This is lecture 3 of my lessons as lector at Hanze University with the explanation of outsourcing as a way of sourcing. It will also give details about building a sourcing business case and the change approach for outsourcing.

1. ITSM Specialization Sourcing
2012-2013
Prof. Frank Willems
Lecture 4: Outsourcing

2. Agenda
• Outsourcing as a solution
• Define the scope of outsourcing
• Experience with outsourcing
• Building a business case
• Change approach for outsourcing
2

3. Outsourcing
3

4. What is outsourcing?
• Outsourcing is the decision taken by an organisation
to contract or sell the organisation assets, people,
process and/or activities to a third party supplier,
which in exchange provides and manages assets and
services for monetary returns over an agreed period
of time.
• Definable components of your business to be done by
a third party, that you did yourselves before
4

5. Define the scope of outsourcing
5

6. ISO/OSI framework for plotting scope
Webportal and website
….
Application C
….
Application B
….
Application D
….
Application E
….
Application F
Office applications
Generic applications
Application A
Proces
(functionality)
Application
Basic link system
(Middleware)
Control and
monitoring
(serverparc)
Network transport
and connectivity
(netwcrk) Common basic infrastrucure
Access (network)

7. Define scope in terms of scenario’s
and staffing
scopeparts: Infrastructure and application component Staff Component
Information Head of Division
Management 1 FTE
Functional Helpdesk
Management 1 FTE
Process Operational
1 FTE
management
(functionality)
Application
DBAGegevens
1 FTE
System
Basic link system Scenario 3 management Application
1,06 FTE /
0,88 FTE
(Middleware )
Control & monitoring
(Serverparc) Network
Specialist
Network transport and (1 FTE)
connectivity (netwcrk) Scenario 2 Netwerk- and
Infrastructure
Application
Management
Specialist
hardware
Access (network)) (1 FTE)
Own company Hired
7

8. Scope plotted on IT management
model
Management Directing Service
Aligning
Functional
Management
Information
Management
Organizing
Operational
Management
DBA
Application
Management
Implementing
Network- and
infrastructure
management
Scenario 3
Scenario 2
8

9. Always define 3-5 scenario’s
• Scenario 0 : Current situation
– Imaging current situation: for comparing the different scenarios
• Scenario 1: professionalisation scenario
– The implementation of the recommendations. None sourcing
• Scenario 2: outsourcing of ICT services
– The outsourcing of ICT facilities (desktop management, network
management, infrastructure, server and hardware monitoring, hosting web
sites)
• Scenario 3: outsourcing of ICT services and application mgt
– The outsourcing of ICT facilities (desktop management, network
management, infrastructure, server and hardware monitoring, hosting web
sites), data management and application management
• Scenario 4 : Collaboration
– In the ICT field (desktop management, network management,
infrastructure, server and hardware monitoring, hosting web sites, data
management and application management) collaborate with more of the
same organizations
9

10. The scope is plotted on the
Kraljic model
Large added value
What is the extent to which the product / service
nd th
2 generation sourcing 4 generation sourcing
Leverage Strategic
adds value for the business
Scenario 4
th
3 generation sourcing
Scenario 3
Less added value
Routine Scenario 2 Application
management
Bottleneck
Outsourcing
Helpdesk & desktop
mgt
st nd
1 generation sourcing Infrastructure mgt 2 generation sourcing
outsourcing
Purchasing Risk
Standard Is it a standard or a specialized product?
Specialized
10

11. Some experiences with
outsourcing
11

12. Outsourcing experiences in
general
Transition
First experiences
and deception
Reality comes in
Contracting
SLA/$ discussions
End user expectations
Informal renegotiations start
Intention
to outsource
0 mths 6 mths 12 mths 36 mths
1

13. Expectation of the phases in the
relationship
Closing End of current contract
Future
1 2 3
1. Transition (max 6 months)
2. Cost savings (efficiency improvements)
3. Improving effectiveness (innovation)
• Future will be a seamless continuation of the relation
1

14. Reality of the phases in the
relationship
Closing End of current contract
1 2
Future
3
1. Transition
2. Cost savings
3. Improving effectiveness
• Future will be based on the success of effective use of IT
1

