The push for more Transparency
The drive to outsource has been going on since the late 1980s as companies strive to reduce their costs, take advantage of technological developments and develop long-term IT strategies. Outsourcing always involves long-term relationships and when such an agreement is made the outsourcing service provider is often selected on their reputation and a series of expectations.
In any such relationship it is completely normal that problems may occur from time to time. Furthermore, there is nothing wrong in admitting that sometimes living up to those expectations can be difficult. Situations change continuously and the outsourcer can sometimes encounter similar issues as those that occur between the parts of any enterprise and their in-house IT department.
Here transparency is crucial in maintaining trust and a sense of perspective. In fact the role that transparency plays in the way that these problems are dealt with and resolved will ultimately lead to a stronger and more effective partnership.
Business Drivers and Responses in the IT Services Landscape
The IT services market landscape is constantly changing due to a number of critical business drivers. They are pushing both service provider and recipient to respond with a number of solutions to address these issues, and these require transparency on both sides to be truly effective. Generally, the business drivers fall into three major areas: technology, business demands and regulatory compliance issues such as Sarbanes-Oxley, IFRS and TUPE.
Technology
Technology changes are affecting IT capabilities in areas such as networks, bandwidth, processing power, storage, packaged solutions. They are removing any limiting factors and barriers to what can be achieved and are even pushing enterprises towards implementing certain solutions.
The advances in processing power and virtualization technology that have taken place over the last few years have given extra impetus towards recentralizing IT. This enables the rationalization of enterprise IT infrastructures beyond what has previously been possible through consolidation. Virtualization technology also helps to keep costs, as regards disaster recovery and business continuity to a minimum, and many enterprises use it as the first step in a move towards a Utility Based Computing (UBC) environment.
Technology has also led to the development of the more flexible service-oriented architecture (SOA), with a mixed insourced/outsourced, onshore/offshore staffing model. Open-source software has become mature and accepted and is becoming increasingly important. But despite such advances, security remains a core concern within user companies and vendors.
Wireless communication technologies, with RFID leading the charge, will connect objects to each other and to data collection environments. Mobile users in all but the remotest regions will be able to exploit significantly improved wireless transmission rates and seamless domain roaming, supporting the continuation of a wireless session across different networks (for example, from a wireless hot spot to a WAN).
Finally the Internet has created a much more “connected” way of doing business. Many service providers, including Atos Origin, can increase transparency through web-based service portals or extranets. These can enable the client to see exactly what is going on in the contract and even be able to influence it as well by indicating the changes they want. In effect, a “Management Dashboard” which can grow in line with new developments and allow for services to be added or amended at any time.
To be truly effective, work needs to be parameterized on the delivery side in such a way that the requested changes can be implemented either automatically, or with only minor human intervention. This is typically a win-win situation. It enhances the customer experience because they feel that the request for change is part of a solid procedure and not treated as exception, and on the supplier side, it both decreases cost and potentially increases turnover through making it easier to provide additional (or less) volume and functionality.
Business Demands
Business demands are changing very quickly and more unexpectedly meaning that businesses must become more flexible. Furthermore, being able to link business demands and emerging technology in a transparent way demonstrates value, attracts management attention and secures resources for innovation.
Businesses are more and more calling for a flexible technology infrastructure, one where business demands for IT resources can be automatically met. They want an efficient, self-managing infrastructure where fixed costs are replaced by variable pay-per-use costs and the enterprise can move expensive, rapidly depreciating assets off its balance sheet. They also want to take advantages of the advances in service-oriented architectures and the potential of on-demand sourcing models.
A key driver for an enterprise's business strategy is its ability to adapt to a changing business environment. IT executives must create an evolving governance architecture based on an organizational structure, principles and decision making processes that can deliver the greatest advantage to the business. Traditional IS organizations must adopt new, agile and flexible governance mechanisms to support changing business processes and IT managers must understand how the business environment and technology is changing in their specific industries. Here, transparency in customer and supplier relationships is an ever-more essential part of operating a business.
Finally, the ongoing need for enterprises to reduce IT spending in terms of Total Cost of Ownership (TCO) and execute change has led to the drive to harmonize IT services and operational processes, with service levels being defined across regional, international or global organizations. Furthermore, successful commoditization and consolidation enables these services to be moved offshore without impacting on flexibility and quality even more effectively, thus delivering even greater savings.
Regulatory Compliance
Compliance issues have seen many enterprises struggling with how to contain costs for adhering to regulations such as SOX, IFRS, FDA, Basel II, HIPAA etc, and it is expected that this will account for some 15% of IT budgets in 2006. This has also caused the market to recentralizing IT as a well-structured, standardized and consolidated IT environment that can make the implementation and maintenance of systems to support such regulatory requirements less costly.
As the pressures of regulatory change related to enterprise risk management and the desire for information transparency intensify, managers and directors need to attain a deeper view and increased control of operational risks and compliance execution.
Transparency makes the business's operations more auditable by increasing visibility into core processes and this is critical to maintaining trust and keeping performance in line with client, investor and regulatory expectations. It also provides the basis for being able to plan and carry out continuous improvement and allows for the creation of a baseline that can be used for future comparisons.
