Innovative IT Outsourcing in 2014

What is the status and key trends in IT outsourcing?

What do the best IT organizations do differently? What do the best IT organizations do differently?
What are the key business expectations for outsourcing?
Jari Vlimki
Vice President
GARTNER CONSULTING
Vice President
Gartner Consulting
Tel. +358 40 450 8879
jari.valimaki@gartner.com
J anuary 2014
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2013 Gartner, Inc. and/or its affiliates. All rights reserved.
IT outsourcing market is growing even when unit prices are decreasing
IT outsourcing market is growing across
(almost) all the service areas until 2017 (almost) all the service areas until 2017
Cloud based computing services have the
highest growth rate together with storage as a
services
Application outsourcing growth rate is
reasonable. Due to big structural changes and
business benefit opportunities, this is a
highly interesting area.
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1
Trend 1 : Step-by-step towards standardized services including standard
application platforms
SaaS represents around 10 % of average
application service spending at the moment.
This market is growing around 15 % pa This market is growing around 15 % pa
during the following years.
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2
Trend 2 : New technology providers are emerging, internet of things is rapidly
expanding, need for new type of competences in the service sourcing eco-system
The Internet of Things will include 26 billion
units installed by 2020. The total economic
value-add from IoT across industries will
reach USD 1.9 trillion worldwide in 2020,
32 % of CIOs believe that the dominant
technology providers will not be the
obvious choices listed on the picture
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3
Trend 3 : Organizations are consolidating and standardizing application portfolios,
however at the same time they need to develop application services that drive
business digitalization, newrevenue streams and customer experiences business digitalization, new revenue streams and customer experiences
54 %of organizations say that their business 54 % of organizations say that their business
and the whole industry are highly impacted by
the business digitalization
10 % of business management are fully
satisfied with what CIO and IT organization are
currently delivering
Organizations must find right balance
between standardized application services
and innovative applications driving business and innovative applications driving business
digitalization, new revenue streams and
customer experiences
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4
Trend 4 : Application service provider consolidation
A key initiative in many large organizations at the moment is to work on simplifying
and consolidating the application service sourcing models. g pp g
Usually these organizations have worked hard to improve their infra services. When
this has beendone, theyhave changedtheir focus on the applicationside. this has been done, they have changed their focus on the application side.
Gartner has helped several International, Nordic and Finnish organizations to execute
this kindof programs already this kind of programs already.
Initial feedback from the clients is very positive, even extremely positive in some of the
cases cases.
Gartner knows several other organizations that are currently planning to initiate similar
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5
initiatives.
What is common for cost-efficient and effective IT organizations?
Business services organized around application
Sharp corporate level IT strategy stating clearly what
we do and what we dont do from the business
perspective
Clear IT imperatives, principles and policies
Understanding about what business services are
toolboxes instead of narrow technical services
Strong internal or external delivery per service
Measurable and standardized outsourced services
instead of body shopping
Ongoing services outsourced to a few vendors
g
delivered now and in future
Clear model about who is accountable and who is
delivering different services
Also number of development providers reduced
Flexibility to increase / decrease capacity quickly
Minimized number of governance bodies
Minimized number of roles / people participating
delivering different services
Clear and streamlined model about who is giving
input and who is making decisions
Minimized number of governance bodies
Ensuring that right people participate
End-to-end process maturity across eco-system
Reduced IT complexity in both applications and infra
Well functioning and effective communication /
co-operation between business and IT
Ongoing programto developoverall IT maturity
Reduced IT complexity in both applications and infra
(SaaS, PaaS, IaaS, SW packages, )
Good enough competences in different roles
High employee satisfaction across eco-system
Ongoing program to develop overall IT maturity
and cost efficiency
Enough motivated people with good
t
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competences
Principle 1 : Service Integration role to 1 2 vendors for ADM Services
The number of other vendors reduced
Other ADM and SaaS
Vendors
immediately and during the contract team
Client
Service Integrator &
Strategic ADM Vendor
(1 2)
COTS Vendors
Infra Vendors, including
hosting, storage, PaaS,
IaaS / cloud,
Other Application
Development Vendors
Support and maintenance always to the Service
Integrator, if / when possible
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Principle 2 : Service Integrator responsible for the selected Strategic Targets,
monetary steering mechanisms linked into these
Business Impact / Quality
Digital revenue %
Business metrics, %of metrics met
Complexity
Complexity index based on number of
applications (including SaaS), platforms,
Service / Governance
Number of active governance bodies
Man-hours spent in governance bodies
M

S
e
r
v
i
c
e
s
Business metrics, % of metrics met
Application / digital service importance for
business (questionnaire)
Business satisfaction (questionnaire)
% of key SLRs met
pp ( g ) p
integrations and technologies
% of spending on SaaS, PaaS, IaaS and SW
packages
Man hours spent in governance bodies
% of external spending on outsourced / managed
services
Number of active vendors
A
D

/

A
M
Maturity / Flexibility
Trust index with main vendors
Eco-system process maturity index
(questionnaire based survey)
Lead time to increase / decrease AD capacity
People
Employee satisfaction across eco-system
Competence coverage as compared to plan
across eco-system %
Cost / Productivity
IT Total Cost of Ownership (TCO)
Application and Infra TCO
Cost per Function Point developed
Cost per Function Point maintained / supported
Transformation Project
m
a
t
i
o
n
p y
(XX % in XX weeks)
Cost per Function Point maintained / supported
Cost per OS instance and RAW TB
% of transformation project milestones met as planned
j
T
r
a
n
s
f
o
r
m
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Bonuses Penalties Team Rewards
Principle 3 : Fairness of sizing problem resolved
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How to implement this kind of program effectively (6 9 months) Small core team
focusing on developing the agreement from day 1 / first RFP end-to-end agreement
Master Service
Agreement
Business Transfer
Agreement
AD Services
Agreement
AM Services
Agreement
Other MSA
Appendices
P j t S i
Transition Services
Agreement
AMS i Transition Ser ice
Agreements
Project Service
Description
Management
Service Description
AM Service
Description
People
Transition Project
Plan
Security
Strategic Targets
and Governance
Transition Service
Description
Applications
Assets
Project Order
Template
Pricing, Fees,
Invoicing
Non-functional
Projects
HR Baseline
Non functional
Requirements
Environments and
Tools
This diagram is illustrative only, it
includes only the key documents,
additional documents needed in
ti
Disclosed Materials
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Exit Plan and
Assistance
practice