It Outsurcing For Transaction Business

Published Date: 02 Nov 2017

Introduction

Theory development Model

IT out sourcing has been a vast and comprehensive attributed nature for firms to bring in radical changes of redefining their processes and business operations for profitability. This methodology is now being practised by various industrial sectors and fields nonetheless of their volumes or size of operations. Under increasing global competitive pressure corporations are advised to focus on their core competencies and use outsourcing to use expertise of others[1]. IT readiness has become foremost priority to organizations of any field regardless of their volumes and nature of operations. This project research would reflect various understandings of IT outsourcing contracts, impact of outsourcing, how service levels effect enterprise operations and service model discussions to perform the job of outsourcing. Off shoring and outsourcing of processes provides access to user required defined process services and utilizing human potential across global boundaries[2].

Global and local corporations are continuously trying to enhance firm level performance by restructuring IT operations to this task further amicable. Directional effort of this project is to analyse problems in current state of IT outsourcing and focus on possible solutions for execution of enterprise activities in more efficient ways. A survey in 2006 indicated by one third of outsourcing respondents that executive management exceeded time frame than required to manage outsourced process[3]. Another critical survey indicated about data losses in UK, it was reported that a range from £84,000 to approximately £3.4 million per breach per reporting company and losses occurred to hid parties were 35% greater than losses occurred internally[4]. Operational costs reduction bring main goal, above reports reflects areas of improvement. Businesses are going more complex and information networks becoming nervous systems for product/service delivery, implementation of IT outsourcing would be a stepping stone for business transformation.

During recent times most of organizations have gone though tougher economic climate of sustainability and productivity. UK major travel agent company outsourced its infrastructure services to T-systems for £88.2 million for end to end solutions for integrated voice, data and enterprise mobility services. This project aims to TUI a FTSE 100 company to better communicate internally and externally, improve customer service and significant cost savings[5]. This move reflects major UK based corporations are restructuring Telecom, IT and technology infrastructure.

These initiatives itself call for IT automation, shortened service delivery cycles to business processes and IT outsourcing. Previously examined literature survey indicated about strategic benefits of IT outsourcing, however during this entire phase more in-depth analysis of outsourcing towards management benefits and impacts of implementation. Taking an example of banking sector , as per independent market analyst Datamonitor global banking industry is to go for heavy cuts on IT spending led by UK by 7% technology spend cut[6]. Datamonitor reports IT budgets are under intense scrutiny, banking sector after post financial crisis IT sending would decreases but recent mergers and would drive lower costs/ increased productivity would protect budgets to certain degree. To support these spending structures to work for, simultaneously cost reduction should be performed through business process re-engineering where in IT should be centre of re-work. Although most of financial sector now believes to IT outsourcing benefits but are far from high capacity service delivery model.

UK banking industry has been constantly outsourcing its IT and IT based financial processes. Recently Unisys corporation's UK joint venture Intelligent Processing Solutions (iPSL) signed 5 years outsourcing contracts with Llyods TSB, Barclays and HSBC vales more than £315 million[7]. All three banks would benefit iPSL secure outsourcing services like cheque processing, image archiving and retrieval, lock box services and other back office functions. This unique deal of outsourcing is about shared resources and achieving economies of scale, without this deal it would have been a high cost for individual banks to handle these support functions.

Identification of Processes for Outsourcing

Identification of right processes to outsource is half battle won by any firm,Executive management team should identify processes which are not critical, sluggish, expensive maintenance, and too complex to handle internally should be categorized into potential processes of outsourcing. Companies can either outsource their full departmental IT based functions like HR, finance, facilities management and IT based internal sub-functions like data center operations, infrastructure maintenance, help desk processes and application development[8]. However to outsource entire functions like HR, Finance, Admin and other corporate mainstream processes, contracts requires to be longer and should achieve economies of scale. This kind of outsourcing deals requires contracts which are flexible and ability to change scopes of operational requirements keeping in mind of uncertain future. Although a firm may outsource its entire financial or HR operation but in language of outsourcing it comes under BPO umbrella. A basic identification model has described below and presented for firms to analyse by author of project.

Process considerations

• Process Structure – Are there too many changeovers/transfers within process, as processes with low level of internal or external transfers are ideal for outsourcing.

• Process Performance – Accountability of process performance during past current and future expectations.

• Process Intensity – Does it requires highly skilled staffing, is it iterative, is it knowledge intensive or does it requires only data entry software's with automated business intelligence.

• Process Risk Assessment – Is the process core competency of firm, does it has financial confidentiality involved and can its deterioration result in customer base impact.