15. So….
• Outsourcing is not always a good solution
• Outsourcing should be managed very professional
(directing organization at least at CMMi acq level 2)
• Supplier don’t measure the expectations
• Make a clear business case
Think before you decide: is outsourcing
a good solution?
15

16. Build the business case for
outsourcing and fill the calculation
model
16

17. Questions for building
business case
1. What are the possible scenarios in the outsourcing of
ICT function?
2. What are the arguments to make choices from one of
these scenarios?
3. What are the financial implications of outscourcing?
4. What are the organizational and human
consequences of outsourcing?
5. What are the risks and countermeasures of
outsourcing?
17

18. Example of a approach in
building business case
Activities conducted in the period August and September:
1. Several discussions with stakeholders and ICT portfolio within
customer organisation
2. Various observations made on the spot and existing situation in
images
3. Calculation completed and validated with stakeholders within
customer organisation
4. Demarcation for sourcing area and scenarios developed
5. Concept Report completed
18

19. Research, current situation,
scenario 0
Financial:
• Staffingcosts € 555.140
• Other automation costs € 149.744
• ICT infrastructure costs € 139.055
• Application costs € 777.124
Total € 1.621.063
Staffing (in FTE’s):
Direct Indirect
• Operations manager 0,89 Information manager 1,00
• Systemmanager 3,00 Functional management 4,50
• Helpdesk 2,00
19

20. Research, current situation,
scenario 0
Qualitative
• ICT management and operational processes only
implemented by means of tooling (TopDesk) and on CMMi
Services level 2
• ICT infrastructure is relatively modern, especially the servers
and remote connections are state-of-the-art, active network
components, cabling and workstations questions in the
medium term to focus
• There is relatively much hired and there is still limited own
occupation for ICT department; high degree of vulnerability
• By outsourcing much attention should be spent on
professionalisation of direction in the field of contract, demand
and supplier management, capacity planning and quality
control
20

21. Research, current situation,
scenario 0
Quality of IT Service managent activities in terms of CMMi for Services
SG1 SG2 SG3 GG2 GG3
Requirements Management (REQ level 2) PS PS PS NS
Configuration Management (CON level 2) PS PS PS NS NS
Incident and Request Management (IRM level 2) S PS PS NS
Measurement and Analysis (MA level 2) NS NS NS NS
Process and Product Quality Assurance (PPQA level 2) S PS PS PS
Project Planning (PP level 2) PS NS NS NS NS
Project Monitoring and Control (PMC level 2) PS PS S PS
Supplier Agreement Management (SAM level 2) PS NS PS PS
Organizational Process Focus (OPF) PS PS NS NS NS
Organizational Process Definition (OPD) PS PS NS NS
Organizational Training (OT) PS PS PS NS
21

22. Research, current situation,
scenario 0
• The calculation is not yet take into account the initial
costs. These include migration and transition costs
– Migration Cost: one-time costs that must be made to transfer
from the current situation of management to the situation with
outsourcing, these costs can probably be negotiated or
recovered by TCO reduction (scale benefits outsourcing)
– Transition costs: These costs consist of disintegration
(current overhead which no longer cover) and friction costs
(vacancy housing and replacing staff). With friction
expenditure must be taken into account, these are not yet
quantified
22

23. Principles of calculation
• Period 2008-2013
• The appearance of costs and depreciation are based on a
calendar year
• Scenarios are developed separately from each other
• Financial source file that is used for the calculations are total ICT
budget and personnel
• Costs are based on a 'frozen' situation. It is assumed that in the
coming years, no details are made that affect the operating costs
of ICT
• Depreciation hardware are linear and the maturity is 3 years *
Depreciation software are linear and the duration is 2 Year *
*= based on assumptions
23

