Whether you are an executive of a global enterprise or a business owner with a small IT team of at least 2 people, the pressure is on. Your organization needs to cut costs and boost service levels. You want to be a champion for your team -- to be a leader in maximizing rewards and minimizing risks. To do so, you must be thoughtful about focusing your internal resources on core competencies - the key drivers that most greatly differentiate your organization from others in your industry. And, you must be honest about when and where it makes sense to apply leverage using outside resources and/or new technologies or processes to give your organization the greatest advantages - the best foundation for supporting your core competencies.
Once you accept this mission, how do you execute it successfully?
The following brief presumes you have already identified suspect activities that merit further scrutiny regarding considering internal and/or external service providers. After this shortlist is identified, it is time to consider alternatives for the scope of services that you may want from service providers.
Preparing services scope alternatives
The extent of services and their comprising activities that are to be included in providers' proposals are called the scope of work, or scope. Consider that there are many alternatives, ranging from all-encompassing holistic scope down to scope which is highly sub-divided into key activities and/or augmentations. Key variables to consider are:
o Who is Responsible? Which provider has primary, secondary and/or tertiary responsibilities for each activity, depending on the degree of contribution and/or impact of their actions?
o Support Frequencies? How often will services be required? For example: One-time, Periodic (Weekly, Monthly, Quarterly, Annually), and/or Stream (on-going)
o Where Operated? At which site(s) will services be provided? Internal Site(s); Vendor Site(s); 3rd party Site(s)
o Key Service Levels? What are the key performance and/or timeliness metrics that will govern the services? Are remedies (including penalties) expected if actual results fall below agreed levels? Are incentives available for over-achieving targets? Remember to keep a good balance -- as few and as simple metrics as possible to allow assuring performance and enabling flexibility.
o Burdened adders? External service providers must effectively include costs in their proposals that may have been missed by internal service providers in their proposals. Due to such oversights, significant benefits have been lost in leveraging external resources. For successful comparisons, you must look beyond only employee salaries. Be complete in considering all burdened cost adders that will impact your organization, such as: overtime, benefits, management, training, support, facilities, furniture, computers, communications, administration, corporate allocations and other important operating and/or capital costs. Consider where to 'move' burdens when thinking about services scope alternatives, to place these to maximize your organization's advantages.
You can easily see how providers' proposal costs will vary dramatically depending on these and other key variables. Ideally, your cost accounting should align in a manner allowing clear and equitable comparisons. This will save you lots of time in the long run. You also need to be thoughtful in comparing service providers' proposals to assure you understand these nuances for each proposal.
Prudent, knowledgeable service providers will shy away from scope alternatives where they cannot execute effectively or efficiently enough to assure success, and/or only agree to 'reasonable efforts' towards service level targets until they have time to understand the environment and apply their value to it.
Service providers will also shy away from scope alternatives that have too much risk for expending unplanned resources to deal with problems originating from scope beyond their responsibilities -- even if there are seemingly clear terms for charging for additional time and materials. The big challenge here is in view of technology, process and people inter-dependencies. In the real world, it can take much time and expense to successfully diagnose problems and attribute responsibilities. As a result, experienced service providers may avoid such scope alternatives entirely. Be mindful of service providers who are not cautious about this, since it may indicate their proposals contain higher levels of risks for you.
From a risk assessment and mitigation standpoint, thoroughly think through your services scope alternatives presuming finger-pointing scenarios could occur between providers. Which scope alternatives avoid or minimize the chance of these scenarios? Which scope alternatives minimize and/or quickly resolve unwanted impacts and costs if finger-pointing does occur?
Another area requiring thought is identifying volume drivers that closely correlate to activity costs. All good service providers - internal or external - must have identified the key variables or drivers for managing and charging for the resources they deliver. Forecasts for these volumes will need to be agreed upon, ideally in a manner that aligns with your organization's business growth scenarios. Billing and/or charge-back plans will most likely depend on these estimates.
As you prepare your scope alternatives, also consider the timing of what is needed. What scope do you envision needing in the next 3- to 12-months, and beyond? What scope additions or subtractions may be required in the future -- say in the next 12- to 36-months?