• Legal Opinion - The process to be outsourced is it under regulatory norms and guidelines.

•

Staffing Considerations

• Human Resource – Levels of qualification skills required, experience and overall staffing quality should be assessed. Also once outsourced capability of going live should be accounted

• Migration Planning – What levels of resources are to be mobilized for knowledge transfer.

Technology Considerations

• Level of IT capabilities required to run process, is it legacy based or operates on latest IT technologies.

• Does technology running the process requires constant upgrades from software and hardware providers.

• What amount of data access would service provider have to operate the processes.

This initial segregation should be carried out by data analysts or an external consultancy to have ground figures of resource consumption and direct output of multiple processes. With ever growing automation, IT dependability of business processes has become unavoidable. Therefore its far more easier to manoeuvre the processes through strategic outsourcing capabilities rather than changing the entire structure of process as whole for efficiency. Management's ability to classify productive , non – productive, high risk, low risk, confidential and non confidential processes would play major role for the scope of operations to be outsourced.

Identify Potential functions and processes

Non core processes which can be done faster, cheaper and better should be outsourced to external partner for refinement of value chain and measurable delivery benefits[9].To eradicate broken processes and ultimately link up and to end to end business processes with flow of information becomes extremely important for point to point delivery. Quantification & Qualification parameters like frequency of process being used, users related to process, whether process is being used by internal employees or is a web based front end customer oriented process being used by both customers and employees.

IT Outsourcing Contracts And Service Level Agreements

To build outsourcing contracts are by far most important and critical phase of entire methodology as they can be make or beak part of the initiative. Pricing, technology, staffing and infrastructure models and scope of operations are framed up. Recent events of UK public sector spending on IT outsourcing contracts, a debate follows that UK government still pays high amounts to for its IT operations despite large number of failures[11]. A report mentioned that contracts should be arbitrarily limited to £100 million, however even this strategy would not be perfect unless the sourcing strategy itself is not worked out properly[11]. IT outsourcing is complex activity with no geographical boundaries to increase profitability but involves multi layered ricks and requires constant monitoring from client/supplier ends.

Way back in 2003 a white paper issued by Compass limited stated hat 25% of IT outsourcing contracts fail within a year of its initiation. As per Gartner analyst in same year revealed that 85% of all IT contracts would be renegotiated within 3 years[12]. This indicates a staggering room of improvement for understanding the importance of contracts and how they effect both clients and supplier systems. In year 2009 Gartner analyst firm foretasted by 2012 disruption of outsourcing deals would be as high as 30%, economic recession has not helped the sector[13]. Primarily this can be explained because of the fragmented nature of very nature of industry, and diversifies client bases with unique service delivery requirements. Task of not only finding right supplier but to find competitive pricing is equally important, as goal is to reduce the cost of transactions occurring with in organization.

To build up efficiency during entire phase of contract building, accurate cost management shoud be performed to highest levels. Measuring costs associated with supplier selection process (RFP's , Quotes), migration/transition/testing phases and under critical situation costs of exit strategy should be available with IT procurement teams. To have a workable contract for enterprise long term strategies including factors like market changes, asset management, mergers and acquisitions. Initial purchase teams should consider both cases in their process of selecting service providers who are capable to manage sudden volumes of operations, and accept low levels of operations without much pricing hassles. Working beforehand on required service level agreements (SLA's) is necessary to get the contract right on time and track even before its operational. Service delivery aspect is very crucial for the lines of businesses directly dependant on the outsourcing contract. Understanding the supplier's current status of services, staffing to handle new technologies and operations, conversion capability of legacy systems to newer genre , historical service delivery blue prints and required service levels.

Failure of IT service delivery & contracts gone wrong in UK public sector :

This research part from European Services Strategy Unit year 2007 indicates major UK central government ICT projects getting failed, delayed and termination. A total of 105 public sector outsourced ICT were identified with range of problems. Data from the report is mentioned below[14] :

• Total contracts valued £29.5 billion with extra running costs of £9.0 billion.

• Staggering 57% of projects ran into over costing situation while average percentage of cost overrun is 30%

• Contracts suffering or suffered delays stand up to 30%, along with 30% contracts terminated.

• 12.5% of strategic service delivery partnerships failed to function.

