Different Models for Sharing or Outsourcing IT Services

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Different Models

for Sharing or

Outsourcing

Services

Consolidation, Compromise and Outsourcing


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Why Consider Shared or Outsource Services?

� Reducing organisation costs

� Gain economies of scale by using an organisation that only provides that service to

many

� Forming partnerships with other organisations that require the same service and

develop a single tender to gain economies of scale

� Reducing the skills required in your organisation

� Outsourcing your non core skills, reducing the need to continue training and simplify

your organisation structure

� Removing the need to maintain your own IT (asset rationalisation)

� Many IT organisations now provide online systems reducing the need for maintaining

internal software and development

� Developing partnerships

� Developing partnerships to explore additional opportunities for shared services

There are lots of reasons why organisations share or outsource services. These fall into four

main categories


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What Type of Services can fit this Model?

You could consider outsourcing or sharing any of your services. Some of the most common

are:

Outsource / shared Reason for change

Core IT applications Growth in cloud based applications to support key functions that enable

you to purchase per user rather than per organisation. Data can be

segmented to make it a seamless user experience

Data centres / hardware

/ hosting

The expanding IT data centre services outsource market reduces the cost

of ownership and the need for costly in house skills. Economies of scale

are achieved the more services you buy

Desktop applications Improved purchasing power for licence costs

Desktop support The expanding desktop support outsource market reduces the need for

costly in house skills. Economies of scale are achieved the more services

you buy

Networks and telephony Improved purchasing power, considered particularly where organisations

have contact centres. Paves way for future shared contact centre model

Payment processing Improve per transaction rates for payment processors, e.g. PayPoint etc.

by partnering to increase transaction rates


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How can Shared Services be Delivered?

There is no single model to deliver shared service benefits. Example models can include:

Internal only (public procurement)

• Outsourcing elements of ICT to a public provider

• Solutions unique to organisation available from market, e.g. Housing Applications on cloud based platform

• Volume limited to number of internal transactions

Joint Committee Procurement

• Joint procurement of IT outsource services• Solutions based on volume where economies of scale (e.g. desktop support, hosting)• Requires commitment to shared decision making, potential compromise of requirements and on-going

contract management

Joint Venture (partnership)

• Creation of a partnership organisation to deliver shared services. Jointly managed under commercial agreement

• Tactical solutions that are core to your business that the market cannot deliver cheaper• Requires commitment to shared decision making, potential compromise of requirements and on-going

contract management

One organisation lead and provide services to another

• Lead organisation provides chosen IT services for a number of others• Organisations in similar market that can buy services from existing HA• Requires relationship to be managed like any commercial arrangement and structure in place to support it


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What Should you Consider?

� Is the service a key skill you require in your organisation?

• Do you want to be a service provider or a buyer of services?

• Is it a core skill that adds value to your organisations?

� Is the service readily available in the market at a lower cost than you currently pay?

• Could the private sector deliver the service for less?

� Could you work in partnership with another Housing Association (HA) or Local Authority (LA) to form a partnership to gain economies of scale in buying?

� Could another HA or LA provide the service for you?

• Could you become a buyer of services from an existing HA or LA?

� Are there any legal reasons that you should not change your working model?

� Do you know what your objectives are and what you would want to gain?

• The various models deliver benefits in different ways. Before embarking on an approach it is important for you to understand the objectives you are trying to achieve

• Time, cost and improved service objectives could all be nest delivered by differing options

� What would your new operating model look like?

• Consider how you would work with a partner and the hand off points and SLA’s

• Consider issues of cultural fit between organisation

� Will shared services or outsourcing necessitate your organisation acquiring new skills?

• Outsourcing always requires the development of contract management skills

Before embarking on a project there are a few key questions to consider


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Opportunities for Cost Saving by Sharing

� Manpower savings– Less overall manpower required to deliver a shared service

– Manpower reduction overall for outsourcing

– Should always consider requirement for a commercial type role to manage on-going relationships

� Asset Rationalisation– Less overall assets required to serve the total number of users

– In outsourcing, model can move from asset owners to pay per user model, so overhead of asset ownership is removed

� Increased purchasing power– Reduced licensing cost per user

– Reduced rate per user for desktop support etc.

– Reduced cost for IT support per user

� Process Efficiency / Standardisation of working practices– Process of creating standard desktops etc. will identify process efficiencies

– Mapping processes will identify opportunities for improvement

The following areas should be considered when gathering benefits for the project


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Building a Business Case

� The case for shared services can look daunting as there is

often significant up-front costs

� Total cost of ownership provides a simple methodology to

present the facts and take the emotion out of decision

making

� The following model can be used to evaluate all of the

options you are considering

To evaluate the options open to you and provide a true comparison to ‘do nothing’ you need

to consider the true life cost of the options you are considering


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Total Cost of Ownership

Up-front IT costs Up front solution costs

Project delivery costs

Project costs including personnel and up

front process mapping activity

Partnership set up costs

Cost commitment to create partnership

arrangement

Procurement costs

Where public procurement is included,

personnel costs of managing process

Training & deployment costs

Costs to train all new users and any costs of

deployment (inc. Communications etc.)