The IT Services market has reacted to the changes in these 3 areas with solutions that are moving the IT Landscape towards:
- More centralization
- A return to mainframes
- Virtualization
- Utility-Based approach
- Application rationalization
- Global Sourcing
With so many different drivers and influences affecting the IT landscape today, it is hardly surprising that enterprises are looking for greater transparency from a service provider.
The importance of Transparency in a Relationship
Transparency is important in many areas of the relationship. To begin with there is often a graduated level of dependency between the service provider and the customer. Each needs to know exactly who is responsible for what, as any “grey areas” can lead to confusion and dissatisfaction. For example, some business may be concerned about a possible lack of control due to subcontracting by their outsourcers. The customer is ultimately responsible for its own business, despite certain areas or processes being outsourced, and so needs to retain full control and clarity over all information and processes. Here, transparency provides a single view of the services on offer and the projects being supported. This helps creates the atmosphere in which a long-term and mutually beneficial relationship can flourish.
Traditionally a relationship was determined by a set of pre-defined rules that lasted throughout the duration of the contract governing that relationship. Any changes, (be they process, functionality and sometimes even volume), were seen as exceptions that needed contract negotiations to discuss and accept, and often work-groups and project teams to implement. But today there is a need for more flexibility in response to a more dynamic business world. So more transparent contracts are constructed to accommodate change and make the financial consequences predictable. This radically reduces the need to negotiate and therefore the total time to effect the required change.
Changing service requirements, be it to take into account holidays, industrial disputes, sudden changes in product demand or supplier issues all mean that it is critical that the customer has a real-time and accurate picture of what IT services it is buying, and how much of it, and can vary these to fit demand through an “on- demand/UBC” delivery model. Such a model also allows a customer to see if it is making the most efficient use of its IT services, and the ability to fine tune the situation adds to trust and confidence in the relationship.
Finally, innovation is a much used word today and often a key commitment from the service provider. Within an outsourcing relationship, there has to be the ability for the customer to actually openly check that the service provider is aware of the potential of any new innovation and is actually following the latest trends and doing something about it!
Transparency can provide a Win-Win Situation
It might be assumed that by introducing more transparency in outsourcing that it would mainly be to the benefit of the client. However, if properly structured and managed, transparency can be of equal and possibly even slightly greater benefit to the service provider. But whatever the degree of benefit, the mutual benefits to the overall relationship are considerable.
Client benefits include:
- Greater control leading to better trust and a “what you see is what you get” situation (See Gartner report “Trust and Control”). Congruency, where perception and reality are the same.
- Reduced TCO.
- Better consistency of services.
- Greater management/end-user satisfaction.
- Integrated management processes across both companies in areas such as invoicing, service orders, communication, etc.
Service Provider benefits include:
- Improved client satisfaction and long-term relationship – Measurable/Manageable.
- Lower technical admin costs.
- Improved quality of invoicing and improved DSO (Daily Sales Outstanding).
- Lower cost of implementation through standardization.
- Improved internal communication by breaking down barriers between delivery units.
- Resolving the client “catalogue” issue.
- Enhanced end-user experience allowing more one-to-one marketing and up-selling.
- The “Shared Values/Goals” approach is a commercial USP.
Creating the Conditions for Transparency
There are a number of conditions that help a service provider to maximize the benefits from transparency. An outsourcer has to have the established skills and competencies in order to be able to deliver flexibility at low cost. They need to have an application portfolio properly in place and to be able to deliver standard processes. Also they need to be able to leverage massive synergies and to be able to partner across the customers complete value chain.
A clear governance model is also an essential prerequisite to achieving transparency. This is a cornerstone of Atos Origin’s approach to outsourcing and is well documented in our white paper on Demand Supply Management which was also published in the Outsourcing Project in 2005 and is available on Atosorigin.Com.
Another condition is that contracts have to allow flexible volumes and quality changes without any renegotiations. They need detailed and accurate price information to be able to order or cancel services as required in response to changing business needs. Furthermore, customers need to be able to have a real-time insight into the services they are receiving to be able to see the status of the “kitchen” of the outsourcer! They need to have control over these and to be able to audit them easily.
All these areas can be best facilitated through the “Dashboard” model where the customer is fully empowered to drive or control the relationship to respond to the dynamics of its own particular business situation. Atos Origin has established web-based portals or extranets which enable the client to see exactly what is going on in the contract and influence it as well.
Summary
Ultimately both the service provider and the customer need each other to achieve their business goals. However, in the case of outsourcing, the relationship itself is the most critical aspect. To be successful it must be long-term and open, and ideally grow to the benefit of both parties.
Transparency is vital in creating these conditions and the trust required to make the relationship work. However, a service provider must not only demonstrate the intention to be transparent but must be able to actually deliver transparency in a tangible and practical way, based on a sound governance model. This can ultimately lead to the “Dashboard” model where the customer is fully empowered to drive or control the relationship to respond to the dynamics of its own particular business situation.
Finally, if transparency is seen as a serious element of an outsourcer’s service delivery approach, this can be a major factor in influencing a client’s decision to select a service provider as a long-term outsourcing partner.