As per the report root cause problems could not be identified for the above given data, although primary problems have been discussed. Mainly lack of client's understanding of actual requirements from service provider, private sector suppliers overstate their delivery abilities and ultimately cannot streamline their services with actual requirements. IT systems have been integrated to core of business processes in public sector, it becomes difficult for work flow differentiation and area of responsibility. To present required service levels of client to supplier is most important and making them aware of current service levels provided by internal IT teams is necessary for holistic picture to supplier[15]. A white paper from ACS a Xerox company mentions about an insurance company where in it developed 8000 IT metrics to track service levels and this situation got out of control[16]. To avoid such reporting, analysis and measurement costs of metrics indicating service levels, management teams should design precise key performance indicators (KPI's).

IT Contracts Service Delivery Standards

Initiative which would have been started for all good factors of management may result in a disaster for enterprise, if industry standards are not applied from supplier's end. Negotiations team should primarily understand international outsourcing standards and ask supplier's about their credibility status and standpoint on standards. ISO 9000:2008 provides ongoing guidelines on total quality delivery issue and provides end to end management approach[17]. It is a necessity in today's high risk web environments that client seeks a supplier who works upon ISO models of service delivery. Organizations in process of outsourcing should look forward for shortest possible qualitative service delivery cycles to increase transaction efficiency. Contracts should also state framed plans for non conformance service deliveries and alternatives or such situations. Outsourcing involves multiple stages and each stage involves its own inherent risks, most painstaking task is of transition and achieving steady state of the processes from supplier. ISO 9001:2008 covers all aspects of quality standards for firms going through or planning to outsource their functions. Following ISO 9000:2008 provides a range of guided pre-set objectives to meet during each phase of outsourcing, below mentioned are the criteria[18].

• General requirements

• Documentation requirements

• Management representaives

• Human resources general

• Infrastructure

• Work environments

• Determination of requirements related to service to be produced

• Design and development planning

• Design and development of output services

• Control of business metrics

• Customer satisfaction

• Internal audits

• Measurement of process metrics

These ISO standards are just one dimension of the businesses transfer under the umbrella of enterprise quality management system.

Further more with IT outsourcing being main discussed goal for overall enterprise transactional efficiency, suppliers core IT services should of ISO/IEC 20000 standards. ISO/IEC 20000 is the first international standard for IT service management. In outsourcing history clients who gave pricing as main aim for the contracts to build and worked with sub-standard supplier's have faced heavy consequences of project failure. ISO/2000 standards certification is awarded when supplier IT organization has demonstrated it has management control of all the processes defined within standards scope[18].

Technical leadership group leading outsourcing initiative should concentrate on core ITIL and ISO 20000 standards of potential contracts client. This would ensure the technical side of client stake holder's expectations. This way of supplier filtration would make sure that only right suppliers get the contract for long term partnership. Once all these standards are mapped and analysed with required service levels of client, supplier is providing competitive prices scope of operations has been decided, staff and assets transfer strategies are readied contracts can be signed off.

Contract Negotiations And Award

There have been times in recent years wherein contract negotiations took so long that market dynamics totally changed and eventually resulted into bad contracts. Therefore keeping structured time-line with set guidelines below mentioned for better business outcomes[19].

• Drafting well requirements understood 'Request of Proposals' with technical details.

• Producing a comprehensive 'Working Model Agreement' mentioning exhibits, to vdors prior to negotiations.

• Request respond to model agreement with detailed delivery plan and changes made to intial presented working model agreement.

• Set limited time frame for negotiations[19].

• Operate on established procedures[19].

•

Along with above guidelines, continuous assistance and feedback from legal teams would help to mitigate any kind of potential risk situations. To create more competitive environment initial working model agreement should be attractive and would encourage vendors to minimize their changes made to client's model.

A recent article from SearchCIO.com , research major Gartner Inc reported that 50% of companies are renegotiating deals with vendors because of recession[20]. Some of the obstacles mentioned are imbalance of IT availability although cost reduction happened, Lack of innovation and too many outsourcing vendors. Most importantly outsourcing provider should not tarnish client's brand, for instance consumers associate lead paint with Mattel toy company because its service provider. Although the act was done by its supplier but it was never recognized and Mattel directly came under attack[20]. Multi sourcing is always a good option for the services to be consumed by client but for multi-vendor situation reporting structures needs to be more tighter and constant. As different vendor would have varied performance metrics.

