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10/7/2004
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SmartAdvice: Align IT Outsourcing With Business Goals

Develop an IT outsourcing model that takes management and business goals into account, The Advisory Council says. Also, don't even think of hiring convicted ex-hackers to run security tests when security experts offer the same service.

Editor's Note: Welcome to SmartAdvice, a weekly column by The Advisory Council (TAC), an advisory service firm. The feature answers three questions of core interest to you, ranging from career advice to enterprise strategies to how to deal with vendors. Submit questions directly to smartadvice@tacadvisory.com

Question A: How should IT departments select outsourcing options that promote business objectives?

Our advice: In an enterprise where IT is viewed as a strategic enabler, and business objectives and IT strategies are closely aligned, outsourcing is no longer viewed as just a cost-cutting or tactical solution. When the enterprise starts to see IT as providing competitive advantage, outsourcing also should be viewed strategically. IT outsourcing decisions shouldn't be made without considering what provides value to the enterprise.

As IT services have matured, leading external services providers have established offerings where they become a part of a virtual enterprise. To exploit these offerings, an enterprise must be prepared to manage the process both internally and externally.

Business-Driven IT Sourcing
Business objectives can be fulfilled through a variety of resources. An outsourcing strategy should define the internal and external resources that carry out essential business functions. In a dynamic and well-aligned business, IT outsourcing strategy is aligned with business strategy.

A comprehensive and cohesive view of IT services must be developed for IT outsourcing to be successful. Different business units may have their own IT-support groups, each of which interacts with procurement. In many organizations, procurement operates informally, working from spreadsheets and personal knowledge.

The first step in developing a comprehensive outsourcing strategy is developing a common understanding of the outsourcing approach. This would entail:

  • Understanding what business value needs to be provided
  • Understanding market opportunities and threats
  • Developing a common data structure, optimizing procurement processes, and identifying possible partnerships
  • Developing or selecting an outsourcing and outsourcing-management model

Developing Supply Chain And Management Controls
A successful outsourcing strategy relies on a strong supplier network. Enterprises should partner with their vendors to enable the supplier network to operate in multiple tiers. When the first tier has flexibility and direct interaction with the enterprise, it can manage the relationships with the rest of the network, giving them flexibility, purchasing power, and lower cost in any particular category of services or material. Without empowering the first tier, the enterprise would need to manage the whole supply chain.


Related Links
Creating A Selection Framework To Align Sourcing Options With Business Goals

Sourcing Strategies And Pitfalls

California Strategic Sourcing Initiative

The IT outsourcing model should follow an overall enterprise outsourcing model. For example, many companies that are expanding their use of outsourcing are turning to program-management offices, central bodies responsible for managing outsourcing relationships and vendors, capturing and replicating best practices across engagements, and supporting all initiatives with the tools and guidance needed to produce optimal results in each situation. In the absence of an enterprise outsourcing strategy, IT should develop an outsourcing model that takes into account business goals, internal capabilities, market offerings, and outsourcing management.

A well-developed and managed outsourcing strategy can lead to highly effective IT delivery. A successful outsourcing strategy must be tightly aligned with business objectives and goals.

--Humayun Beg

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