Outsourcing IT management. Is the time right?

Outsourcing some IT management functions can save money and free up resources to focus on more strategic initiatives, proponents say. But it is easy to get it wrong, detractors warn, in which case it will cost you more than you could have ever hoped to save, and you won't want to let any strategic stuff go.

The Experts
Glenn O’Donnell
Glenn O’Donnell

senior analyst at Forrester Research, Forrester Research where he serves Infrastructure & Operations Professionals. It might make sense to outsource some commodity tasks, O'Donnell argues, but there are many perils and the process might expose the bailing wire holding some of your functions together. View debate

Terry Flood
Terry Flood

President and CEO at Logicalis, Logicalis says that, with IT budgets and staffs stretched so thin, outsourcing is the most sensible way to regain the ability to focus on the stuff that matters most. Flood says that, with IT budgets and staffs stretched so thin, outsourcing is the most sensible way to regain the ability to focus on the stuff that matters most. View debate

Glenn O’Donnell

Keep the strategic stuff in-house

Is the time right to outsource IT management? The short answer: No and yes.

Forrester is a proponent of what we call strategic rightsourcing, the strategy of carving out commodity functions that offer little business advantage and hiring third parties to perform those functions. Performing such work yourself is economically unviable. This differs from traditional outsourcing because it is more targeted, standardized, and governed by policies and provisioning that are more flexible to change and more tightly integrated into the internal strategic functions.

IT management can fit the targeted definition for commodity candidates for outsourcing in this model -- some functions are indeed commodities, such as basic infrastructure monitoring -- however many are more strategic and should remain in-house, such as automation orchestration and service portfolio management.

Furthermore, the interfaces that bind the many functions together (human or software) must be strong to enable management outsourcing. Unfortunately, most enterprises have interfaces that are fragile, if they exist at all. Overall process discipline and the integrated orchestration of IT services must improve regardless of any sourcing decisions.

Functional flaws will be amplified as the world becomes more dynamic and as IT embarks upon the strong mandate to become more entwined with business execution. Fixing these flaws internally is difficult. Handling such handoffs with third parties is more complex. If you can't do it internally, you will never do it well with third parties.

IT management can fit the targeted definition for commodity candidates for outsourcing in this model, but be careful in how it is approached and executed. Some management functions are indeed commodities (for example basic infrastructure monitoring and sometimes the service desk), however, many are more strategic and should remain in-house (for example overall automation orchestration and service portfolio management).

Furthermore, the interfaces that bind the many functions together (human or software) must be strong to enable management outsourcing. Unfortunately, most enterprises have interfaces that are fragile if they exist at all. Overall process discipline and the integrated orchestration of IT services must improve regardless of any sourcing decisions. Functional flaws will be amplified as the world becomes more dynamic and as IT embarks upon the strong mandate to become more entwined with business execution. Fixing these flaws internally is difficult. Handling such handoffs with third parties is more complex. If you can't do it internally, you will never do it well with third parties.

Weaknesses in negotiating terms and conditions as well as service-level agreements will kill any outsourcing relationship. Indeed, this is the primary reason outsourcing has earned such a poor reputation. The problem is not with the outsourcers as much as with customers who lack the planning and execution such situations demand. Ambiguity favors the vendor, not the customer. Be crystal clear about everything and plan for worst case scenarios.

Automation is more attractive than outsourcing. If a commodity function can be automated, following that path is usually less painful than outsourcing it. You can retain control, execute with confidence, and realize significant labor savings.

Unless your enterprise is very small, do not contract anyone to perform monitoring and data collection (for example CMDB) in a fully remote model (such as all polling and data collection originating from the outside). Such architectures will require privileged access to many of your resources. In itself, this is an issue that can be easily addressed. (When performed over a secured VPN your risk of unauthorized access and use is low, but if you go this route, be firm in the contract about data privacy.) The bigger problem is the sheer flood of data over this connection.

A hybrid model is better, with some type of instrumentation installed on your premises to do the work of polling, collection, and hopefully some processing. The best way to implement this is via a self-contained appliance. The remote party can control this appliance and manage reporting remotely. It is far more efficient than a full remote model.

We've seen occasions where the collected data is actually not owned by the customer. In these situations, customers are forced to buy back their own data upon termination of the contract. Protect against this. Mandate your rights to your data from the very beginning. Also, as Forrester has identified with our cloud computing data protection heat map, governmental regulations may render geographic presence of your data illegal. Understand where your data will reside and check your own country's data privacy requirements.