However with today's multi layered IT systems across major corporations, single vendor sourcing is possibly scarce. Once of the instance where a major corporation P&G with its presence in 80 countries relied on multi sourcing and that proved to be more cost competitive in longer run over the years. IT outsourcing and multi sourcing when clubbed with ITIL (IT Infrastructure Library) frameworks proved processes of outsourcing more workable and easier[21]. Global business expansions demanded more responsive IT systems, to act for the same IT infrastructure and application capabilities were outsourced to HP. In 2008 contract was re-assessed and IBM was given task of HR applications, and BT was given task of global networking again because of strong ITIL presence. P&G exhibits of how leadership team worked with non - IT business users and understood their requirements and objectives, and created an end-to-end IT infrastructure based on those objectives. All the contracts phased out had connections between IT and business objectives with robust change management controls inbuilt to handle multiple contracted vendors.

Staff Augmentation Prior To Contract Sign Off

Initiative of outsourcing which started as process identification to outsource now its almost time to award the contract to selected supplier. Outsourcing decision might have been driven by many factors such as cost, competitiveness, expansions or technology optimization but adjusting the client IT staffing is by far the most daunting task. As per the TUPE regulation in UK which operate on main three principles under employment law, below mentioned are three principles[22]

• Automatic transfer principle: Employment contracts of client employees are transferred to supplier with all existing employment rights and duties.

• Protection against dismissal principle: Dismissal of employee because of transfer issue would be unfair, unless appropriate reason of technical, economical and organizational reasons are provided.

• Information and consultation principle: Both client and suppler parties are to inform employee representatives about affected staff.

To explain this in an example, Department of Environment, Food and Rural Affairs (Defra UK) was on a overall challenge to bring in business transformation and develop a technical roadmap for existing businesses. Governments e-agenda required all departments to explore and implement ways in which IT can be harnessed to modernize services, making more accessible, protecting and sustaining our environment. IBM global services was the vendor and contract was initiated for a seven year long period to bring the desired changes in year 2005. IBM worked upon Defra's HR portfolio and mapped its business objectives with IT infrastructure[23]. IBM team analysed and streamline processes for efficiency, IBM built existing IT systems and desktop support for better service delivery. Most importantly 324 Defra staff were transferred to staff IBM, it was a sensitive issue and IBM was asked to conduct staff transfers under TUPE regulations. IBM worked in very co-operative way and most of the befits that Defra was offering under employment right and duties. This contract once again threw light on how strategic outsourcing can brings in improvement in public services with technology, HR and business innovation.

By this Stage which indicates confidence and time to get the contract signed off would look like below mentioned progress pattern.

• Contract pricing and time frame of services to be incurred

• Risk controls in place

• Service level agreements worked out

• Operations, Technology, infrastructure, and asset scopes developed

• Transition and migrations plans rolled out

• Staff transfers adjusted

Continuity Into Migrations/Transitions

In this part of literature review migrations and transition plans would be analysed from web articles and reports to showcase problems and suggest solutions for transition management in outsourcing . Transitions phase can be quite stress full period as both parties are in rush to see the results singed as per the contract, this acceleration would be more from client side. Outsourcing centres comprehensive observation of 42 relationships nominated for Outsourcing Excellence Awards in 2008 reveals important transition issues below mentioned[24].

• Client employees resistance.

• Lack of streamlined communications in offshore relationships.

• Out of 42 relationships, 21 (50%) relationships faced major challenges

• Further 24% of challenges was again because of lack of communication.

Challenge encountered during transition or IT implementation

Selection criterion ranked lower to having a prior or existing relationship with the provider

The caliber of the service delivery team recruited by the provider was not as strong as the buyer desired

Strength of the delivery team

Ramp-up time during the transition was too short

Provider's process expertise

Difficulty in meeting the anticipated level of performance

Provider's process improvement capacity

The parties found that they could not build the solution as originally designed

Provider's claim of cost savings in implementation

The buyer required a major component of services be added (which it had not communicated as part of the original deal), which caused a high-velocity ramp-up for which the provider was not prepared

Provider's experience in quick ramp-ups

Needed to implement multiple lines of business concurrently at buyer's request, which was not the provider's transition business model

Provider's proven ability to execute in an aggressive timeline

Source [24].

Concentrating on transition challenges at least two third of cases encountered are linked directly in transition sage, deals like Sears and CSC corporation got cancelled before transition took place. Primary reasons are lack of control mechanisms to identify problems, industry is seeing more volumes of transitions and skilled manpower and resources are in shortage[25]. Refocussed and new role adoptions of key client IT staff to act as service delivery leaders, and realistic transitions timetable for user acceptance criteria. Although aggressive negotiations from client side produces a competitive contract but passive management of the relationship leads to loopholes in channels of communication. Failed deals like IBM global Services and JPMorgan shows how poor project management and governance model can take entire deal into shambles[26].

