Outsourcing
Giga, 2/4/03: Outsourcing in Haste Produces Disappointing Results
Richard Peynot
The board of our company has hired a restructuring company in order to make significant cost reductions,
and they propose to outsource the IT department. What are the common risks of such decisions?
Companies with financial difficulties often hire restructuring offices or management consultants. Among their recommendations to save money, these vendors commonly suggest outsourcing the IT department. Managers are seduced by the promise of IT budget reductions of 20 percent to 40 percent. However, such measures should not be taken on to the extent suggested by press reports or as claimed by consultants. The added value of outsourcing is not systematic and companies should carefully consider the specific situation of the company first. Giga urges companies to build a realistic business case demonstrating the benefits of outsourcing and then manage the transition with the supplier as a project covering all aspects — organizational, cultural and operational. If not, companies may face disappointing results.
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Meta, 1/17/03: Outsourcing Midrange Consolidation
Service Management Strategies
Dean Davison
Due to cost-reduction mandates and long-standing promises of emerging technology that can consolidate midrange servers, IT organizations are evaluating outsourcing to accelerate midrange server consolidation. However, outsourcer capabilities are still limited. Indeed, outsourcing vendors can provide various consolidation services (e.g., physical consolidation), but they are also awaiting mature technology to create midrange “LPARs” (i.e., partitioning) and the efficiency they promise.
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Gartner, 2/3/03: External Service Providers Must Define and Deliver IT Value
External service providers stand on the brink of a significant opportunity to move forward to an age when value from IT can only be delivered via their presence.
As IT and business value become more tightly aligned, so must technology and business stakeholders’ expectations of IT’s contribution to business performance. Although uniting the stakeholders through a common vision and language for the value of IT is necessary, it is not clear how this can be accomplished.
In this Spotlight, analysts from Gartner Dataquest’s IT Services team put forward the argument that the solution to this long-standing problem is the intervention of another stakeholder with the capabilities and external perspective to facilitate the melding of individual agendas. We believe the external service provider (ESP) is this new stakeholder.
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Giga, 1/31/03: Open Book Accounting Leads to Increased Outsourcing Management Overhead
Robert McNeill
What are the pros and cons of open book (cost plus) accounting as a pricing mechanism in an outsourcing engagement?
Open book accounting is used more commonly in very large outsourcing deals and in the public sector, however, this technique has fallen out of favor in recent years. Giga estimates that only a very small proportion of desktop outsourcing deals are based on an open book accounting contracting structure. Open book accounting is a contracting mechanism that allows the outsourcers’ costs (generally thought to be lower due to economies of scale) to be shared within the client. The term “open book accounting” is a technique that is closely associated with cost plus and is a technique that was used more extensively 15 to 20 years ago. Giga has seen this type of contract structure used less and less often for the following reasons:
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Giga, 1/31/03: Outsourcing IT Systems Can Help Airlines Through Difficult Times
Ian Tunnacliffe
The world airline industry is in a desperate state. Sept. 11, 2001 was but a trigger, releasing forces that had been building for years. The subsequent loss of business traffic has removed profitability, which was thin at the best of times. Against this depressing background, a new type of low-cost carrier has emerged and prospered based on the business model of Southwest Airlines.
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IT Sourcing
Giga, 1/31/03: Optimizing IT Sourcing Strategy: Key Stages and Phases of the IT Sourcing Process
Mike Dodd and William Martorelli
IT spending, particularly on external services, is frequently driven by reaction to immediate pressures rather than through a strategic framework that takes into account the capabilities, business requirements and overall strategic direction of the purchaser of these services. This has been particularly true recently as many IT organizations have found themselves under extreme pressure to reduce their expenditures. Furthermore, Giga research indicates that a substantial proportion of organizations still lack a coherent and consistent approach to sourcing and procuring IT services, let alone a consistent means to measure and monitor the effectiveness of services investments.
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IT Utilities
Meta, 1/17/03: IT Utilities: Shifting Focus on IT Assets From Ownership to Usage
Stratos Sarissamlis
The IT utility model promises to expedite sourcing transactions for always-on pay-for-use services. Users should assess utility caveats, ensuring paybacks compensate for transition costs and incurred risks. Through one-to-one relationships, outsourcing transactions aim to reconcile the scope of undertakings users transfer with vendors’ capability to meet cost-reduction, service quality, and process maturity targets. Negotiations take 9-12+ months to complete, in which parties seek a common understanding of the specific context and operating environment to determine service baseline, contractual terms and conditions, pricing and service-level agreements, and transition of resources. Furthermore, relationships evolve during the contract term, because in-scope services are subject to diverse interpretations and technology/business changes often compel parties to modify some transactional aspects. Indeed, certain contract sections become obsolete soon after the transition completes and service scope digressions are tackled outside the contract, often widening the gap between service expectations and perceptions.
