Outsourcing IT

Outsourcing IT: A governance guide

RUPERT KENDRICK
Copyright Date: 2009
Published by: IT Governance Publishing
Pages: 323
https://www.jstor.org/stable/j.ctt5hh6kf
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  • Book Info
    Outsourcing IT
    Book Description:

    Outsourcing IT – A governance guide addresses three components of the governance of IT outsourcing: the IT outsourcing process; the nature of governance and the use of methodologies and tools for the implementation of governance principles; and the management of risk within the IT outsourcing process. The objectives of the book are first, to provide boards of directors with clear criteria for the application of governance principles in an IT outsourcing environment; and, second, to provide guidance on useful strategies, processes and procedures for their implementation.

    eISBN: 978-1-84928-026-6
    Subjects: Business, Technology

Table of Contents

  1. Front Matter
    (pp. 1-4)
  2. FOREWORD
    (pp. 5-5)

    Writing this book has been, what I might term, a time-critical exercise. By this I mean that a constant challenge throughout has been the need to keep up to date with the many rapid changes that are emerging in IT outsourcing, particularly Cloud computing.

    Subjects which I seemed to have covered were suddenly exposed to new ideas, thoughts and suggestions by leading commentators in the field. As one of my friends once put it, ‘it’s all changing so fast – faster than you can write it down!’ I hope I have risen to the challenge adequately.

    I must acknowledge the...

  3. PREFACE
    (pp. 6-7)
  4. ABOUT THE AUTHOR
    (pp. 8-8)
  5. Table of Contents
    (pp. 9-12)
  6. CHAPTER 1: A GOVERNANCE OVERVIEW
    (pp. 13-37)

    The drive towards outsourcing the IT function is a response to the emergence of a ‘new’ business environment. This new environment arises from the globalisation of world commerce and the consequent need for organisations not only to survive, but also to compete in a world-wide market.

    IT is a fundamental and essential tool for any organisation in meeting the demands of its customers in such a challenging marketplace. As important as understanding the importance of IT is the need to recognise how it should be acquired, deployed, managed and exploited for maximum business benefit and achievement of business objectives.

    The...

  7. CHAPTER 2: THE IN-HOUSE IT CHALLENGE
    (pp. 38-47)

    The strategic outsourcing of IT systems is playing an increasingly significant, if not pivotal, role in the supply and delivery of goods and services.

    A successful IT outsourcing process can revolutionise the performance of an organisation, increasing both its own profitability and the investment returns of its shareholders; as well as enhancing customer satisfaction and developing customer loyalty. There are clear benefits, for both the organisation and supplier, offered by outsourced IT services which are supplied efficiently and cost-effectively.

    The legal sector is not always noted for its path-finding approach to the use of IT; however, lawyers are beginning to...

  8. CHAPTER 3: OUTSOURCING CONSIDERATIONS
    (pp. 48-62)

    IT outsourcing involves an organisation contracting out services to a supplier to be performed to agreed levels over a set period of time. Sometimes, it includes one or more of the organisation’s personnel, IT assets and premises being transfer to the supplier.

    Outsourcing should not be confused with other expressions often used when referring to the function. Terms, such as association, arrangement or partnership, are sometimes loosely used to describe the outsourcing process. None correctly reflects the formal relationship involved in an outsourcing project.

    An outsourced project creates a formal legal relationship between organisation and supplier which is governed by...

  9. CHAPTER 4: REACHING THE DECISION
    (pp. 63-75)

    The challenges facing an in-house IT function were considered in the second chapter, followed by discussion of the business implications of adopting an IT outsourcing strategy from strategic, technology, compliance, operational and financial perspectives, including objectives and stakeholders’ interests.

    However, before a decision to outsource is reached, there must be a clear understanding of the potential advantages and disadvantages of outsourcing the IT function.

    Advantages and disadvantages are often subjective. What may be advantageous for one organisation may be disadvantageous for another and will depend on an organisation’s individual circumstances.

    This chapter considers the potential advantages and disadvantages of the...

  10. CHAPTER 5: MODELS OF IT OUTSOURCING
    (pp. 76-92)

    Outsourcing can provide different options for an organisation depending upon the purpose for which it is required. Outsourcing can meet a variety of requirements and can be performed using a variety of methods in order to meet business requirements.