HP Migrations Pilot Model

Outsourcing contract can be of varied functions within IT like help desk, application development and maintenance, infrastructure services or data centre operations. A precise migrations plan would help the client to succeed to attain service levels on quicker pace. Primary objective should be to pilot small volume of processes prior to full scale operations. During this phase client can actually asses if performance results are at least near the required service levels. Migrations phase is a joint collaboration between client and supplier to establish technology and process configurations on vendor site. Each successive release phase of operations should have user acceptance tests and benchmarking. In order to avoid outages within clients organizations if migration plan is delayed or in problems , parallel auxiliary systems should be in place to handle the current scale of volumes be it form of calls, web application forms, document management and all sort of internal IT business process transactions.

Four phases explained as per HP model of transition[27]

Design Phase

• Establish PMO and conduct

• program kick-off

• Establish transition control

• process

• Prepare detailed transition plan

• Fully staffed transition team

• Joint program kick-off

• Reporting process

• Change control process

• Issue/Escalation process

• Integrated transition plan

• Control plan for project execution

• MOC/Communication plans

• Risk analysis

Build Phase

• Prepare Day 1 readiness

• Establish process readiness

• Establish site and IT readiness

• Conduct knowledge transfer

• Training and production

• ramp-up plans

• SLA reporting process

• Acceptance criteria

• Governance process

• L1/L2 process flows

• L3/L4 documentation

• Policies & procedures framework

• IT connectivity

• Knowledge transferred & certified

• Site infrastructure/security

• Support plan

Test Phase

• Validate and test the knowledge

• Test the production environment

• Conduct SLA dry run

• Prepare for go-live

• Daily performance reports

• Process documentation L3/L4

• signed off

• Operational risk review (FMEA)

• To-be’ process solution tested

• and operational

• HP SLA performance assessed

• prior to Day 1

• Policies & procedures manual

• completed

• Day 1 sign-off completed

•

• Go-live and steady-state

• Monitor the operations

• Deliver first SLA report

• Activate the Governance Office

• Close out the transition

• Daily performance reports

• First production SLA reporting

• package complete and reviewed

• Governance Office deployed

• Voice of Customer performed

• Transition close-out signed off

This HP model is flawless when implemented phase by phase in leveraged IT governing model. Some key metrics as an independent idea should be used to calculate performance of the processes.

Independent Understanding Of Author About Metrics For Stakeholders Perspective

Performance metrics play most important role for success of the outsourcing deals, once the contract has been signed off. Overall framework of metrics can be divided in to four main categories:

• Enterprise business metrics

• Line of business metrics that needs to be outsourced

• Outsourcing metrics

• Sub processes metrics

All above mentioned metrics co-relate to each other at micro and macro levels of management, what is more important is to constantly monitor the behavioural outcomes of all of mentioned metrics. Each of these mentioned metrics would have independent sub metrics co-relating with each other at micro levels. These generic set of sub metrics are productivity related metrics, technology responsiveness metrics, customer satisfaction metrics, risk metrics, reporting metrics and incentive metrics. IBM corporation defines metric is measurement of an aspect of process or process element which is used to asses business performance. These metrics can be used alone or in co-relation to develop key performance indicators (KPI), to measure business objectives[28]. To present more tangible view of each sub metrics examples given below:

• Productivity Metrics : This can be in form of number of calls being handled in time frames, how many software's of software patches are being released and number of orders being processed compared with required levels. There are just few of BPO (Business Process Outsourcing) process task evaluators, although there are many more tasks and methods to evaluate.

• Technology Responsiveness Metrics : This metric plays an important role in case of ITO (Information Technology Outsourcing) as its acts a base data for overall metrics. Number of incidents documented and resolved in time frames, network outages, service desk responsiveness and rate of technology request and successive change management.

• Customer Satisfaction Metrics : This metric performs the role of daily operational performance indicator. If company A outsourced its technology help desk to company B than employees of company A are customers and their feedback after daily change requests. Now service levels can be measured after every change request made by outsourced technology services in form of automatic forms containing rating surveys. These surveys should be accessible to both client and supplier reporting teams.

• Risk Metrics: To make an outsourcing relationship successful, covering risk mitigation at all stages and measuring the risk probability through metrics is most important. This metric is important for not only only protecting integrity of confidential data but also contain operational risk. Some risk scales maybe of service availability, downtimes, infrastructure availability and disaster recovery readiness.

• Reporting Metrics: Structured monitoring and recording of individual metrics results in multiple metrics reporting. This reporting should use shared and unified software environments for corporate dashboard reporting across client and supplier teams. To have appropriate controls on processes and analyse the variations of daily routine reporting.

