Driving outsourcing cost savings and efficiencies during an economic downturn. White paper. results

Transcription

1 Driving outsourcing cost savings and efficiencies during an economic downturn White paper results

2 Finding cost savings and efficiencies in outsourcing engagements has always been always a priority. However, with the global economic crisis, now more than ever IT managers are challenged to cut costs aggressively with increased urgency. New CIO Executive Council research commissioned by Unisys looks at how large Australian organisations, both public and private, are meeting this challenge. In May 2009, the Council surveyed 52 CIOs, all of whom are outsourcing IT infrastructure services, application services, business process services, or a combination of these. Of the 52 CIOs, 17 are not planning to reduce outsourcing costs as part of their IT budget cuts. For the 35 CIOs who are, 48% have revisited their outsourcing contracts already and 41% are currently doing so, which illustrates the fast pace at which they are moving to realise cost savings. A further 7% plan to revisit their contacts in the next six months and 4% are considering doing so, but none of the CIOs surveyed have no plans to review their outsourcing contracts. These 35 CIOs are working to cut outsourcing costs by 13% in infrastructure services and 22% in application services. The 12 CIOs outsourcing business process services are hoping to cut costs by nearly 9%. 2

3 In client discussions, Unisys is hearing that it is not only the size of the reductions that is challenging CIOs; it is the timeframe to achieve them, which can be less than six months. Since many IT departments have been continually striving for cost efficiencies and savings for years, there is little fat left so quick wins are hard to find. As a result, CIOs have to think differently and consider new solutions and approaches. Not surprisingly, Unisys has found that those cutting costs strategically have had more success, in that they have met their targets while: remaining compliant delivering acceptable service to support the organisation s needs sustaining healthy relationships with providers maintaining acceptable employee and customer satisfaction levels. Unisys has observed that these successful organisations are all utilising four key strategies: Managing risk by finding a balance between supporting critical business outcomes and achieving cost savings Effectively prioritising short-term cuts and long-term efficiencies Maintaining flexibility in the IT environment so as not to harvest the future Using governance structures to make decisions, act quickly and then monitor the impact. The balancing act There are some cost reductions that will clearly increase risk and that most organisations will not see as acceptable. Generally, these involve changes that jeopardise an organisation s compliance with regulatory requirements, particularly those with large fines attached. However, there are less apparent risks to both an organisation and a CIO s ability to achieve desired cost savings. These risks can only be identified if IT and business priorities and strategies are aligned. This alignment requires the CIO to have a clear view of the organisation s business priorities and how these link to operating processes and then through to the IT infrastructure and service delivery layers. This will allow the CIO to map how changes made to IT service levels or outsourcing arrangements might disrupt operations and the IT department s ability to support business priorities (or, put another way, could introduce risk into the organisation). Mapping these linkages and identifying potential impacts will allow the organisation to determine if these are acceptable risks to take for its short- and long-term health. CIOs may find there are no-go zones where, despite the fact large cost savings can be realised, the organisation is not prepared to cease or reduce the delivery of IT services because this could result in unacceptable business risks. Of the 35 research respondents who are reducing outsourcing costs, only one has been tasked by management to do so regardless of the consequences. The rest have been tasked with cutting costs, or are cutting costs at their own discretion, in ways that do not jeopardise scalability, performance or long-term growth. As well, of those CIOs who are cutting outsourcing costs, nearly one-third are not willing to decrease service levels. However, this means that the majority are willing to reduce service levels, and the research shows they are prepared to do so in a number of areas provided risk is managed. More than half would be willing to decrease service levels for desk-side support, and more than one-third would be prepared to decrease levels for infrastructure and application management and support [Figure 1, following page]. On the other hand, there are clearly some areas that most CIOs are not prepared to reduce support, particularly security, employee help desk and data centre services. Therefore, finding savings in these areas will take a more comprehensive effort than just decreasing service levels. In the next section of this paper, possible tools and approaches for achieving this will be explored. Manage risk by finding a balance between supporting critical business outcomes and achieving cost savings. 3

