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 Feature
19 February 2010 | Ken Turbitt Blog
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Businesses are not Measuring the Financial Effects of Their Own IT Outsourcing Programmes
This week Ken looks at why businesses are not quantifying the financial contribution with their outsourcing projects...

Last week I blogged about Cloud Computing and how many services appear to get lumped into this new terminology. One case in point was Outsourcing, where another IT provider provides the technology necessary for your business to operate. We’ve often heard of the large government PFI contracts costing many billions of pounds, some without perceived payback for many years (sometimes as much as 15years, unbelievable when technology is involved with its ever changing capability). Many of you will have heard me speak about the many businesses that do not baseline their services to understand how they deliver today, and fewer still carry out regular checkpoints to determine the success of their improvement programmes or ROI projections.

Well, a recent report backed by IT outsourcer Cognizant and conducted by the Warwick Business School, surveyed 250 IT and finance executives from large European organisations. Only 43% of respondents said they had attempted to quantify the financial contribution their outsourcing projects had made. Frankly I’m surprised it was that high! So many organisations make a purchasing decision based partly on the projected ROI (often provided by the vendors), yet never checkpoint at regular intervals to validate the initial ROI projections. When did you last hear of such a validation?

Around 40% of the respondents said that their organisation had cut back their use of outsourcing, or slowed the growth of its use. The principal reason for this, as cited by 78% of those respondents, was that they were unclear whether it delivered value for money. Now considering that so many millions are often spent on such outsourcing projects, why do CFO’s not demand more evidence of value for money from their CIO’s? Well the research also probed the attitudes of CFOs towards their counterparts in IT: only 37% said they were happy with the CIO’s ability to communicate the benefits of outsourcing to the business.

Does this mean that after all this time, with the advent of better integration of IT into the Business and the advent of Business Service Management that the CIO is still struggling to articulate the advantages of IT and its services in business terms? Maybe more CIO’s should spend some time in the business, or indeed come from the business into IT to aid this translation.

If businesses are currently failing to understand the benefits of outsourcing today, I’m sure they will have the same issues with Cloud computing too. My view is best to start base lining your operations today, so you can both understand and plan for your CSI plans from both a process and financial perspective. This should be carried out before outsourcing or moving into the Cloud, not after the event.

Last year I was approached by a software company based in Australia who provided a web based portal which allows organisations (either internally, or via a consultancy) to carry out ITSM baseline assessments of their operations taking into account the Process owners, Process Users and Process beneficiaries to obtain a 360 degree view within IT and the Business. The Portal also allows for the ROI details to be captured and analysed for the regular checkpoints to be carried out, enabling the accurate reporting of value, benefits and achievements.

It’s all very well these reports highlighting the shortcomings of the CIO and of outsourcing, what we need are solutions. I don’t often use my blog to sell or promote things but today is different! If you would like more information on this click here and register for the brochure.

Any feedback and comments are always welcome!! 

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19th February 2010

Hi Ken,

Really interesting read.  I certainly agree with you that having the processes in place before making any decisions about cloud computing is key. Adopting a cloud service infrastructure should not be a decision taken lightly (excuse the pun). Moving to a virtualised environment totally changes the way that CIOs and their teams need to operate. By understanding all of the processes involved in migrating to a cloud environment beforehand, the IT department can prepare for the new challenges, as cloud infrastructures can change the dynamic of IT management internally.  These challenges include capacity planning, configuration management, fault management and more. As you rightly point out, these need to be automated processes.Many systems management tools weren’t built to deal with these new IT infrastructures. Fortunately, the gap between the complex new requirements of VMs and the need for greater visibility and control over the whole environment - both virtual and physical - is starting to close, as tools emerge specifically designed to fill that gap. 

However, saying that, the benefits of cloud services are still out there to be reaped. As we begin to see a fundamental shift in how companies adopt and use the cloud, it will only be then that they are able to see the true benefits including higher efficiency and subsequently lower running costs. What will be interesting to see is how customers will evolve internally as they begin to adopt it.

Best regards,
Suhela Dighe
EMC Ionix

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