•

Metrics act as highway between client/supplier relationship, they are building blocks for the alignment of the business objectives and IT strategy for enterprises. A brief analysis between two major companies Capgemini a major outsource service provider with global presence and employee base of 90,000 provides Application,Infrastructure, Business process and Transformational outsourcing. Symantec corporation is major IT security firm with global presence with its client bases across industries. This unique collaboration of outsourcing describes how Capgemini's data centre problems and critical service delivery problems were isolated and solved[29]. Challenges was to reduce increasing complexity of backup & restoration platforms and shared resources for all of Capgemini's clients. To maintain individual resources for each client is costly and difficult to mange. After implementation of outsourcing plan from Capgemini's outsourcing services division with Symantec, now Capgemini handles infrastructure services and Symantec manages back-up platforms, incident and change management and restoration management. This new framework was under compete recommendation of ITIL and well managed SLA and reporting structures within all responsible parties. These reports consists of status review of operations round the clock, weekly reports for capacity management, backup/restoration plans for each account manager and his or her customers and billing reports. Hence all this has resulted in more than 150,000 backups and equivalent data management of 800 servers and one peta byte,and enabled Capgemini to be ever ready for new customers.

Research Methods

This research would first provide an extension to literature theory, analyse important variables variables of outsourcing and followed by annual report analysis. Overall framework is to examine the theory, recent developments and problem areas for future research. Benefits of outsourcing like cost reduction, improvement in quality of systems, flexibility and expertise and ability to focus on core competencies must be weighed against its risks, vendor driven policies, escalating governance costs [30] and technology limitations [31]. Most significant problem with IT outsourcing deals are the time mismatch between the potential gains and risks involved due asset specificity [32] to technology complexity[33]. This study involves the relationship between IT/IS outsourcing and impact on firm performance among the market participants. In past abnormal returns have been more with smaller firms and firms in service sector which endorsed IS/IT outsourcing[34]. Although there have been significant research performed on various methodologies of IT but outsourcing still remains a topic of interest among various public and private sector bodies in UK and across world.

A framework to integrate various theoretical aspects and more recent research indicate a radical way of interpretation that outsourcing and performance have inverse U relationship. A non liner relationship effects occur on performance when outsourcing is performed too much or too little. IT outsourcing decisions being heterogeneous in nature, produces variations in outcomes, three main dimensions of contract duration, nature of processes being outsourced and location contribute to this variation[35] . Executive management have started taking IT outsourcing as strategic tool for long term returns just like strategic merger/acquisitions and research and development. As per financial theory[36], outsourcing decisions signal market participants about its future earnings which in turn increases valuation of stocks and returns. Once its been decided to outsource service processes of firm, unexpected increase in returns from stock market occurs its known as abnormal returns. These abnormal returns are prime indicators of future cash flows, it also provides a forecast of consequences of outsourcing IT and business processes.

An analysis of three macro variables of outsourcing

SRINTENT = (COST +2*GROWTH + 2*EXPERT + 3*FOCUS/COST + GROWTH + EXPERT) + FOCUS - 1

IT outsourcing contracts and management can be an unending honeymoon as well as nightmare divorce if violations occur on regular basis or any kind of looses which tarnishes client's brand.

is an would show how business objectives were achieved by Capgemini. As per Capgemini over the years

This phase of initiative is the time when right supplier has been prioritized for the outsourcing of the business services and contract is awarded. It means that pricing of the contract has been decided by management, however it is advised to always consult a third party market research and consultant for competitive market pricing and negotiations.

Short analysis of above mentioned statements for more clarification in form of example, In year 2008 Highways Agency signed 75 million pounds contract with Atos Origin to help save 15% on agency's annual budget[19]. Being a public agency of England, to make best use to public funds this decision was taken. This deal would help for better IT service delivery and levels and to maintain infrastructure of complicated transport/traffic back end software's. Highways Agency would be able to fasten its transformation programme and would be capable to integrate enterprise mobility to its corporate units and staff. This conveys an outlook towards management approach that better to focus on core service delivery of transportation and highway management and let supplier party do the job of supporting the overall structure for core service delivery.

Another example is very latest outsourcing deal extension between UTC (United Technology Corporation) and Computer Science Corp CSC till 2019 for over £983 million. This IT outsourcing deal is geographically diverse wherein UTC sites are located, IT infrastructure maintenance, mainframe server support and desktop support[3]. UTC is a globally product diversified corporation handling businesses from aerospace engines components and helicopters to industrial infrastructure products like lifts, escalators and security systems. Being ultra diversified company sole outsourcing partner CSC helped UTC to focus on its core businesses and CSC provided with support and service capabilities to workforce. Cost reduction played a significant role for re-extending the contract and bonded strategic alliance for its geographically diversified nature of businesses of UTC.

