Service Process Optimization through Services Automation and Global Strategic Sourcing

Service Process Optimization through Services Automation and Global Strategic Sourcing A White Paper by Lawson Software and neoit Introduction: The Changing Role of IT............................2 Key Challenges and Pain Points..................................3 Aligning IT activities with strategic business goals Managing the full portfolio of IT investments and resources Taking a leadership role within the organization The Lawson and neoit Solution.................................6 Lawson Services Automation neoit s Global Strategic Sourcing Conclusion...................................................11

Introduction: The Changing Role of IT CIO s and the departments they manage are challenged by a new working reality that includes tighter budgets and growing demand for demonstrable return on investments. Even as the resources available to them become increasingly constrained, IT departments also face greater pressure from executives and board members to align their activities more closely with overall company strategy, while at the same time continuing to provide the high quality of service that internal clients throughout the enterprise have come to expect. To thrive in this new environment, IT departments are being asked to transform themselves on-the-job, evolving from merely delivering technology to exploiting technology. As the enterprise becomes more IT aware, CIO s are being asked to define, rather than merely implement, the way companies leverage technology to execute and enhance core business processes. This means that, in addition to the technology knowledge and management skills CIO s have always needed, they are now being asked to become more financially savvy as well. Cost containment is part of this responsibility, but it also includes planning and prioritizing investments in technologies, projects, and entire business functions. In short, IT must become a leader of business strategy, rather than being led by it. But how can IT departments become less tactically focused and more strategic when, at many companies, three-quarters or more of IT budgets are allocated to just keeping the lights on by maintaining existing systems and applications? The answer to this dilemma is to emphasize solutions with short-term payback periods and high ROI. In other words, the new mandate for IT is to do more with less finding ways to make money, staff, and other resources go further. The Multisourced IT Organization As IT departments adjust to this new role, many are realizing that the problem is fundamentally one of sourcing allocating the right resources to the right projects at the right price. To expand the available resource pool, IT departments routinely supplement internal staff and expertise with external service providers, creating what Gartner calls a flexible and changing combination of internal and external resources, internal and external knowledge, and skills, characterizing a multisourced environment. 1 Multisourcing involves more than just tactical hiring of contractors, consultants, and other contingent workers. IT managers today must also develop strategic relationships with sourcing providers capable of managing all aspects of projects, or even assuming responsibility for entire business functions. This white paper reviews the challenges IT departments face in today s multisourced environment, and examines how Lawson Software and neoit have joined forces to help CIO s and their staff succeed in this era of enormous change. The Lawson/neoIT solution for Service Process Optimization helps IT managers align their activities with business goals, manage the full portfolio of IT resources, and provide valuable strategic leadership across the enterprise. 1 Gartner: Cassio Dreyfuss, Aligning Services with Business Objectives by Sourcing. April 5, 2002. To thrive in this new environment, IT departments are being asked to transform themselves on-the-job, evolving from merely delivering technology to exploiting technology. As the enterprise becomes more IT aware, CIO s are being asked to define, rather than merely implement, the way companies leverage technology to execute and enhance core business processes. 2

Key Challenges and Pain Points Although every organization is obviously unique, there are a number of challenges that virtually all IT departments have in common. These include: Aligning IT activities and projects with the enterprise s strategic business goals Managing the full portfolio of IT investments and resources Taking a leadership role within the organization Understanding these challenges, and addressing the specific pain points within each, is essential if CIO s and their staff are to accept the new mantle of strategic leadership being pressed upon them. Aligning IT Activities With Strategic Business Goals IT managers are increasingly tasked with prioritizing IT investments and driving the planning process for how companies leverage technology. In many cases, this boils down to identifying which activities are strategically important and which are not, and adjusting the project mix accordingly. This requires a closer working relationship with business units across the enterprise that can provide a solid understanding of key business initiatives. Collaboration with line-of-business managers not only helps IT departments plan their activities more strategically, but can also provide valuable business justification for new technology investments. To make these big picture decisions about where the organization should be going, IT departments must first have a solid understanding of where they are today. What is the real status of the budget? Which projects are consuming an inordinate share of resources? Are there redundancies that can be eliminated or inefficiencies that can be addressed? Once these questions have been answered, IT managers can focus on ensuring their priorities are aligned with the organization s overall goals. Effectively utilizing all available resources, both internal and external, is critical to this optimization process. Finding the right mix of staff and services providers and assigning them to projects and functions more effectively is the only way to meet the demand to deliver greater business value while at the same time holding down costs. For this reason, IT departments must have a sourcing strategy in place that enables them to find, enlist, and manage the resources they need. Managing the Full Portfolio of IT Investments and Resources A strong and scalable infrastructure is essential to delivering IT services. This infrastructure obviously includes all the technology resources that keep the enterprise running, but it also encompasses human and knowledge resources the people and intellectual capital that harness this technology to support the goals of the company. 3