Explore what is happening in industry via industry associations, your network of colleagues, benchmarking and/or consultants. These are among the strategies for gaining and/or confirming the good and not-so-good outcomes before you act.
After completing all the work described above, you will be better positioned to understand and communicate the scope of work alternatives being considered, and to more easily and quickly compare internal and external service providers' proposals.
In this business era, an important approach towards achieving significant benefits is by working with internal and/or external service providers who are embracing Cloud Computing concepts. If they are not being proactive about Cloud Computing, then will they be prepared for the dynamic changes that have already started?
Cloud Computing - Why the Hype?
A good definition of and introduction to Cloud Computing is provided by Wikipedia. Just type "Cloud Computing".
My view of Cloud Computing is that it is a paradigm for intrinsically incorporating hardware + software + communications + operations + other technologies together as an integrated holistic solution.
Typically, the following benefits are expected with Cloud Computing:
o Dramatic CapEx and OpEx savings & quick ROI versus more 'traditional' approaches -- much less spend
o Dramatically better scalability, flexibility, accessibility, performance, etc -- much better "bang"
o Dramatic alignment of service levels & related costs to user-groups -- better alignment & control
I have observed all these benefits, including conservative savings as high as 55%. The perceived savings may have been even higher if the comparisons were truly equitable. With 30% to 55% savings... plus much-enhanced service levels and alignment... Cloud Computing solutions easily command executives' attention. Hence, there is a lot of focus and discussion about cloud-based solutions.
The challenge with Cloud Computing is there are many inter-dependencies and nuances that must be considered with these approaches. Different vendors are taking different paths, as they evolve their existing offerings to be increasingly cloud-oriented. Some of these offerings are still relatively immature. Industry associations are working to establish standards and common vernaculars regarding technologies and processes - I'd say the telecommunications industry is leading in this regard. However, some changes that are occurring across all industries are still quite dramatic and sometimes not without bugs. Prudent executives are cautious about making investments where there are higher chances for change and therefore where risks or mis-investments are greater.
However, there are very practical (low-risk) opportunities enabling executives to act now with strong ROI and service level advantages -- either via internal providers leveraging cloud-based technologies and/or with the help of external providers.
Are you prepared to compare internal and external providers?
Do you understand your organization's:
o Top suspect activities to be scrutinized?
o Scope Alternatives?
o Accurate costs - and related volumes and forecasts?
o Target benefits?
o Possible added costs and risks?
If you have this understanding, then you are ready to engage in comparing internal and/or external service providers.
The high degree of complexity, extreme cost competitiveness, expectation of high service levels and dynamic change is forcing key transformations to occur. For you to be successful, as your organization's champion, you must apply leverage - taking advantage of scale and expertise -- when and where it makes sense. However, there are many providers from which to choose. How will you compare these internal and external providers?
A Trusted Provider - Look for their 'Deeds to Speak'
Like the old adage, "deeds speak louder than words", whether it's an internal or external provider, it's up to you to see through the marketing, sales, good intentions and other less-well-intended smoke to focus on their deeds -- their behaviors.
Of course, tangible savings are a large part of your decision. Most executives look for at least a 20% reduction in overall related expenses per annum. I have personally led selling services projects which delivered as much as 30% and upwards of 55% savings in expenses during the first year alone -- while also delivering significant service level advantages. I'd say that huge competitive advantages were delivered. My clients were able to re-mix internal resources to focus on core competencies that drove greater client-visible differentiations. Also, clients avoided adding resources and/or saved their existing high-contributor resources from leaving or cracking under the huge pressure being endured as incremental pressures had built-up over time. By the way, high levels of overtime and/or increasing frequencies and magnitude of service level impacts are key indicators of burn-out conditions, and these are important quantitative costs to consider as well.
However, what about the 'intangible' parts of your decision? There are vital clues about the relationship cost you may experience with your internal or external service provider. These are important aspects to consider - certainly pertaining to risk mitigation and which may sooner or later significantly impact tangible results. This is especially important when the quantitative aspects of different service providers' proposals match up in a similar manner.