Classic Examples IT Outsourcing in UK & Europe : Short Case Studies

Reuters - Reuters Corporation collaborated with Xerox or their extensively ever growing complex print management systems across its globally diversified offices. Reuters with revenue of £2.96 billion is supported by 16,900 staff in 94 countries[4]. Over the time different lines of businesses accumulated 1046 printers of different models, suppliers and compatibility versions, which made Reuters difficult to define print optimization strategy. Therefore Reuters decided to take assistance from Xerox Corporation for print management and office automation efficiency. Reuters corporation printed 16.5 million impressions annually, main problem was low level of availability for printing jobs and high printing jobs required for specialized line of businesses. It all began with 12 offices in London for technology consolidation and introduction of print management strategy and efficient devices simultaneously replacing less productive technology.

To provide solutions Xerox first handedly created a centralized print managed service and print

fleet technology normalization via centralized procurement. It monitored printer fleet continuously and dedicated technical support, which finally resulted in availability of print facilities. This IT outsourcing consultancy initiative saved Reuters $ 1.45 million and reduced 19.5% per annum in total cost of ownership.

Bouygues Telecom – Bouygues Telecom is France's third largest telecom provider in France with 8.7 million subscribers, 4000 sales outlets and six customer service centres. It started operations in 1994 with massive market expansions still to be done, therefore core focus was on introduction of new customers than retention of existing customers[5]. But by 2001 as market saturated, enterprise systems were changed to retain existing customers than to gain new customers as cost of gaining new was comparatively higher than retaining old ones. This required very short turnaround time to respond with its customers and businesses and its technology systems were not of a kind to handle this kind of environment on sudden basis.

Assessment teams analysed that even postal letter from customer was taking upto 2 weeks to process and respond. Therefore as a part of Outsourcing initiative its processing Xerox Global Services (XGS) was selected as it was already printing invoices for Bouygues Telecom. A new improvised way was developed wherein XGS would sort and scan all letters into Customer Relationship Management (CRM) of Bouygues Telecom for the agents to access the customer communication. Main innovation to drive this contract was Categorization tool which picked up keywords and would channelise into 300 per-decided categories. XGS also handles support operations of customer services like changing address , banking details into CRM software. This strategy freed resources and workforce in Bouygues Telecom for more detailed and research customer oriented problems. By 2005 XGS took over new customer acquisition processes and performed all the parameters check-list for new account opening of connection.

This outsourcing consultancy strategy was paying huge returns by 2008 to Bouygues Telecom, approximately 1.2 million letters and 2.1 million pages of customer applications were being handled by XGS. It brought application processing cost lower to 20% - 30% annually than before XGS took over the contract. This classic state of art small outsourcing initiative proved to provide faster, better high quality services to its customers simultaneously optimizing the technology.

British Telecom Solution To A Dutch Pharmaceutical Association – is a royal Dutch association for advancement in pharmacy for scientific advance and promoting patient care. It employs around 170 people and 5000 professionals representing over 90% of pharmacists in Netherlands[6]. KNMP provides range of services from reference books, protocols and statistics and also assists to organises conferences to its desk members. Although KNMP had been using BT's network services of IT infrastructure, but then decided to fully outsource its IT functions. BT responded with its IT operational understanding and optimized outsourcing offer.

BT designed and provided wide range of services from office automations, managing mission critical applications, data centres, storage environments, business continuity, enterprise security and desktop support services of on-site and remote. BT also migrated messaging systems from lotus notes to Microsoft exchange without service outage[6]. BT enabled real time efficiency to all IT verticals directly linked with day to day operations requirements. Information availability being critical for KNMP operational model as its members have access to online libraries, publications and key information like clinical drug trial data's. Hence by outsourcing its IT operations, KNMP can focus on its core businesses and doesn't need to maintain expensive IT expertise to sustain its operations and profitability. Also this outsourcing deal enabled KNMP to swiftly move towards newer technologies and expansions. BT's core competencies have made KNMP to improve business efficiency, service levels and technological agility.