24. Calculation results
0 s c e n a rio s c e n a rio 1 s c e n a rio 2 s c e n a rio 3 s c e n a rio 4
G em id d eld e jaarkosten (2 0 0 8 -2 0 1 3 )
A p p licaties 2 3 8 .3 2 3 2 3 8 .3 2 3 2 3 8 .3 2 3 2 3 8 .3 2 3 1 5 6 .5 5 8
A fsch rijvin gen 3 1 .4 3 1 7 5 .0 5 9 2 4 .2 5 6 2 4 .2 5 6 3 1 .4 3 1
P ro jecten 1 .4 2 6 1 .4 2 6 1 .4 2 6 1 .4 2 6 1 .4 2 6
L ease - 5 9 .0 5 4 5 3 .7 4 5 5 3 .7 4 5 5 9 .0 5 4
C o m m u n icatie 2 1 7 .1 0 8 1 5 6 .0 6 5 1 5 6 .0 6 5 1 5 6 .0 6 5 1 9 6 .2 3 3
M o b iel w erken - 4 2 .7 2 0 4 2 .7 2 0 4 2 .7 2 0 4 2 .7 2 0
P erso n eel 2 8 0 .1 0 3 2 8 0 .1 0 3 2 8 0 .6 8 8 2 2 8 .2 3 4 2 2 8 .5 2 1
In h u u r 2 8 1 .6 8 1 2 8 1 .6 8 1 1 8 7 .7 2 4 4 5 6 .7 1 5 1 8 4 .1 5 7
U itw ijk - 2 3 .8 3 2 5 .2 5 0 5 .2 5 0 -
O verige ko sten 6 0 .4 2 6 5 5 .7 4 4 5 2 .3 7 5 5 2 .3 7 5 5 2 .3 9 6
G em id d eld e jaarkosten (in cl in d ex atie) 1 .1 1 0 .4 9 9 1 .2 1 4 .0 0 8 1 .0 4 2 .5 7 3 1 .2 5 9 .1 1 0 9 5 2 .4 9 7
P er w erkp lek 2 .3 9 8 2 .6 2 2 2 .2 5 2 2 .7 1 9 2 .0 5 7
P er m ed ew erker 1 .2 8 2 1 .4 0 2 1 .2 0 4 1 .4 5 4 1 .1 0 0
P roc. b esp arin g tov 0 scen ario 0 ,0 % -1 1 ,3 % 3 ,2 % -1 4 ,7 % 5 ,8 %
T eru g verd ien tijd in jaren - >6 4 >6 4
In zet p erson eel
h o o fd IC T 1 ,0 0 1 ,0 0 1 ,0 1 ,0 1 ,0
IC T sp ecialist (serviced esk) 1 ,0 0 2 ,0 0 1 ,0 2 ,0 1 ,0
gegeven sb eh eerd er 1 ,0 0 1 ,0 0 1 ,0 - 0 ,5
ap p licatieb eh eerd er 1 ,0 3 1 ,0 0 1 ,0 - 0 ,5
systeem b eh eer 2 ,2 2 2 ,2 2 - - 1 ,0
T otaal fte 6 ,2 5 7 ,2 2 4 ,0 3 ,0 4 ,0
24

25. Prepare for decision making
25

26. Practical tip 1: Create a Crisis Plan
This will deliver a lot of information for decision-making and the
business case:
• Clarity about the essential functions of the organization
• Understanding the dependencies of the organization
• Understanding risks, opportunity and the countermeasures
• Translation of vital ICT components in the essential functions
properly (and equal documented)
• Clarity about responsibilities and behavior in emergencies (and
who really has to say)
• And what matters and visibility of the professionalism at this
moment
26

27. Practical tip 2: Develop a Pro forma SLA
and Terms of Reference
• On the basis of the crisis plan it is clear what ICT services are
important and which less
• With users it will be clear what requirements they set for services
• Services are classified in importance for business and market
transparency for completion of appropriate cooperation
• The quality of the services need to be checked, for example with
CMMi
• The Program of Requirements and the SMART requirements will
be visible and gives guidance in the selection process
27

28. Investigate the Change Colour of the
stakeholders
• What is the dominant colour of the stakeholders and
the decision makers
• What is your personal colour
• What intervention should be made to convince the
stakeholders and the decision makers
28

29. Draw up your conclusions
Example
• Outsourcing of ICT is necessary, the security of ICT
services is under such pressure that continue current
situation is not justified. There are also innovations that
have major implications for the way ICT should be
organized
• By transfer of staff (up to two FTE), we expect complicating
factors in the procurement and matching of profiles with the
market (future supplier)
• Withinthe organisation the future direction of the
outsourcing professional organization and the need for the
commission spatial information shoul be organized more
professional
29

30. Draw up your advice
Example
Choice for scenario 2, saving between 10-20% (compared with
scenario 2), but:
• Standardizing on applications
• Standardizing on workstations, which allow remote management
• Servers outdoor placed at supplier
• Bring people tendering in accordance with social status
• No surrender current contracts
• Professionalization of supplier management and demand side
• In the long term scenario 4 is possible, especially for innovations
30