Part of the problem stems from the fact that the majority of IT organizations do not have consistent policies and methods for service procurement. SCM (service procurement and management) is typically carried out by individual business and IT units, where each group independently defines project needs and frequently conducts due diligence in isolation, creating inefficiencies and conflicts. Therefore, we believe companies must define and optimize service procurement strategies and processes and consider emerging SCM technology to automate, manage, track and analyze service procurements and the results they deliver. META Group: Carl Lehmann, Service Procurement and Management. May 3, 2002. Many IT organizations have sought to streamline resource management by consolidating formerly decentralized staffing and procurement functions into a single department with broad oversight of all projects and processes. Different companies have different names for this department project office, project management team, strategic sourcing office but the fundamental goal is the same: to gain greater visibility into the true capacity and availability of internal resources, and to control costs by eliminating rogue spending on external services. Whether or not a company chooses to implement a strategic sourcing office, the need for greater control and consistency in how resources are used is clear. According to META Group Global 2000 organizations that appropriately adopt automated project management solutions will save money through more efficient allocation of resources, better management of projects based on business imperatives, and increased return on investment. 2 Taking A Leadership Role Within The Organization In addition to managing projects within their own departments, CIO s and their staff must increasingly manage up and out by focusing on the value they deliver to the rest of the organization. This often means providing leadership and guidance to the executive team and board of directors. According to Gartner, IT is viewed as an enabler to support the enterprise in nearly all of its business activities Therefore, it is critical that the chief information officer (CIO) is included in all strategic planning activities and that the internal IT department is evaluated based on measurable contributions. 3 Another Gartner report finds that 50 percent of CIO s now report directly to their chief financial officers. 4 The greater visibility of and greater demands upon IT underscore the importance of prioritizing the most strategically valuable projects when allocating resources. This may mean discontinuing activities that have traditionally been within the purview of IT, but which do not deliver value equivalent to the resources they consume. Some of these activities may be abandoned altogether, while others are strong candidates for outsourcing. 2 META Group: Melinda Carol Ballou, Mapping Project Management. June 21, 2002. 3 Gartner: Ted Kempf, Measuring the ROI Contribution of IT Departments with Service Process Optimization. March 29, 2002. 4 Gartner: Jennifer Beck, IT Services Sourcing Goes Strategic. April 15, 2002. 4

For example, bringing in an external service provider to handle day-to-day application maintenance can free up internal resources to perform more essential tasks. Ensuring that these tasks are performed with the greatest efficiency and effectiveness may require expanding the IT department s knowledge base and skill set. An important first step is to cultivate best practices and repeatable processes that can be leveraged across multiple projects and functions. To do this, IT must have a way to capture detailed information about all activities and use this data to help plan and direct future initiatives. Strategic sourcing is another way to extend the internal knowledge base. Access to external skills and staff can be vital in enabling IT departments to demonstrate innovation and leadership by tapping a rich vein of new ideas and specialized expertise. But, as Gartner cautions, there are some important considerations when using external services providers on strategically important projects: The boardroom is most interested in transformational innovation, which requires distinct skills and a distinct type of relationship with your service provider that goes beyond the traditional, operationally focused outsourcing deal. 5 The New Imperative: Service Process Optimization The challenges described above aligning IT efforts with business goals, managing investments and resources, and taking a leadership role all come under the rubric of Service Process Optimization (SPO). Like Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) before it, SPO has come to describe both a business problem and the solutions that help companies respond. The next part of this white paper describes the Service Process Optimization solution from Lawson Software and neoit, and explains how it enables IT managers to meet the challenges outlined above through more effective resource management and strategic sourcing. As you review this solution, it may be helpful to keep in mind the following definition of SPO and consider how it applies to your organization: Service Process Optimization uses technology and services to organize, track, and manage all work, resources, time, revenue, and costs to improve the productivity, efficiency, and effectiveness of the workforce, achieve the goals of the enterprise, and sustain operational excellence. 5 Gartner: Roger Cox, Contracting for Innovation: Is It Possible? April 9, 2002. 5