IT Outsourcing Expanding Horizons And Client Expectations

Nature IT Outsourcings business conduction has been changing ever since its inception into mainstream management operations. Key emerging points are of amalgamation of IT and BPO into one end-to-end solution. This would include buyers demand for analytic, process as a service, standardization, global service delivery, verticalization and change in process ownership[7]. Usage of analytics for conversion of huge data into decisive information, business processes driven by technology platforms would enable cost reduction to a greater extent. Suppliers have started to take up multiple roles of expertise from handling HR recruitment processes to clinical drug management

programs.

Research reflects that in boundaries would be widened from today's common process based outsourcing to complete end to end technology embedded process outsourcing. Rather than just local view of savings for a line of business, enterprise based outcomes would be measured in future.

These outcome based approaches would take relationship of suppliers and clients to next level, business transformation would happen on more faster basis. Outsourcing capabilities would be measured beyond labour arbitrage, Value creation from service providers perspective would play key role and relationship would deepen though shared reward-risk model [8]. Whole range of combinations like pricing, SLA's, ability to share risk-reward goals, would tune outsourcing model continuously to adapt competitive and economic climate. An important lesson to learn from this recession is to have outsourced partners who are capable enough to walk side by side during client company's sustainability problems. This can also be taken as an indication for suppliers to adapt more flexible contracts and ownership of client's problems.

IT Spend Outlook for 2010

To better understand the cost optimization nature of IT outsourcing business, its more important to take a look on latest data report from Gartner[10]. Global IT spendings are to reach $3.4 trillion in 2010, a 5.3% growth than last year. Computing hardware sales would reach up to $353 billion in 2010 although this area was the major sufferer throughout 2009. Trends indicate enterprises would spend majority of budget on storage systems as enterprise data grows on rapid basis. This also indicates on how data systems are being used by corporations for decision management on an extensive basis. Global software spending would be up to $232 billion in 2010, which again reflects 5.1% increase than previous year of 2010.

Table 1

Worldwide IT Spending Forecast (Billions of U.S. Dollars)

 

2009

Spending

2009

Growth (%)

2010

Spending

2010

Growth (%)

Computing Hardware

333

-12.5

353

5.7

Software

221

-2.1

232

5.1

IT Services

777

-4.0

821

5.7

Telecom

1,892

-3.4

1,988

5.1

All IT

3,223

-4.5

3,394

5.3

Source: Gartner (April 2010)

IT infrastructure market, which covers all the aspects from building to maintaining applications, hardware and services would be fastest growing with majority of revenue till 2014. However major spendings growth would be for IT services industry (outsourcing) in 2010 with $821 billion. Research believes that service providers with robust IT asset management, virtualization, open source and providing software as a service would benefit the most.

Underlying Instruments to Analyse

As above report mentions huge amounts of capital being spent on IT, There is major potential for global enterprises and SMB's for cost saving and value refinement initiatives to be undertaken. Although there has been substantial levels of product/service automations but to align ever-growing new products/services/processes with corporations IT management is complex and costly. To discuss an instance, UK postal major Royal Mail has been trying to continuously restructure it self year on year basis but has very tough resistance from Union bosses for staff downsizing and redundancies. Therefore to sustain the profitability and maintain business optimization efficiency . Royal Mail outsourced it IT operations to major service providers like Xansa, CSC and BT for handling data centres and applications management[7] in 2003. This cost saving initiative is planned to save over £250 million in a 10 year period for Royal Mail group. CSC has been major service provider for Royal mail IT operations, it would provide 30000 employees with access to Microsoft business productivity suite solutions and help desk support.

This deal also provides an insight of how staff augmentation problems for today's state or privately owned enterprise firms can be handled, as in this scenario 1700 IT employees from royal mail were successfully transferred to CSC, BT and Xansa under same employment payroll structures.

New Age Enterprises Needs Global Connectivity And Efficiency

Organizations are going global and structural management is getting more complex requires responsive along with continuous productivity.

Breaking the Law : New Perspective For SMB's (Small Mid-Sized Businesses)

IT outsourcing has been in business for a while now, but considerably its a newest business prototypes used by corporate giants. Majority of annual outsourcing deals are done between super sized client and suppliers as both parties have generic service delivery/Acceptance models for technology acquisition and consolidation of services. By far this can be explained because of fragmented nature of processes in small businesses, non-standard business environments. Although IT expenses and dependencies are not at stop as small businesses are expanding or growing on constant basis but IT infrastructure is either too scattered or non-available for high service delivery structure line required. SMB's face very different sort of problems unlike major corporations, IT resources in-house are either fully operational and can't take more domains to support further operations. SMB's also come across cross roads with every new project they undertake because of their IT support uncertainty or technical blind spots for any kind of mission critical processes.