Managing IT Service Delivery Chapter 7

Key learning objectives – Understand how internetworking enables new IT service models and recognize typical features and advantages of these new models – Understand the opportunities and challenges of incremental outsourcing – Understand the value of large-scale outsourcing and how these complex alliances can best be managed

Before commercial Internet (1990s) Proprietary technologies expensive and unsatisfactory – Develop its own communication infrastructure – Technologies not interoperate well – Companies were locked in to specific vendor technologies (losing bargain power) Small-scale IT services mostly provided by IT department

Accessible public Internet enable… New options for delivering IT services – Outsourcing Compatible technologies enable – Firms obtain smaller increments of service from outside vendors – With shorter lead time and contract duration

Outline New service models Managing risk through incremental outsourcing Managing relationship with service providers Managing large-scale outsourcing arrangements Managing legacies Managing IT infrastructure assets

New Service Models Before: “that server runs our system” New: little infrastructure, pay a monthly fee for a service bundle – Not the internal IT department, but another company

Benefits of incremental outsourcing Managing the shortage of specialized IT workers – Important to SME Reducing time to market – Develop new capabilities quickly The shift to 24x7 operations – Difficult to one company, easier for vendors with many customers Favourable cash flow profiles Cost reduction in IT service chains Making applications globally accessible

Purchase vs. Subscribe cash flows

Software as a Service (SaaS) Over-the-Net Renting software functionality from a vendor for a monthly fee and accessing the functionality via a Web browser Data is stored securely in a central location managed by the service provider Salesforce.com – ms

Definitions of On Demand, SaaS, Utility, and Grid Computing Models Financial models that make IT services easier and less risky to procure and manage, as well as contracting models based on management of service levels Restructuring and reengineering of existing applications to make them easier to manage and use Enhancements to infrastructure to improve interoperability and efficiency in use of computing asses

Issues most be addressed by Middleware Provisioning – Providing access to new services or additional capacity in an automated and “on-the-fly” manner Resource virtualization – Server/storage capacity independent from physical characteristics and location Change management – Permit centralized changes to infrastructure, to reduce the cost of making changes and to exert additional level of control over processes critical to maintaining high availability Performance monitoring and analysis

An “On Demand” Computing Environment

An “On Demand” Computing Environment (continued)

Managing risk through incremental outsourcing Which services to outsource? – Services essential in running a business, but do not provide competitive advantage Example? – Risk of incremental outsourcing vs. outsourcing large segments of the IT function – Past Dilemma Do nothing and risk slipping behind competitors Wholesale replacement of major components of computing infrastructure – Replace legacy network with TCP/IP-based network

Internal versus External Delivery

An incremental outsourcing example: hosting Level of serviceDescription of service Business operating services Administering and operating an application Application support services Support for software above the operating system level; application performance monitoring and tuning Platform servicesSupport for hardware, operating system; reboot services; data backup and disaster recovery services, URL monitoring Network servicesConnectivity within the facility and externally to the public internet and to private peering networks; monitoring of network traffic at the transport layer; network security Real estate services (lowest level) Suitable floor space and physical facilities; maintenance of the space and facilities

More about hosting models Collocation hosting – Customers rent floor space, connectivity, and power Shared hosting – Servers are owned and operated by the hosting provider and customers purchase space on servers Dedicated hosting – Hosting provider own and operate the servers; – client firms do not share servers

Managing relationship with service providers A growing number of service providers Selecting service partners (request for proposal, RFP) – Descriptive information Market, key products/services – Financial information – Proposed plan for meeting service requirements – Mitigation of critical risk – Service guarantees The levels of performance it is willing to back with penalty clauses in a contract – Pricing If a deal is too favourable to one party at the expense of the other, usually ends up as a bad deal for both sides

Service-level agreement (SLA) Aligns incentives in relationships with service providers Describe the specific conditions by which the service provider is held liable for a service interruption and the penalties that the service provider will incur as a result

An SLA offered by a hosting provider Downtime– defined as sustained packet loss in excess of 50 percent for 15 consecutive minutes due to the failure of the hosting provider to provide services for the period (does not include scheduled maintenance time) Excess packet loss– defined as packet loss in excess of 1 percent between any two points in the hosting provider’s network Each downtime period entitle customer to receive a credit equal to one day’s recurring connectivity charge Hosting provider guarantees two-hour response time in diagnosing problems within hosting provider and customer network …

Managing large-scale outsourcing arrangements Strategic rather than operational motivations Broad impacts Reasons – Cost saving – Dissatisfaction with existing IT capabilities – Desire to focus firm strategy in other areas – Forcing major organizational changes – Access to skills and talent – Other factors

Designing large-scale outsourcing alliances Contract flexibility Standards and control – Detailed performance standards, backup plans The scope of outsourcing Expected cost savings and rate of technology renewal and improvement

Managing the alliance The CIO function – Planning, ensuring that IT resources are at the right level and are appropriately distributes Managing relationship with vendor; monitoring performance Retain planning responsibilities for visualizing and coordinating the firm’s long-term infrastructure Maintain an ability to evaluate emerging technologies and their potential applications Performance measurement Relationship interface

Managing legacies Technology problem Residual process complexity – The systems address problems that no longer exist Local adaptation – Not facilitating global business Nonstandard data definitions

Key questions in managing legacies Legacy systems How will new infrastructure exchange data with legacy systems? Will new infrastructure obtain needed real-time interaction with legacy systems? What work-arounds are necessary? Are they sustainable? What is long-term strategy for renewing legacy systems? Legacy organizations and cultures How will new infrastructure affect ways of working and communicating? Are anticipated changes acceptable? Should technology drive organisational and cultural changes? Should organization and culture be protected from technology effects? What are organizational expectations about common processes in different parts of the organisation? What are criteria for deciding whether systems or process will change when the two are not compatible?

Managing IT infrastructure assets What are IT assets? Can you see them? Reclaim decentralized IT assets – Total cost of ownership (TCO) analysis “$250 per desktop per month” – What services are used and with what frequency