4 Desk-side support 54% Application mgmt & support 39% Infrastructure mgmt & support Disaster recovery/business continuity 29% 32% Network mgmt & support 25% Security services Data centre mgmt & support Employee help desk 18% 18% 18% % willing to decrease service levels to reduce costs Figure 1: CIO Executive Council research: Acceptable areas of service level reductions to achieve cost savings The other parties CIOs should consider in the risk equation are the service providers. Their views of risk should be understood: how much they have accepted in their contracts and how this influences their prices. Of course, the more risk a provider takes on, the more it will expect to be compensated for it. CIOs should ask providers what risks they perceive in their contracts and discuss if these can be shifted back to the business to reduce prices. This is one of many reasons why it is important for CIOs to view service providers as partners in finding savings and driving efficiencies. Only slightly more than half of the CIOs surveyed who are reducing their outsourcing costs are working closely with their providers to do so. Unisys believes the other half are leaving out an important and helpful resource. When it comes to balancing the need to support business outcomes and to achieve IT services and outsourcing cost savings and efficiencies, a CIO will benefit from planning with stakeholders inside the business and with the external service providers. Short-term cuts vs. long-term efficiencies To find cost savings within an aggressive timeframe, a CIO needs the ability to evaluate what changes will provide quick wins, what will produce worthwhile efficiencies in the longer term, and what will best serve the organisation. The tools at a CIO s disposal can be summarised into three categories: reduction, avoidance and displacement. Rates can be reduced, less consumption can occur, or the same outcome can be achieved via a lower-cost mechanism. For example, take travel: reduction would be negotiating cheaper fares, avoidance would be to travel less, and displacement would be to use video conferencing instead. All three tools need to be employed if the greatest savings are to be achieved. Reduction and avoidance are more likely to give shorter-term benefits, but finding significant quick wins may be difficult if the organisation has been cost-cutting for years. Cost displacement through the introduction of new tools and processes has the potential to deliver significant savings but may require initial investment and the returns may be less immediate. To prioritise between the many approaches available to achieve cost savings and efficiencies, CIOs need a defined set of evaluation criteria based on strategic business priorities. Last year, Unisys conducted a cost-cutting campaign within its own IT department and was able to more than halve the number of IT projects underway globally within a few months. It did this by prioritising the projects using a set of criteria that was aligned to the strategic business priorities and was agreed by the executive team, the business unit teams and the IT department. 4

5 All IT projects are now evaluated against these criteria, which are, in order of priority: Compliance (usually first for most organisations) Impact on cash flow (the short-term priority) Impact on revenue (the longer-term priority) Impact on productivity Maintenance that cannot be avoided or displaced. Unisys is implementing IT projects to achieve cost reduction, avoidance and displacement. As noted, desk-side service is one area in which CIOs are most prepared to decrease service levels to achieve cost savings. Unisys has done this, but the company has also displaced additional desk-side costs by investing in solutions to minimise the need for a desk-side visit or even a service desk call. These solutions include remote management tools, selfservice tools and end user training. The savings have not been immediate, but the return on investment has been worthwhile and will be ongoing. These are also some of the solutions in which the CIOs researched are investing now to achieve cost savings [Figure 2]. Remote monitoring and management solutions can be used to reduce costs without decreasing service levels, particularly in areas such as service desks, security services and data centre services the areas in which CIOs least want to decrease service levels. As well, CIOs are considering investing in new IT delivery models, including Software as a Service and Utility or Cloud Computing, to reduce or displace costs. While there is not a large install base, nearly 60% of CIOs surveyed are exploring these areas. There is a multitude of ways to reduce, avoid or displace IT services and outsourcing costs, but only by using the right criteria to prioritise them will the CIO best support the organisation. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Remote infrastructure mgmt tools Remote desktop mgmt tools ITIL processes IT team training Employee self-help tools End user training IT knowledge mgmt system Software as a Service Utility/Cloud Computing Implemented or planning to implement in next 6 months Exploring No plans Figure 2: CIO Executive Council research: Investments in tools and processes to achieve outsourcing cost savings 5

6 Don t harvest the future While Unisys was prioritising its IT projects, it also reviewed its IT department structure to streamline management layers and shift back-office operations to lower cost centres. While doing so, the company identified the best performers with the best skills to retain in the department so that when postponed projects are brought back online or new projects are introduced, the right people will be in place to deliver and support the corporation s needs. This is what is meant by don t harvest the future. An organisation should not strip back its infrastructure and resources so much that if an opportunity appears, such as an acquisition or even a government policy change, the IT environment and outsourcing arrangements cannot support it. Flexibility remains critical. The economy is still turbulent and even if an organisation s own operations remain stable, it may have to respond to changed situations with partners, suppliers or customers. Therefore, Unisys recommends that CIOs focus on retaining flexibility, scalability and responsiveness while cutting costs. From what can be seen in the research findings, in general, CIOs are not prepared to give up flexibility for cost savings [Figure 3]. They are interested in consolidating services with fewer providers and expanding the scope of work with their existing providers if this will deliver savings. However, they will not accept changes to outsourcing contracts such as longer terms or lock-in terms (for example, where the contract prevents outsourced services from being insourced) that may prevent them from changing providers, if necessary. Alternative delivery models, such as shared services arrangements and leveraged help desks and data centres, are considered options to achieve cost savings. As well, CIOs are prepared to offshore backoffice IT functions, such as infrastructure monitoring or reporting, but there is reluctance to offshore client- or employee-facing functions. To avoid harvesting the future when it comes to outsourcing engagements, Unisys recommends that CIOs avoid writing short-term requirements into longterm contracts, and keep terms flexible so new or related services can be included in the existing scope, saving time and resources. Extend lifetimes on commodity assets Move to shared data centre Further standarising desktop SOE More automation in help desk Expand SoW with existing providers Outsource 2nd & 3rd level support Share services with other parties Delay major upgrades Different financing options Move to leveraged help desk Longer-term contracts (5+ yrs) Offshore back-office functions Greater fees for additional resources above baseline Additional contract lock-in terms Offshoring front-office functions 21% 14% 11% 34% 32% 64% 57% 54% 86% 86% 86% 82% 79% 75% 75% % reporting adjustments are acceptable Figure 3: CIO Executive Council research: Acceptable adjustments to outsourcing contracts/models for cost savings 6