Licence costs (annual costs) Annual Licence costs if any

Support costs (annual costs)

Annual support costs, include any fte

required to carry out support

Upgrade costs (annual costs) Any costs related to future upgrades

Future changes (annual costs) Costs to make future improvements

On-going training costs

(annual costs)

Costs to train new users and all users on

upgrades to system

On-going resource costs

Annual costs for resources required to

manage arrangement

Number of years of use Number of years the solution will be used for

Total Cost of ownership

= (total upfront cost / number of years) +

annual cost

Upfront costs

Direct on-going

cost

Indirect on-going

cost

TCO

Total cost of ownership of a solution takes into account the direct and in-direct costs

(training, support, future change etc.) of the solution for its full lifecycle.


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Making it Happen

� Clear set of objectives of what you are trying to achieve by doing this, for example

� Cost saving/service improvement/access to new technology

� Clear definition of what is and what is not included in the project

� Senior/shared governance in place and committed to delivering

� Fully documented processes for all elements considered for shared service/outsourcing

� Full understanding of the end to end technical architecture and who has ownership for maintaining each element

� Appropriate skills in place to deliver� Process, project delivery and commercial skills

� Do not underestimate the cultural change involved in implementing a shared service model

� Ensure project takes into account the business change aspects of delivery

Regardless of the model you choose there are a number of things you need in place to

make this work


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What can Go Wrong?

� Not clear on what it is you are trying to achieve

� Too much change whilst trying to deliver, scope of services not clear

� Trying to do too much at once

� Do not understand the skills within the organisation required to manage this model

� Processes and hand-offs not documented

� No clear ownership, roles and service levels between partners– Even as part of a partnership you are still a service provider

The following are the main reasons that projects of this type fail


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Example A: Online V Ownership Company A owned a CRM system that they had not maintained due to the complexity and costs involved.

It was not providing useful information or the tracking and reporting required

Key objectives: � Clear reports

� Up to date tracking of customers

� Profiling of customers

� Easy to use and maintain system

Key consideration: � Cost of ownership over a five year period. Hardware, software, maintenance

and development

� Protection and security of customer details

� Skills required to deliver and implement

Option 1 Buy new system and hardware and

maintain their own system.

� Cost of system and configuration

� Cost of hardware and replacement

� Upgrades of the system

� New skills for maintaining/support

Option 3 Buy new system and host externally

with a 3rd party

� Cost of system and configuration

� Maintenance and development

� Cost of hosting

� Support requirements

Option 2 Online hosted CRM with software

provider

� Monthly licence cost per user

� System configured by the provider

� Upgraded regularly at no cost

� Access online 24hr system & support

Conclusion: Online Hosted System � On first review the cost of licences were considerably more expensive than licences for owning the system, but when the total

cost of ownership over a five year period was calculated, it made the decision easy

� The costs of support and upgrades, the initial hardware and replacement at three years and maintenance and development

far out weighted the increased cost of licences

� The cost of ownership was 44% less than internal ownership and the flexibility of reducing and increasing licences based on

use would increase this


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Example B: Payment ProcessingCompany B processed regular weekly payments through the post office. Project initiated to tender for

new payment processing solution to reduce cost per transaction

Key objectives: � Availability of outlets

� Integration of internal systems

� Cost per transaction

� Easy to use and maintain system

Key consideration: � Cost per transaction over a five year period. Hardware, software,

integration costs, maintenance and development

� Payment security and regulatory compliance


Option 1 Re-negotiate current contract

� No upfront costs/technology

changes

� Potential for some reduction in per

transaction cost

� On-going management of provider

Option 3 Utilise outsource providers buying

power

� Improve transaction cost through

increase transaction volume

� Some upfront cost

� Management of existing provider

Option 2 Tender for new payment provider

� Improve transaction cost through

competition

� Upfront implementation costs

� On-going management of new

provider

Conclusion: Utilise Outsource Provider Buying Power� On initial review the set up costs seem prohibitive, however the significant reduction in cost per transaction made significant

savings over a five year period

� Payment processing is not core to the organisation and the market provided it at lower cost

� Reduced the specific technical skills required internally to manage the contracts


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Example C: Desktop Support Consolidation

Company C is an organisation that includes a number of diverse businesses which are run independently.

Desktop support was initially managed separately by each business

Key objectives: � Reducing cost of desktop support

� Consolidation of licensing

� Improved response times

� Improved compliance to security

policies

Key consideration: � Differing requirements of different organisation units

� Very different SLAs required, some critical emergency fix requirements,

some 9-5

� No single IT security policy across the group


Option 1 Consolidate into single team as a provider for all

� Desktop standardisation and process consolidation

� Consolidation of internal teams and company re-

organisation

Option 2 Consolidate and outsource

� Improve transaction cost through competition

� Upfront implementation costs

� On-going management of new provider

Conclusion: Consolidate and Outsource� Audit to achieve standard desktop alone achieved significant benefits. Duplication of licensing was found in particular in

standard desktop applications

� Implementation of standard desktop and processes applies to 80% of organisation, there is always specific requirements.

Ensure effort is focused on delivering benefits from the 80%

� Market cost of buying this service is significantly lower and service level higher

� Complexity of change is not in IT delivery but in cultural change in moving to a single team and moving the service outside

the organisation


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