – Jun 12, 2010

by Magesh Tarala on June 13, 2010

NBA, NHL and your company’s Key Performance Indicators

by Brian Superczynski, Jun 7, 2010

Competitive sports industry lives and breaths KPIs. Everything is measured and compared with the other teams and actionable items created. This helps them to improve their game. Most companies measure KPIs, but find it difficult to do it at a more granular level within the company. Ask your management chain to identify metrics which translate to their group’s success. more…

Leadership and Mythology #5: Psychology and Entrepreneurs

by Gary Monti, Jun 8, 2010

Transitioning from a job to being an entrepreneur takes you through an interesting journey. Typically you start your career by following orders and delivering results. Then as you gain more confidence, you start expecting more and ultimately decide to go on your own. As you go through the various stages, the individual is transformed continuously. Is it challenging or threatening? It depend upon your psyche. more…

Flexible Focus #5: The Mandala Business Diary

by William Reed, Jun 10, 2010

The concept of time is something that many do not grasp. It is not a resource you control. Your quality of life and legacy depends on where and how you spend your time. Wouldn’t it be nice to have a compass to guide you where you want to go? Mandala Chart can help you do that. more…

Author’s Journey #25: Using video to market and sell your book

by Roger Parker, Jun 11, 2010

Video is easier than ever. In fact, the cost of getting started has dropped to zero – it’s free! In this post Roger explains how you can start building your online video presence today, even if you haven’t had any previous video experience.  more…

NBA, NHL and your company’s Key Performance Indicators

by Brian Superczynski on June 7, 2010

For sports fans this is an exciting time of the year with both the NBA and NHL finals taking place simultaneously.

There’s added excitement this year with the renewal of the classic Lakers and Celtics rivalry and the Chicago Blackhawks looking for their first Stanley Cup championship since 1961.

As in sports, companies and internal departments need to identify key performance metrics which translate to success in their industry.

Just as analysts review a company’s balance sheet and operational metrics, many fans and sports analysts refer to team and player statistics in order to support their predictions of who will win their respective league championship.   In the NBA finals, they’ll be citing each team’s shooting percentage from the free throw line and the field as a key performance indicator. In hockey, there are the obvious statistics of number of power play goals and goals against average.  But this year, analyst have cited the unusual statistic of Chicago’s offense scoring 11 goals with 10 different players as a key indicator of its success through game 3 of the championship series.   The implication is identifying the Stanley Cup series specific statistics over and above the commonly followed season statistics in order for either team to make adjustments to win the Cup.

Many organizations today do a terrific job at measuring their own teams’ statistics – take the airline industry for example: they measure the use of number of seat miles for which the company earned revenues.  What’s more difficult is identifying meaningful performance indicators at the departmental or individual level within an organization?  Effective identification and translation of organizational specifics makes an executive’s job easier when identifying and adjusting to trends, defending team budgets, identifying savings opportunities, and even negotiating contracts.  This is especially true within an IT organization.

One of my favorite Information technology metrics which typically does not appear on the company’s balance sheet or in the annual report but translates into effective IT performance are the metrics related to desktop or PC support. I like these metrics because Joe the worker at Company X probably does not care anything about IT metrics.  But Joe and his peers know who to call for problems with their PC’s.  You know – the “IT guy” who the department takes out to an appreciation lunch once or twice a year.  Keep Joe and his peers happy and that will translate to good scores for IT support.  Remotely identifying and correcting Joe’s PC problems at the help desk is almost always the most efficient and cost effective way to provide desktop support.  Therefore statistics such as average time to answer and mean time to repair (MTTR) are often cited as an accurate performance measurement of the desktop support unit.  These statistics have further downstream implications for identifying the desktop to technician ratios or the number of technicians required to be in the field when problems cannot be solved remotely or over the phone with an agent.  Organizations which typically resolve most incidents remotely with an agent do not need as many field technicians and therefore have high desktop to field technician ratio’s and are considered the most cost efficient.

But just as the Lakers, Celtics, Blackhawks and Flyers will be identifying opportunities and adjustments based upon shot percentages and other common game time metrics, an organization must know how to translate their metrics into performance-improving activities.  Although the Flyers have allowed goals by 10 different players after three games, they have been able to hold the Blackhawks top scorers this season to just one goal in the finals.  So in some respect, part of the Flyers game plan may be working in shutting down the opposing team’s top scorers and the high number of individual goals per Blackhawk player is a positive metric.

Using the same analogy, there may be reasons why an IT organization has metrics which are out of line with industry standards and those reasons need to be well understood to justify costs.  In the desktop support example cited above, a company may require higher PC to technician ratios due to Joe’s high availability requirements.  For example, our friend Joe is an order taker on a trading floor and does not have the time to call the help desk and work with an agent to solve problems with his PC while the markets are open.  The same dynamic is also seen in the healthcare industry within clinical environments, where nurses and doctors are focused on treating patients and do not have the bandwidth to diagnose problems accessing automated medical records from PC’s.  In these environments, it would obviously be acceptable to experience higher desktop to field support ratio’s to insure key functions within the company have highly available systems and support.  Understanding these dynamics is critical when performing organizational benchmarking activities and considering out source opportunities.  With regard to outsourcing, you’ll want to understand how a supplier is proposing to achieve savings.  Are they proposing to increase the number of PC’s a technician supports from 250 to 500 devices? If their model is predicated by resolving more calls remotely at the help desk you’ll want to closely examine the impact to your organization.  Having a deep understanding of your metrics will allow you to better negotiate support costs within your company and negotiate actionable savings strategies offered by department heads and suppliers.

The challenge is to drive meaningful measurements to all levels within your organization.  Ask your management chain to identify metrics which translate to their group’s success.  Then ask them why the metrics are meaningful and actionable and what needs to be done to improve the scores.  I would also suggest that if the measurements are not actionable then they are probably not the right performance indicators to be tracking.

For those deep thinkers out there, I hope these insights will not cause you to become distracted with thoughts of your company’s metrics while watching the NBA and NHL finals.

For those of you wondering, Blackhawks in six games with Kane becoming the scoring leader and Lakers in five by taking advantage of Celtic fouls and a higher free throw percentage.