If your only goal for outsourcing is to save money, you will be disappointed. Almost all who pursue this myopic approach spend more in the end. In fact, many eventually learn they are spending more than they did before they entered into the contract. Out-of-scope work adds up and vendor management costs are usually underestimated. Address the overhead of any outsourcing arrangement up front. You need ongoing relationship management and additional effort to ensure good communications and technology integration.

Outsourcing IT management can be beneficial, but it isn't the cure-all that many suppliers profess and, if you get it wrong, the results can be devastating. Proper planning and preparation will mean the difference between success and failure. That's a simple and obvious concept, but one that is so often overlooked. Be strategic about outsourcing, not tactical.

Glenn O’Donnell is a senior analyst at Forrester Research, where he serves Infrastructure & Operations Professionals. He will be speaking at Forrester’s IT Forum, May 26-28, 2010 in Las Vegas.

Terry Flood

Strategic outsourcing reduces costs, increases productivity

The need to reduce costs while being more productive has been the primary motivator for IT departments to selectively outsource IT management functions, and most adopters find it does more than save money.

IT departments today are under tremendous pressure not just to provide uninterrupted technology services, but also to do everything from enhance customer service to help take market share from competitors. But few IT departments have the manpower or skills to provide the full range of services they are being asked to deliver, hence the interest in outsourcing specific tasks.

Outsourcing can help fill the gaps while also saving money. The savings are accomplished in many ways, including reduced downtime, access to experienced experts on an as-needed basis, streamlined procedures and the overall efficiencies that come from a proactive approach to infrastructure support. Some savings reflect harsh realities. A manufacturer in the Northeast, for example, more than offset the cost of a $38,000 monthly managed services fee by subtracting the salaries, benefits and training of seven full-time employees.

Beyond the savings, strategic outsourcing also delivers measurable IT productivity gains by enabling the group to redeploy skilled staff from mundane tasks, such as monitoring routers and resolving user problems, to strategic projects that use their core competencies to directly support business initiatives.

If you ask a CIO what his job is, he'll tell you it's to serve his customers better. That's the new starting point. Using technology to better serve customers is — or should be — the IT department's core competency, and this is where it should focus its attention, not on routine infrastructure management.

Your CFO will tell you that every asset, including every device and every employee, has to be allocated to a source of revenue. Outsourcing select services is one way IT departments can align themselves with growing the business.

Some of the reservations people have about outsourcing come from the early days of the boom in the managed services market when start-ups that were little more than two guys with beepers and a couple of Wintel servers, jumped into the market. Surrendering control of information services to this early wave of managed service providers, in fact, proved to be a bad risk on many counts.

Those days, and those guys, are gone. The market in managed services has matured and become increasingly competitive. Technologically and fiscally strong outsourcing providers today can be trusted with your information services.

Strategic outsourcing is not a hand off. It's a partnership. The technology for outsourcing select services – such as server and storage back-ups, e-mail management, security and help desk services – has evolved to keep you in control at all times. The intelligent force behind the evolution of outsourcing services is customer demand. The ability to customize all aspects of selected services gives you the flexibility to develop coverage that fits your unique situation exactly, and then change the coverage as your situation changes.

New IT service management (ITSM) tools, for example, not only provide enhanced portal functionality for ticket handling, ticket timers and workflow, but also allow customers to apply all of the ITIL v3 best practices to systems they're supporting on their own, essentially delivering state-of-the-art service management efficiencies right out of the box.

Virtualization, cloud computing and other technology advances have abstracted the resources that IT departments depend on and demonstrated the reliability and efficiency of remote access.

It may have taken bad economic news to drive some IT departments to outsource select services as a way to cut costs. But the good news is that outsourcing services not only reduces cost, but also enables IT to escape the revolving door of crisis-to-crisis management that has kept IT professionals running in place ever since open standards unleashed the last major evolutionary surge in information technology.

The next evolutionary leap toward the vision of computer processing as a utility is already in motion. Strategic outsourcing offers a connection to that vision for those who can look beyond the short-term need to cut costs and see the long-term opportunity to gain competitive advantage.

Flood is president and CEO of Logicalis in Farmington Hills, Mich., an international provider of integrated information and communications technology (ICT) solutions and services founded on a superior breadth of knowledge and expertise in communications and collaboration; data center optimization; application development and integration; and outsourcing and managed services.

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