Browse > Home / Outsource Blogs / IT outsourcing with business value in mind

IT outsourcing with business value in mind

October 28, 2009

A streamlined IT value chain with capable actors can provide more added value at a lower cost level in a sustainable manner. This requires the IT organization to understand the fundamental aspects and dynamics of the business processes. Understanding how the Business makes money and which risks it faces is for many IT organizations however still a major challenge. Most IT organizations therefore still base their sourcing decisions on traditional IT silo’s.

This is understandable if the CIO is rewarded for reducing the IT budget. The role of IT within the business processes is today however so crucial that the business value perspective of IT (measured by e.g. Value at Risk, VaR) should be incorporated in the business case. Due to the prevalent governance structures in most companies is the CIO’s accountability however mostly tied to achieving TCO reductions within his own domain. Supporting the business is of course also an important objective, but in day-to-day practice wins the need to reduce IT cost. Hence, scoping the outsourcing of IT based on maximizing economies of scale through standardization.

The ever increasing penetration of IT within the primary business processes drives however a demand for differentiated IT supply to capitalize on market opportunities and mitigate business risks. This requires IT to understand the complexity, competition, globalization and other trends the business is facing.

It is up to the Business to provide IT with this information and the subsequent responsibility of IT should be to translate the business opportunities and risks into IT value and risk drivers. These drivers should than guide the IT organizational change, investment decisions and sourcing strategy. One should thus look more from a business perspective towards the IT value chain and subsequently provides concrete adjustments which allow for sustainable improvement for the company value as a whole, not just the IT budget. This is the first step leading to a fully transparent business IT alignment (see illustration).

outsource With Business Value

The transparency of Business IT alignment is the foundation to connect the performance of the IT organization with the actual demand of the business processes. The results of this approach: more added value for the Business and a more cost-effective IT organization, which invests in innovations which really count. Tomorrow’s IT organization should be able to demonstrate accountability over its performance as an integral contribution to the overall performance of the company.

An example: The IT department of a high tech company thought it could reduce cost by applying the same service levels for both R&D and Manufacturing. By doing this they overlooked the elemental differences in demands of both functions. The R&D departments got higher availability service levels than required, but were not able to get access to the latest state-of-the-art hardware to design and test their new products.

In this example the R&D departments were supplied with higher than required service levels at the cost of the capability to innovate, outsourcing was the catalyst. By the introduction of generic IT services it would be easier to find a suitable vendor, allowing the IT organization to meet its cost saving target. The negative impact on the business however, was estimated as being zilch until it was too late.

Outsourcing without making an adequate assessment of its impact on the organization as a whole, opens the door to a disappointment. For this reason one should look from the initial start beyond a superficial business case. It necessary to benefit as an organization as a whole in terms of more value and a lower or equal risk profile. Only then an outsourcing contract can be truly successful.

Related posts:

  1. Is IT-outsourcing starting to hurt the business?
  2. Outsourcing Strategies – Not One-Way Business Solution
  3. Sustainable outsourcing is more than just green
  4. Anti Offshoring Laws to impact business?
  5. Outsourcing 2010: repairing of crisis contracts?


Written by François Zielemans · Filed Under Outsource Blogs 

Comments

One Response to “IT outsourcing with business value in mind”

  1. Jim on October 29th, 2009 7:55 am

    Good blog, any outsourcing either ITO or BPO, should not happen without considering the business value. Cost alone should not be the deciding factor in any outsourcing project

Got something to say?