The Lawson and neoit Solution Services Automation and Global Strategic Sourcing Lawson Software and neoit have joined forces to help IT managers meet the challenges of today s business environment. Together, Lawson Services Automation and Global Strategic Sourcing from neoit give CIO s and their staff a comprehensive Service Process Optimization solution. By enabling more effective resource management and strategic sourcing, this solution provides the following benefits: Greater visibility into the real capacity and availability of internal and external resources Project tracking and analysis to facilitate adoption of best practices and repeatable processes Easier planning and prioritizing of IT investments, initiatives, and budgets Access to a global pool of expert services providers for outsourced activities Expert sourcing advisors to help select the right providers and ensure maximum ROI on outsourced projects As discussed in the introduction to this white paper, the new mandate for IT and the primary issue driving adoption of SPO solutions is to do more with less by delivering greater value at a lower cost. And, like any situation where value and cost are concerns, the basic economic law of supply and demand applies. What makes the Lawson/neoIT solution unique is the greater visibility and control it provides over both sides of the supply and demand equation. Lawson Services Automation manages the demand side by helping IT departments understand what is required of them and what the true impact is on their internal resources. The Services Automation application also supports the supply side by tracking and assigning internal resources more effectively. In addition, the erecruiting component of the Lawson solution enables companies to augment internal staffing through contingent sourcing. Global Strategic Sourcing from neoit takes supply side management capabilities to the next level, empowering IT managers to identify, select, and manage external services providers including offshore suppliers for both individual projects and entire business functions. Lawson Services Automation To effectively manage enterprise demand for IT services, CIO s and their staff must have accurate and timely information about their departments and the broader enterprise environment in which they operate. This information is vital to shaping strategic decisions in three key areas: 1. Demand Management. IT managers must understand what is being asked of them, and how these requests impact their resource pool. This means more than simple a Help Ticket system; demand management also encompasses prioritizing requests based on their strategic value to the enterprise, determining the full scope of skills required for each project, and streamlining the approval process so requests don t get lost in queue. True demand management also requires the ability to look ahead, forecasting future demand trends based on previous patterns. Without this capability, IT managers will always be reacting to requests by the rest of the organization, rather than proactively managing their resources for optimum efficiency. 6

Figure 1 2. Services Delivery Management. In addition to monitoring requests from their internal clients, IT managers also need to track how and how well they are responding to these requests. Only by capturing and leveraging this information can IT departments develop best practices and repeatable processes that enable them to operate more efficiently and effectively. Services delivery management depends on being able to answer key questions such as: What is the real status of internal resources at any point in time? Are those resources being used in the most strategic manner? Can resources be reassigned to support additional demand? If not, where can outsourcing help fill the gaps? Note that decisions about when, whether, and what to outsource must be driven by more than just the amount of internal resources available; IT managers should also take into account whether those resources are being used most effectively. In many cases, it may make more sense to outsource a non-strategic project (or perhaps even to cancel it) than to continue allowing it to consume internal skills and staffing. 7