    Some ‘arrangements’ that arise between organisation and supplier are considered below under the umbrella of outsourcing. These descriptions can be confusing. Their features are often misunderstood as overlapping variations in their scope emerge:

    The organisation owns the IT assets but a supplier performs the IT function, with the organisation’s personnel either on or off the organisation’s premises (facilities management).

    The organisation...

  11. CHAPTER 6: PRE-CONTRACT PROCEDURES
    (pp. 93-107)

    This chapter considers the initial stages of the process involved in outsourcing the IT function. These stages call for the development of sound management strategies and accepted management principles.

    The need for sound management is essential, not least because of the complexities of outsourcing. The challenges facing the in-house IT department identified in Chapter 2 were: the need to meet competition; the emergence of specialist markets; the need for economies of scale; the overhead cost of an IT department; and compliance issues.

    The decision to outsource the IT function introduces a host of business considerations which were considered in Chapter...

  12. CHAPTER 7: THE CONTRACT
    (pp. 108-124)

    The contract represents the agreement between the parties and governs their legal and business relationship. It is a legally binding document and provides the framework for the management and operation of the outsourcing project. The contract defines the services to be provided and the respective responsibilities of the parties.

    The contract has a number of important functions:

    it is the backdrop against which negotiations are conducted;

    it is a potential risk management tool which provides for methods of avoiding and resolving disputes;

    it provides the organisation with rights and remedies when required against a supplier; and

    it is an overriding...

  13. CHAPTER 8: THE SERVICE LEVEL AGREEMENT
    (pp. 125-132)

    The SLA defines the agreement between the parties over the scope of the project, the levels of service to be provided and the supplier’s charges for performance of the contract. The SLA is a schedule to the main contract. The three key areas are service levels, scoping and pricing.

    As a matter of general law, the supplier has a duty to use reasonable skill and care in the performance of the agreement, but the SLA defines the supplier’s obligations much more precisely.

    The objective of the SLA is to define the obligations of the parties regarding the performance of the...

  14. CHAPTER 9: MANAGING THE CONTRACT, THE SLA AND THE TRANSITION
    (pp. 133-151)

    Effective management of the contract is critical to the success of an IT outsourcing project. Contract management goes beyond ensuring compliance with the terms of the contract and the contract schedules. It also includes management of the relationship between the organisation and the supplier. An outsourcing arrangement may continue for several years and it is, therefore, important to create an enduring relationship.

    There are three areas to be considered in respect of the management of the contract:

    management of the contract;

    management of the SLA; and

    management of the relationship between organisation and supplier.

    If the contract is to be...

  15. CHAPTER 10: CONTRACT CHANGE CONTROL
    (pp. 152-155)

    An outsourcing contract may remain effective for several years. Over such a long period, it is inevitable that changes will be needed to ensure that the contract reflects both parties’ intentions during the currency of the project. It is important that mechanisms are included in the contract that provide for changes to take place through a properly managed process.

    In such a fast moving industry as IT, a wide variety of changes need to be addressed. New hardware and software developments, emerging markets, new business environments, changing user needs and new suppliers are just some of the circumstances which may...

  16. CHAPTER 11: CONTRACT EXIT
    (pp. 156-173)

    Managing the termination of an outsourcing contract requires a number of complex issues to be addressed if a good relationship with the supplier is to be maintained throughout and after the process. The outsourcing process should not be indefinite as circumstances change and contracts need adjustment to reflect the parties’ circumstances and interests.

    An outsourcing contract may be:

    for a fixed term; or

    for a continuous period, renewable or terminable at certain agreed intervals upon agreed notice.

    A contract may be terminated by mutual agreement with an agreed period of notice; unilaterally by either party upon notice in accordance with...

  17. CHAPTER 12: CORPORATE GOVERNANCE
    (pp. 174-181)

    IT plays a pivotal role in the performance of almost every organisation. Without IT, most organisations could hardly function to any level of performance acceptable to its customers, shareholders or stakeholders.

    A decision to develop and implement a strategy that involves the outsourcing of an organisation’s IT resources, therefore, goes to the core of its ability to perform and compete. Such a strategy has fundamental implications for customers, shareholders and stakeholders, particularly its personnel.

    Outsourcing IT involves a profound change in the manner in which an organisation applies its resources in the achievement of its business objectives. The organisation is...

