A Practical Approach for IT Governance

Posts Tagged ‘Outsourcing

Is “Shadow Sourcing” here to stay?

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We have heard of shadow IT (also referred to as “rogue IT”). Shadow sourcing (“Rogue Sourcing”) is a result of shadow IT directly sourcing technology solutions from providers without IT’s approval. I actually prefer the term shadow to rogue, and I also have eShadow Sourcingncouraged CIOs to understand why shadow IT exists and refine the IT approach to meet user needs and focus on less obtrusive IT Governance processes.

Consultants have created a plethora of adjectives to differentiate themselves from outsourcers: smart sourcing, right sourcing, strategic sourcing and the like. Now shadow sourcing? Before the reader frowns, I will freely confess that I created it. Please view me as a career CIO who coined this term and not as a consultant.

To provide a bit of a background, IT is facing the daunting task of delivering more for less. The result is that users (like marketing, finance, operations) are seldom getting their projects done by the internal IT department. Naturally they resort to outsourcers. A very harsh phrase to use, but shadow sourcing refers to IT sourcing by non-IT departments. Of the many challenges with shadow sourcing, the three that kindle their way to the top are: management overhead, higher costs, and lack of a review and credentialing process potentially leading to poor delivery quality.

The way to mitigate shadow sourcing is not to outlaw it, but accept it as a weakness in the IT department in how it is managing user requests. IT governance helps facilitate decision making across all users. This prevents IT from independently making and later being held solely responsible for poor decisions. The guiding principle is to deliver value to the business without injecting onerous controls that stifle productivity. To achieve it, the IT Governance framework should provide complete transparency on IT activities and make it simple for users to make, monitor and prioritize IT requests. In order to achieve transparency, IT management will need to establish controls and processes to deliver quality technology solutions on time and within allocated budgets.

Outsourcing can actually enable effective IT Governance as it provides a scalable resource base to work in conjunction with internal IT resources. IT can transform itself as a nimble service based organization taking advantage of outsourcing. This will significantly mitigate the risks of shadow sourcing.

Written by Subbu Murthy

October 27, 2014 at 3:25 pm

Posted in IT Governance

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Outsourcing for SMBs

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Following the ignominious collapse of several major outsourcing deals, IT services providers and customers alike have had to revise their approach to the entire outsourcing business. The trend towards more small projects is gaining momentum, and it further reinforces the need for organizations to develop an IT governance methodology for small projects. SMB CIOs have an alternative solution in extending their resource capability using project-based sourcing. Project-based sourcing is a convenient way to balance the need for reducing costs and maintaining core competence in-house.

While outsourcing makes good sense, organizations, particularly SMBs (Small to Mid-Sized Businesses), simply maintain status quo. Either they cite lack of expertise in managing off-shore engagements or perceived quality issues to not engage in off-shoring. To a large extent, their fears are justified. Tier-1 outsourcers seek outsourcing of entire functions – not the ideal method for SMBs which seek help for specific projects.

When outsourcing the projects, the overhead gets accented as procurement and sourcing decisions have their own components of fixed costs. The lack of a well-established Service Provider network that deliver project-based offshore solutions adds to procurement costs, often negating the benefits of outsourcing. The challenges with small-project sourcing from a SMB perspective are three-fold:

  1. Management issues leading to gaps between expectations and delivery. Businesses are not adept at managing global sourcing for smaller projects.
  2. The sheer number of projects with a large pool of smaller outsourcers makes the job of connecting the “right” provider with the projects extremely challenging.
  3. Even though the IT projects are small, the procurement logistics are still time-consuming and complex.

Fortunately, web-based brokerage solutions are emerging. These solutions are built on a solid pre-credentialed Service Provider network to ensure that lower cost is not negated by poor quality. These web-based solutions benefit both the SMB as well as the Service Provider. SMBs benefit from low administrative costs and accelerated contracting. They also benefit from selecting a vendor from a pre-credentialed network. Many Tier-2 and Tier-3 offshore Service Providers have the ability to provide niche IT solutions that match SMB project needs. Having a single consolidator like UsourceIT that manages the smaller outsourcers provides an efficient mechanism to implement small-project sourcing.

Written by Subbu Murthy

April 15, 2010 at 7:02 pm

Posted in IT Governance

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The Benefits of Remote Infrastructure Management For SMBs

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Frameworks such as ITIL have developed guidelines for strategizing, designing, implementing and managing IT Infrastructure that provides best value to businesses.  While the guidelines were designed for Tier-1 firms, they are also applicable for Small to Mid-Sized Businesses.  Ignoring the Fortune 1000, there are 17000+ companies who have between 500 and 10,000 employees.  Let us call these companies Tier-2 companies.  There are probably 200,000+ companies who have more than 100 employees but less than 500.  Let us call these Tier-3 companies.  A challenge Tier-3 companies, and to some extent the Tier-2 enterprises, face is the lack of economies of scale.  If they do not have a outsourced environment, they require systems administration expertise, network management, help-desk, maintaining the server farms, and maintaining the user devices (PCs, laptops, PDAs, etc.).   One easy way to gain economies of scale is to outsource, particularly off-shoring to leverage the lower costs.

According to Stephanie Overby (CIO Magazine: Outsourcing: The Pros and Cons of Offshore Remote Infrastructure Management dated: March 18, 2008), the services that can be off-shored are:

Service % that can be off-shored
Network Services
Internal Help Desk
End-user Devices

While the degree of off-shoring can vary for each enterprise, Stephanie’s insightful article points out the need for a blended model – a combination of on-site expertise backed by Remote Infrastructure Management (RIM) services.  Cost savings are a result of three factors:

  1. Labor arbitrage,
  2. Shared services including SaaS, cloud computing, and,
  3. Shared expertise.

The best example of labor arbitrage is off-shoring.  Large outsourcers such as IBM, Infosys, and Wipro have provided these cost benefits to Tier-1 companies.  In the past five years, many Tier-2 and Tier-3 outsourcers have provided niche RIM services.   Cloud computing has helped reduce infrastructure costs.  SaaS (Software as a Service) has gained momentum helping companies pay for services actually consumed.  Shared expertise is another strong benefit as outsourcers provide a multitude of expertise that would be very costly to in-source.

Savings can be significant.  Typical savings for e-mail hosting and support can amount to over 100% , over 200% for remote server monitoring, and over 50% for applications monitoring and support.

In addition to cost savings, RIM offers a much higher level of service.  For example, outsourcers can provide 24-7 support far more economically than in-sourcing.  Another significant benefit of using outsourcers is the ability to provide higher availability of services on demand.  RIM is a proven model for managing IT Infrastructure.  In the past these benefits were limited to Tier-1 firms managing large data centers.  Recently, the growth of highly qualified and credentialed Tier-2 RIM providers makes it easy for Tier-3 enterprises to take advantage of off-shore partners.

Written by Subbu Murthy

April 15, 2010 at 7:01 pm

Posted in IT Governance

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