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IT Management
ZDNet, 2/5/03: CIOs must adopt 'IT governance'
By Jon Oltsik
COMMENTARY--Chief Information Officers will face many challenges in 2003. Among other things, they will need to improve returns on investment, increase service levels, and enhance security-all while maintaining flat budgets and headcount. But just how are they supposed to meet these objectives while still living within imposed fiscal restrictions?
I submit that CIOs will need to fundamentally change how they run their information technology departments by adhering to a new approach summed up by the umbrella term "IT governance." You'll hear a lot about this over the next year, as companies look to improve their processes without the benefit of bigger budgets. Indeed, I believe IT governance is destined to become as important as any piece of infrastructure or any application--perhaps more so in the current environment, where CIOs must do more with less.
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IT Support
Giga, 2/3/03: Software for Complex Technical Support Involves Three Categories of Vendors
John Ragsdale
What vendors offer software to streamline technical support for complex products or services?
The automation of complex technical support has a different set of requirements than traditional product technical support. Streamlining the support of complicated machinery or engines (aeronautics, locomotives), utility/energy systems, factory equipment, etc., requires in-depth entitlement and service-level agreement (SLA) monitoring, robust case or incident management with automated workflow and escalation, strong knowledge base tools for problem diagnosis, expertise management and collaborative desktop tools. Currently, no single vendor offers all of these components and support organizations responsible for supporting complex technical equipment or machinery; organizations should investigate software from three vendor categories: customer relationship management (CRM), support collaboration and knowledge base/knowledge management.
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Technology Economy
The New York Times, 2/5/03:
Cisco Sees No Upturn Soon for Technology Spending
By MATT RICHTEL
SAN FRANCISCO, Feb. 4 — Cisco Systems Inc., the largest maker of Internet network equipment, reported today that its sales held steady last quarter amid a continued technology downturn. But, in remarks that suggest an upturn is not imminent, Cisco's chief executive said customers had grown even more cautious about spending.
The chief executive, John T. Chambers, said that corporate executives seem to be holding tighter to their purse strings and that geopolitical uncertainty has had a "dampening effect" on the economy.
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The Wall Street Journal, 2/5/03: Bohemian Rhapsody Returns To Offices of Dead Dot-Coms
Artists, Activists Invade Spaces in San Francisco That Dot-Com Boom Once Evicted Them From
By NICK WINGFIELD
SAN FRANCISCO -- In the South of Market district here, the two-story building at 690 Fifth St. is packed with quirky fixtures of the old dot-com workplace. A fountain trickles in the lofty atrium. Hip-hop music pulses from glass-walled offices as people peck at computers. Rice-paper screens obscure an elegant conference room.
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Security
Computerworld, 2/4/03: How to Do an IT Security Audit
Understanding your business will focus your efforts.
By KATHLEEN MELYMUKA
If you're the IT manager at a small to midsize business, it's only a matter of time until you're asked to do an IT security audit. Even in a larger company, if security is decentralized, you may be the go-to guy in IT. You're neither a security expert nor an auditor, and resources are tight. How will you begin and where will you go from there?
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Giga, 1/31/03: Sarbanes-Oxley Act Puts Pressure On Information Security
Michael Rasmussen
What impact does the US Sarbanes-Oxley Act have on information security?
The US Sarbanes-Oxley Act (www.sarbanes-oxley.com) has received significant attention for the accountability it puts on chief executives to validate the accuracy of financial statements. However, it also establishes the responsibility for the implementation, maintenance and assessment of internal controls around financials (Section 404), with further responsibility given to public accounting firms to attest and report on internal controls. With the reliance of financial systems on information technology, it is impossible to comply with this without addressing the security of the systems involved.
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Enterprise Business Process Management
Giga, 1/31/03: Spreadsheets and Enterprise Business Processes: A Mismatch
Paul Hamerman
How should organizations address the use of spreadsheets to support enterprise-wide business processes (e.g., budgeting and management reporting)?
Many companies depend on homegrown, spreadsheet-based applications to support complex business processes such as financial planning, budgeting and reporting, despite the fact that they are largely unsuitable for such purposes. Besides being extremely unwieldy for processes involving large volumes of data and multiple users, spreadsheets often contain substantial, material errors, according to academic research. Although spreadsheets continue to support many useful purposes (e.g., ad hoc analysis and output distribution), clients should consider replacing complex spreadsheet applications as well as asserting governance over the development and use of spreadsheets to support enterprise processes and management reporting.
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Microsoft
Giga, 2/3/03: Choose a Windows 2003 Server Implementation Consultant Carefully
Thomas Mendel
We are preparing a global Windows 2003 Server migration project. What company would be the best external partner for this undertaking?
There is no alternative to a diligent request for proposal (RFP) process, including personal interviews, but the short list for the RFP should typically include Hewlett-Packard (HP), IBM, EDS, Unisys and Microsoft.
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