3. Financial Management. For many IT managers, fiscal decisions are the most difficult ones to make. This is ironic, because these are typically the decisions where hard facts and quantitative data are most available. Unfortunately, just because information is available doesn t mean it is always accessible when and how IT managers need it. If IT departments don t capture financial data at the source and in a usable format chances are that IT managers won t be able to access this data when making critical business decisions. What kind of financial information should IT departments capture? As much as they possibly can. Specific sources of strategically valuable financial data include budget and expense figures (e.g., SOP 98-1 capitalization costs), invoice and chargeback details, and qualitative value measurements such as ROI and payback periods. 4. Portfolio and Performance Management. Recent research indicates that companies using these and other financial metrics to manage their IT resources like an investment portfolio can reduce costs by up to 30% and increase value by as much as 300 percent. To make strategic decisions about demand, services delivery, and financial management, IT departments need a solution for capturing and analyzing all essential details about all resources and work within the department. Lawson Services Automation provides this solution, maintaining both current and historical data about everything from one-time projects to entire functional areas. Managers get anywhere, anytime access to this data to support the full range of SPO activities from request tracking and resource allocation to chargebacks and demand forecasting. With over 25 years of leadership and innovation in enterprise software, Lawson is committed to using advanced technologies to solve real business problems. For example, the Resource Management component of Lawson Services Automation lets IT managers review the availability, skills, and work history of internal resources, helping optimize utilization and forecast future requirements. Lawson Project Management provides Gantt charts, P&L reporting, automatic alerts, and other tools to monitor the status of projects at all times. It also features powerful scheduling and collaboration features to streamline project execution. And Lawson Portfolio Management provides real-time performance data to help IT managers become more financially savvy and make better informed decisions when prioritizing investments and developing best practices. Understanding and optimizing internal capabilities for services delivery helps CIO s and their staff take control of the demand side of Service Process Optimization. But managing the supply side of the equation through strategic sourcing is equally important. 8

neoit s Global Strategic Sourcing For IT managers who have a clear picture of the demand side of their service delivery capabilities, decisions about the what and when of outsourcing are relatively straightforward. As discussed above, a solution that uses internal resources more strategically will also identify the best places to engage external resources. Decisions about the who, how, and where of outsourcing, on the other hand, require additional guidance and specialized expertise. This is especially true when considering offshore outsourcing. Tapping the international marketplace for IT services can deliver significant cost savings, but, as Gartner points out, it also creates additional challenges: Managing offshore relationships requires an understanding of several unique risks. These may extend from simple lack of cultural sensitivity to the complex issues of geopolitical risk. 6 To maximize the return and minimize the risk of outsourcing efforts, IT managers need a global strategic sourcing solution that addresses the following key areas: 1. Planning. The first phase of any outsourcing effort is to understand the business goals and objectives (information that should be readily available if an effective demand-side solution is in place), and to develop the right success metrics for measuring supplier performance. Which requirements are most critical for suppliers to meet? What benchmarks and milestones will be used to manage the outsourcing effort? How will return on investment be measured? Companies must also objectively assess their organizational readiness to adopt an outsourcing model. This includes determining which business functions or activities can and should be outsourced, as well as identifying suitable geographic locations and vendors. 2. Sourcing. Once the requirements and drivers for an outsourcing initiative are understood, the next critical step is communicating this information to potential suppliers in a clear and comprehensive request for proposal (RFP). For the RFP process to work, it is essential to identify the most qualified pool of supplier candidates and structure the RFP in a way that enables these candidates to respond most effectively. Finally, an informed and objective RFP evaluation process is critical in selecting a final supplier based on ability to provide necessary services, not because of office politics, fear of change, or other inappropriate factors. Creation and distribution of RFPs is only the beginning of the sourcing phase. Deep process knowledge and decision support technology play a vital role in objectively comparing bids. Equally critical to the sourcing process is performing the necessary due diligence to evaluate each supplier s skills and past performance, and negotiating contracts to optimize performance and reduce risk. 3. Management. The outsourcing process does not end once the contract is signed. Ongoing project and relationship management is critical to success. The benchmarks and milestones developed in the planning phase must be carefully monitored and (as needed) adjusted to keep the work on track. The objective here is to ensure maximum performance with a minimum of day-to-day oversight; after all, an IT manager who decides to outsource a project or function probably does not want to have to micromanage that initiative! 6 Gartner: Offshore IT Services Provide Strategic Sourcing Options. April, 2002. 9

