Rudolf Liefers, senior advisor, Sourcing Management

In past decades a large number of IT-outsourcing contracts were signed and transitions made. The business case for outsourcing was often made around efficiency, cost reduction and more predictable service levels. In the following years, additional goals were incorporated, such as quality management and regulatory compliance. This often shifted the focus away from the goals as initially envisioned, thus eroding the business case. EquaTerra has observed various causes of the erosion of the sourcing business case across various market sectors: creation of new silos, vast process inefficiencies, a focus on control opposed to added value to the business, and often a lack of alignment with the customer’s initial requirements. In typical IT outsourcing contract reviews that EquaTerra has performed for its clients, these observations were made regarding the potential for improvement of the delivery of the contract:

• Software project outsourcing: Inaccurate resource allocation on projects and inadequate control on the quality of initial design documents.
• Helpdesk operations: Too many demand channels (mail, phone, in-house tools, etc.), no clear levels of expertise between first, second and third line support, and several handovers.
• Service process management: many non-standard processes and a lack of automation in service level management and reporting.

These are all examples of wasting time and money within the ITO contract, and LEAN management is all about eliminating waste – so resulting processes are efficient, services are streamlined and organisations are more agile in handling the IT requests from the business. Based on anecdotal evidence from client enquiries, several benefits were recorded when implementing LEAN management principles:

• Quality: 50 – 75 percent reduction in unplanned downtime for mission-critical services.
• Efficiency: 10 – 25 percent labour productivity benefits, as less time is spent on repetitive firefighting activities and rework.
• Customer Satisfaction: Significant improvements in internal customer satisfaction surveys (such as moving from 3.0 to 4.0 on a scale of 1.0 to 5.0).

Applying LEAN management principles will offer a highly effective means to getting back into sync with the original business case for the IT outsourcing contract. The IT industry is picking up LEAN management principles quickly. Gartner notes that ‘LEAN is a management discipline that CIOs are increasingly implementing in IT’ and Forrester states: ‘CIOs must recognise what is important to the business, select the right set of ‘LEAN’ tools and synchronise the implementation of these tools along five managerial elements — strategy, process, structure, performance measures and culture’.

IT outsourcing will add more value to the business by using LEAN management principles. Adding value means removing waste, lower variability and increase flexibility. We believe that LEAN management principles will provide a way of working on continuous improvement of the effectiveness of IT outsourcing and thus increase the value that IT outsourcing adds to the business.

For more, read the Dutch article I co-authored, Lean en IT: focus op waarde.

Filed under: Contract Review & Negotiation, Information Technology (IT), Outsourcing by EquaTerra