What follows is a brief sketch of intangible qualities - the key behaviors -- to consider and compare.
The key objective - assess your prospective providers. Are they trustworthy for delivering game-changing advantages for today, tomorrow and beyond? Key indicators are described below.
A continuous commitment to excellence -- including integrity, best value, flexibility and responsiveness / proactivity. What is the provider's corporate conscience? Several key behaviors to observe are:
o Do their deeds consistently match their words?
o Do they demonstrate a consultative approach?
o Do they offer proof points of proactive industry leadership?
Thought Leadership. Does the provider demonstrate that they grasp the direction of business and technology? In the cloud computing era, if they are not focused on the future, how will they continue to be at least competitive and at best industry-leading in the coming months and years as dynamic changes occur? Several key behaviors to observe are:
o Solid understanding of current and emerging concepts.
o Do they have cross-silo (hardware, software, communications, services, etc) connections with industry leaders?
o Connection with industry changes. What are their perspectives?
Practical Leadership. Even more important than thought leadership, how well does the provider execute? Do they deliver practical excellence in savings and service levels - today? Are they proactive, or only respond when challenged? Several key behaviors to observe are:
o Multiple IT vendors are supported (hardware, software, communications, services)
o Breadth of services and depth of functional know-how that they deliver.
o Security and aligned segregation of duties and/or information.
o Current clients in the same disciplines you are considering. Or, in cases of new offerings, what is their track record for other clients? Ideally, client referrals. Ideally, from well-recognized, notable clients.
o Industry recognition for performance and/or support.
o Quick and disciplined processes that incorporate quality assurance.
Quickness and ease of doing business. An important sub-set of practical leadership is how quick and easy is it to do business with the provider and/or for the provider to adapt to changing needs and/or competition. Several key behaviors to observe are:
o Flexible scope options: support frequency, who runs the infrastructure, where does the infrastructure reside. o Flexible support options (worldwide, country, region, local)
o Flexible Quality of Services that align with your user groups' requirements.
o Flexible menus and charges.
o Consistent governance and billing / charge-backs.
o Attentiveness that you will receive. What percentage of the provider's business would this project represent? o Transitions - Time and Costs - during both start-up and wind-down phases.
Key Personnel. If the provider's key people are not strong in exhibiting good behaviors, then how will their team continue to stay the course in delivering a competitive edge? Assess the following people:
o Leadership Management
o Solution champion ('seller')
o Architect / Solution Designer
o Account Executive / Delivery Executive
o Consultants and Delivery Specialists
o Project Manager
There are many behaviors to observe. Those that are described above are only a short list. In general, any warning signs that pop up of course merits additional exploration. On the other hand, providers who demonstrate good behaviors in all these areas deserve additional consideration. As a top executive, you will have to apply thoughtful judgment for weighting the quantitative and qualitative characteristics in a manner that best suits your organization's goals.
It's time for you to take action
In the cloud computing era, you must evaluate how to optimize and best align your organization to differentiate its offerings to clients while taking the best advantage of leveraging internal and external service providers' scale and expertise. To be most successful, you need to consider more than quantitative savings - as vital as these are. You need to also consider how your organization's providers' will perform over time.
The most successful internal and/or external service providers for today and tomorrow will likely be those who demonstrate key qualitative behaviors. The behaviors that should resonate through their leaders, key personnel and throughout their whole team include: commitment to excellence, thought leadership, practical leadership, and ease of doing business. These behaviors are described more fully in the above brief. As the executive champion for your organization, observing these behaviors will give you a vital edge in thoughtfully comparing service provider alternatives and in facilitating the best decisions.
About The Author:
Lance Gattoni invites enterprising executives who are interested in his services to send an email to: lance.gattoni@gmail.com
His services include consulting engagements and/or where the alignment is strong he is currently available for fulfilling a key career position on your team. Either way, by adding him to complement your team, you will be the sponsor for quickly driving collaborative innovations and achievements that make a difference.
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Oscar Hidalgo for The New York TimesDaniel L. Doctoroff, right, with Mayor Michael Bloomberg in 2007.