7 CIOs should also consider terms that allow for services for additional business units or even external parties to be added into existing contracts, which could provide cost and delivery efficiencies by leveraging the existing infrastructure and resources. The research findings show that cost avoidance tactics are popular options, particularly extending lifetimes on commodity assets such as PCs, printers and servers, delaying major infrastructure and application upgrades, and locking down the desktop standard operating environment to avoid additional application costs. However, when making infrastructure decisions, CIOs should also keep flexibility in mind so as not to scale back so far that they risk not being able to catch up. For instance, letting systems become too outdated could drain ongoing support budgets and then require significant investment to upgrade to support business growth or a new project. To make effective changes to outsourcing contracts and models, it is important for organisations to work in partnership with their outsourcing service providers, as there may be new approaches or delivery options they can bring to the table. Importantly, as well as keeping the best resources within the IT department so as not to harvest the future, CIOs should aim to maintain relationships with key providers so they will be there to assist when the business focus turns back to growth. Planning and acting quickly To meet their aggressive timeframes to deliver cost savings, CIOs need the ability to make decisions quickly and implement even faster. However, given organisations reliance on IT systems, CIOs cannot afford to act rashly. No matter what size the organisation, Unisys has found the key to fast, yet strategic, planning and action is to put in place a governance framework that brings the right people to the table: those who understand the business priorities and operations, those who understand the IT priorities and operations, and who also have the authority to make decisions, commit resources and budgets, and drive action. This means involvement is needed from executives, business managers and IT managers, as well as from key service providers as well. The key to fast, yet strategic, planning and action is to put in place a governance framework that brings the right people to the table. Once changes are implemented, it is this governance team that is responsible for monitoring the environment to ensure both business and IT goals and savings are being met. If not, it is again the responsibility of this team to act quickly to address the issues. Of the CIOs surveyed who are cutting outsourcing costs, nearly 70% have formal processes in place to involve non-it team members (primarily corporate managers and department/business unit managers) in decisions involving changes to IT service levels. More than one-quarter of the CIOs also have end user representatives involved to gain an employee perspective on service level changes. Unisys sees this approach working successfully for its clients. Having the right governance in place will help ensure IT changes are aligned with business priorities, which will reduce risk while cutting costs, allow actions to be taken quickly, and help manage the expectations of the business as changes are made. Meeting the challenge In this challenging economic climate, CIOs are under great pressure to achieve aggressive IT services and outsourcing cost savings and efficiencies quickly while supporting business operations and delivering an acceptable level of service to users. To do this successfully, they should aim to balance business risks with cost rewards, be able to prioritise short- and long-term projects based on a clear set of criteria, maintain flexibility in their IT systems and resources, and strongly govern their environment as they strive for savings and efficiencies. 7

8 About the CIO Executive Council The CIO Executive Council was founded by CIO Magazine in late It is a global, vendor-free organisation with more than 500 CIO members across the US, Canada and Europe, and more than 65 based in Australia. The mission of the Executive Council is to provide member CIOs with a united voice on technology and business matters. It does this by enabling CIOs to act as trusted, unbiased resources to one another in order to help strengthen their own skills, their organisation and their team, all the while collectively advancing the CIO profession. To request a copy of the full research report, please contact Unisys at australiainformation@unisys.com. For additional Unisys whitepapers and videos, please visit For more information, please visit our website at Unisys Corporation. All rights reserved. Unisys is a registered trademark of Unisys Corporation. All other brands or products referenced herein are acknowledged to be trademarks or registered trademarks of their respective holders. 8