31. Start the outsourcing change
approach
31

32. An Change approach for Sourcing
Intervention-oriented communication about plan and implementation
Support by Change help desk
Change analysis
+ Culture scan
Aligning structure and processes
Characteristics of
products, pro-
Organizing control and and prepairing sourcing cesses & structure
Clients,
Change idea Culture change and competence development Governance &
suppliers
Characteristics Characteristics
Contracting and realizing sourcing of interaction of employees
Learning to collaborate
….
Measuring Measuring
progress progress
Inter- Inter-
Reconsider- Reconsider-
ventions ventions
ing Ing
and (re) And (re)
goals goals
planning planning Change goals
Kick off
Plateau 1 Plateau 2 DD MM YYYY
Assessment by Change board
Consultation with Sounding board group
Client …
CIO
32

33. Mix organizing and change
Design and organizing
Cahange and Develop
Change components
Systems and Structure and Governance and culture
technology processes
Rationalisation, Culture scan and Functions/competences
systems, harmonizing specifying functions, Culture scan/ change
management governance, and analysis and organizing
processes competences control
Architecture and Aligning strategy plan, Developing collaboration/
process control and supplier managers and building
implementation selection cases
Stable services Organizing structure, Mobility and training of
portfolio securing processes, staff members, showing
Knowledge guarantee starting sourcing and results and achieving
appointing staff goals
33

34. Milestones of the Sourcing change
approach
Strategy Design and Making plans Contracting Transition and Optimization
decision making collaboration
Management Control Service
Aligning Define strategy Define strategy Bepalen strategie
and management facilities and ICT service
information
supply and
control
Change
Arranging Design and Design and Ontwerpen en components Desired
Context implementation
management
implementation
facilities and
information
supply and
plannen ICTis
This part
service
usually
qualified for
oursourcing
In enneahedron situation
control
Operating Use and Management and Beheren en
exploitation use facilities exploiteren ICT
management services
Possible
forms of
collaboration
Reason
Agreements
Governance model Declaration of
Organization plans collaboration
Current situation Chosen final situation
Yellowprint phase Blueprint phase Redprint phase Greenprint phase
View
Actors Sponsors, advisors and Mgt., control and Sponsors, mgt., Mgt., control and Supply, mgt.,
Sponsors, advisors mgt. advisors supply, control and supply, control
and mgt. advisors collaboration team
Communication Change plan Steering Protocol Newsletter Migration plan Service report
Strategy paper committee Study group Employee User board User board
Sounding board Social plan participation Account mgt. Change board
Closing document Collaboration letter
Results Sourcing choice Program of Contract Migratie Continuous
Change strategy Sourcing design requirements, Deal sheet Overdracht Assets orientation
Sourcing strategy Governance choice Organization plan Standards Services ingericht towards change
Approach and Decision Formation plan SLA, DAP Securing and grip on costs
planning Governance Employment knowledge
model agreement Game simulation
Game simulation

35. Example of detailed outsourcing
approach
Start 30 june September October November/December January
EU Tenderlaw period minimal 37 days Minimal 40 days a.s.a.p.
Stage I Stage II Stage III Stage IV Stage V Stage VI
Sign up candidates Awarding Publication
Invitation or Selection Procurement
award
Publication
• Drafting and • Application by • Questionnaire •Sending RFP •RFP submission •Final award
publication August 6 submission by PVE by bidders (minus disclosure
places for Selection candidates (minus Submit 40 Days) File Agreements
publication. Document send 37 Days) questions RFQ Review and Procedures
Tender Electronic Submit assessment Letter of (21 Days) (DAP)
Daily questions References Information Provisional Focus Financial
candidates Tender award to award (deadline Arrangements
Letter of applicants (21 15 days) (DFA)
Information dgen) OR involvement Products and
Drafting in provisional Services Catalog
Consultation due assessment doc award advice (PDC)
Drafting transparency (term SLA's tuning
qualificationdoc drafting PVE appointment) DAP, DFA, PDC
Drafting selection Drafting PVE Drafting terms of and SLA usually
document reference. Filing after signing
35

36. 24-12-2012