  18. CHAPTER 13: IT GOVERNANCE
    (pp. 182-209)

    Numerous reasons are expressed for the failure of outsourcing projects. They include:

    failure of communication between the parties resulting in uncoordinated and misaligned processes;

    poor relationships between the parties at the outset;

    inadequate capabilities of retained IT functions; and

    inadequate governance and management frameworks supporting the project.

    A survey for the IT Governance Global Status Report 200821made a number of key findings in respect of the adoption of and attitudes towards IT governance. These included:

    IT governance is still very much a CIO/IT director issue and few non-IT people in the sample had a much more positive view of...

  19. CHAPTER 14: PROJECT GOVERNANCE
    (pp. 210-226)

    The outsourcing of an IT function is a project. In order to understand the meaning and implications of project governance, it is important to understand the meaning of a project.

    It is difficult to find a comprehensive, universally accepted definition of the word ‘project’. In essence, a project is an undertaking designed to be performed within specific time limits and with specific objectives, most frequently by a team of individuals with specialist skills that enable the achievement of the project’s objectives.

    These characteristics are all recognisable in an IT outsourcing project. The clear objective of such a project is invariably...

  20. CHAPTER 15: RISK ASSESSMENT
    (pp. 227-237)

    A fundamental component of effective corporate governance is the assessment and management of risk. The key issues for organisations to address when considering an outsourcing strategy were considered in Chapter 3 (the business considerations) and Chapter 4 (the outsourcing decision).

    These issues were collectively grouped in categories of: strategy, technology, compliance, operations and finance. Later, the key risks to be considered when implementing an outsourcing strategy will be analysed in the same categories.

    However, in order to manage risk issues arising from an outsourcing strategy, it is important, first, to understand the main principles of risk assessment.

    The most potentially...

  21. CHAPTER 16: IDENTIFYING THE RISKS
    (pp. 238-250)

    Numerous statistics are presented to show that outsourcing risks are either not appreciated or are otherwise mismanaged. One risk issue that is significantly underestimated is the adverse effect that the impact of time can have on an outsourcing project. Some statistics have suggested that as many as 25% of projects fail within two years and as many as 50% in five years.

    Typical risks include misalignment of business goals with outsourcing projects, lack of clarity over the scope of the project and inadequate skills and training procedures.

    Many executives give too little thought to the risks that may impact on...

  22. CHAPTER 17: RISK MANAGEMENT STRUCTURE
    (pp. 251-266)

    Assessing risk is part of the wider process of managing risk. Risk management is not simply a question of writing down procedures to ensure compliance with a set of rules, it is to ensure that prescribed procedures are observed – it is a governance function.

    Not only is risk management a corporate obligation within an organisation, it is also a personal obligation of all personnel. While the strategic management of risk is a board responsibility for which the execution of its strategy may be delegated to a team of individuals, in any organisation, there must be one person ultimately accountable...

  23. CHAPTER 18: RISK MANAGEMENT STRATEGIES
    (pp. 267-307)

    A key requirement of good governance is the effective management of risk. Effective management of risk goes to the heart of successfully applying and implementing governance principles. This chapter considers strategies and mechanisms that support organisations in the introduction, application and implementation of governance principles in managing the risks of an outsourcing project.

    The chapter returns to the familiar analysis and examines: IT, compliance, operational and financial mechanisms available to organisations embarking on a project concerned with outsourcing the IT function.

    In recent years, various frameworks and standards have emerged to support organisations in their use and management of IT....

  24. CHAPTER 19: CONCLUSION: THE GOVERNANCE IMPERATIVE
    (pp. 308-318)

    The adoption and deployment of efficient, cost-effective and modern IT systems is critical to the effective performance of every organisation. As global markets have emerged and developed, competition has become fierce.

    The pressure on boards of directors to satisfy the interests of stakeholders by delivering strategies that provide first-rate business performance and adequate profits is continually increasing.

    IT is one of the most important tools in the armoury of the board. Adopted, deployed and managed efficiently, IT can revolutionise the performance of an organisation almost overnight. IT introduces new ways of working by automating costly and labour-intensive processes enabling organisations...

  25. BIBLIOGRAPHY
    (pp. 319-319)
  26. FURTHER RESOURCES
    (pp. 320-320)
  27. ITG RESOURCES
    (pp. 321-323)