Posts Tagged ‘outsourcing’

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.

—

Tagged as: active garage, brian beedle, cost saving, datacentertrust, digital storage, infrastructor, IT cost saving, maintenance contracts, outsourcing, printing, support contracts

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

Tagged as: active garage, consulting, datacentertrust, finance, Information technology, IT, IT Finance, mathew carmen, outsourcing, RFI, RFP, SLA

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.

Tagged as: active garage, ActiveGarage, blackhawks, Brian Superczynski, celtics, datacentertrust, flyers, Key Performance Indicators, lakers, NBA, NHL, outsourcing, stanley cup, support, technician