Improving Efficiency in outsourcing of IT Services in Strategic Planning 1Prof. Dr. Majed El-Farra

Seminar Objectives Introduce outsourcing concepts Identify current and emerging uses Identify advantages and disadvantages Review planning and feasibility studies Review vendor selection and contract negotiation processes Review project management strategies Identify outsourcing resources 2 Prof. Dr. Majed El-Farra

Setting the Stage IT is key to strategy and competitiveness Dramatic increase in demand Flat or declining IT budgets Tenure labor model and aging plant 3 Prof. Dr. Majed El-Farra

Outsourcing Definition One can define Outsourcing Services as a process of purchasing non essential resources (non-core activity) from others through long term contracts instead of being made within the company. To remain competitive, many companies outsource as a way to reduce costs, increase efficiencies, and refocus critical resources. TO focus on operating it in the most optimal way to achieve transformational cost savings (30% - 60%) and transformational revenue growth The term of outsourcing has been created from the words outside –resource-using 4 Prof. Dr. Majed El-Farra

Make-or-buy Outsourcing  Operative focus  Part of procurement  Operative procurement  Optimizing Business area/product  Reversible  Supplier-consumer relation  Strategic focus  Part of strategic org. Design  Integrate external resource to value chain  Irreversible  Co-operation (company & provider 5 Prof. Dr. Majed El-Farra

A Variety of Approaches   Improving   Downsizing   Rightsizing   Renegotiating   Insourcing   Federating   Microsourcing   Restructuring... … and Combining 6 Prof. Dr. Majed El-Farra

Undoubtedly Outsourcing Services is a strategic decision 7 Prof. Dr. Majed El-Farra

Why Outsourcing IT … Really? Concerns over efficiency/ effectiveness of IT operation Rising expectation for IT services High deployment&operation cost Scarcity of technical &financial resources 8 Prof. Dr. Majed El-Farra

The Outsourcing Balancing Act Cost Savings Service Levels loss of internal intellectual capital Institutional Strategic Direction 9Prof. Dr. Majed El-Farra

Strategic Reasons to Outsource Long term asset allocation Sharpen institutional focus Depending on strategic impact e.g, -only non- core activities -or Strategic partnership Risk/profit Sharing 10 Prof. Dr. Majed El-Farra

Tactical Reasons to Outsource Short term asset allocation by : Function or by study irrespective of strategic impact Resources not internally available Reduce and control operating costs Cash infusion\mix 11 Prof. Dr. Majed El-Farra

Common Uses of Outsourcing in IT Transfer of assets Disaster recovery Data entry Computer operations Telecommunications Equipment installation and maintenance Printing and mailing Computer leasing Application systems Systems management Facility management Strategic planning 12Prof. Dr. Majed El-Farra

Ten Myths of Outsourcing 1. You can outsource with no investment 2. You can buy essentials you don’t possess 3. You can buy market share using a vendor 4. Outsourcing solves staffing problems 5. Outsourcing reduces management needs 6. Outsourcing reduces problem complexity 7. Vendors need to know your core business 8. “Everyone says it’s the right thing to do” 9. Outsourcing lowers overall costs 10. Vendors will not do for others what they do for you 13Prof. Dr. Majed El-Farra

Feasibility Study of outsourcing Identify factors driving outsourcing Rational points for decision-making Identify real costs of alternative scenarios - maintaining the status quo - business process redesign - federate/unite and in source - micro sourcing Services having well-defined service levels Services delivered in defined time fames Vendor providing services as “core competencies” Vendor providing “economies of scale” 14Prof. Dr. Majed El-Farra

Diagnosis Redesign Implementation Three steps to Establish a Novel Outsourcing Strategy 15Prof. Dr. Majed El-Farra

Diagnosis Review of current capabilities and performance External benchmarks Gap analysis based upon: - Diagnostic findings - Expected future needs Define capability sourcing strategy 16Prof. Dr. Majed El-Farra

Redesign Establish project groups for Process redesign Organizational redesign Identification of non-core tasks to be outsourced Decide on time frame Get buy-in from key stakeholders Create pilot 17Prof. Dr. Majed El-Farra

Implementation Appoint project leaders Define new roles and responsibilities Refine incentives Revise resource and budget plans Establish dedicated outsourcing infrastructure Provide specific training to accommodate new skill set 18Prof. Dr. Majed El-Farra

Advantages of Outsourcing:  Allows a business to focus on core activities  Gives you access to professional capabilities  Shares the risk  Piece of mind that the process is in good hands (reliability)  Do not have to worry about continually introducing new technologies  Improves service quality  Frees up human resources  Frees up cash flow  Increases the control of your business  Makes the business more flexible to change (i.e. demand) 19 Prof. Dr. Majed El-Farra

Disadvantages of Outsourcing:  The fear of the service provider ceasing to trade (bankruptcy, etc)  You may lose control of the process  Creates potential redundancies  Other companies may also be using the service provider. Therefore in some cases, the best interests of the service provider may be diluted with other users  You may lose focus of the customer and concentrate on the product (the outsourced process)  The loss of talent generated internally  Employees may react badly to outsourcing and consequently their quality of work may suffer 20Prof. Dr. Majed El-Farra

Common Outsourcing Successes Contract is tight and carefully defined Unique contracts that match institutions with vendors Outsourcing specific functions not related to core business Outsourcing efficient functions Partnership to share risks and benefits Renegotiation option in contract 21Prof. Dr. Majed El-Farra

Outsourcing Risks: Approximately 30 per cent of companies that are advised are informed that outsourcing will not deliver the expected benefits. For the remaining 70 per cent, the roadmap to a successful outsourcing deal will require many decisions in areas such as HR, IT, financial, legal, regulatory, risk management, management training and public relations. 22 Prof. Dr. Majed El-Farra