By 2005, 30 percent of Global 2000 companies will have a sourcing strategy encompassing offshore or nearshore solutions. Gartner: Offshore IT Services Provide Strategic Sourcing Options. April, 2002. Bottom Line: Creating and maintaining competency in service procurement and management (SCM) has become an imperative for Global 2000 enterprises. Companies should prioritize service procurement imperatives by total expenditures and criticality to the business when considering an SCM pilot. META Group: Carl Lehmann, Service Procurement and Management. May 3, 2002. neoit's Global Strategic Sourcing solution combines extensive outsourcing expertise with powerful technology to standardize and streamline planning, sourcing, and management activities. neoit s offshore advisory team averages 15 years of experience working with top-tier suppliers in markets around the world. With a global network of over 5,000 qualified suppliers, neoit facilitates delivery of a wide range of services and expertise. In addition to broad and deep knowledge of supplier capabilities, neoit offers an industry leading due diligence and certification program; a proprietary, rules-based sourcing and matching methodology; and a robust technology platform. neoit s automated RFP process uses wizards and templates to gather key information quickly and accurately. IT managers can duplicate and reuse previous project requirements, or set new, project-specific sourcing and procurement criteria. RFP s can be automatically compared against neoit s global database of supplier capabilities, using intelligent scoring and ranking engines to ensure that only the most qualified companies are asked to bid. Online bid presentment and management tools minimize delays while maximizing the efficiency of administrative resources. Once bidding ends, neoit also provides automated bid scoring and ranking that significantly reduces the time and effort companies must spend evaluating proposals. Additionally, the neoit solution addresses all the key processes that take place after a purchase decision has been made. Data collected from the planning stage onward including tools and templates such as milestone timelines, services levels, performance metrics, feedback and others provides input into the delivery cycle. A comprehensive collaboration framework improves communication among project teams, reduces cycle times, and lowers project management costs helping ensure that projects are delivered on time and under budget. Together with Lawson s demand-side Services Automation application, Global Strategic Sourcing with neoit gives CIO s and their staff a complete Service Process Optimization solution. Empowering IT departments to organize, track, and manage all work, resources, and costs, this solution improves efficiency and effectiveness, supports the goals of the enterprise, and sustains operational excellence. 10

Conclusion Lawson Software and neoit help IT organizations realize the promise of Service Process Optimization. The Lawson/neoIT solution combines powerful services automation software with global outsourcing expertise to help IT organizations address the critical challenges they face today, as summarized in Figure 2. As noted in the introduction to this white paper, the emphasis for IT departments in today s cost-sensitive business environment is on solutions with short payback periods and high ROI. Both Lawson Services Automation and Global Strategic Sourcing with neoit meet this requirement, as shown in the table below. The value of services automation software is well documented. For example, a recent Aberdeen Group study calculated the average payback period for Lawson Services Automation to be just six months. The same study also found Lawson s ratio of customer satisfaction to expectation to be higher than any other services automation vendor. Complex, project-specific variables make quantifying the value of global outsourcing more difficult, but the potential cost savings of inter-national pricing structures are well understood. neoit s Global Strategic Sourcing capabilities can also halt value leakage by managing vendor performance to increase efficiency, reduce the risk of cost overruns, and ensure continued alignment with strategic business goals. To learn more about how Lawson Software and neoit can deliver a comprehensive Service Process Optimization solution for your business, visit www.lawson.com and www.neoit.com. Service Process Optimization with Lawson and neoit Figure 2 Challenge Lawson Services Automation neoit Global Strategic Sourcing ROI Prioritizing IT investments and initiatives Aligning IT activities with strategic business direction Lawson Portfolio Management Lawson Portfolio Management Expert sourcing advisory services to understand business goals and objectives, identify tasks/functions, and assess suitable global destinations Expert sourcing advisory services to determine organizational readiness and align outsourcing objectives with strategic business initiatives Managing IT from an investment perspective, with continual focus on value, risk, costs, and benefits helps business reduce IT costs by up to 30% with a 2x 3x increase in value. (Source: META Group) Containing costs and mitigating risk Financial measurement and analysis capabilities Access to global supplier network Reduced value leakage through greater provider/project management Comprehensive due diligence and certification program to ensure supplier quality neoit customer data shows that basic outsourcing deals can realize client savings of 10-15%, while best practice outsourcing deals, using sourcing experts and sourcing automation tools, can save a client 40-60%. Using a third-party sourcing advisor can decrease the risks associated with outsourcing by up to 50% (Source: Ross Research) Building credibility for the value of IT services Lawson Project Management New sources of expertise and innovation SOP98-1 support within Lawson Project Management delivers savings by capitalizing expenses. Managing demand for IT resources Lawson Resource Management Expert sourcing advisory services Automated selection and matching tools Online bid presentment and management tools Average utilization gain from improved workforce efficiency and productivity is 8.1% (Source: Aberdeen Group) 11

www.lawson.com www.neoit.com Corporate Headquarters neoit 2603 Camino Ramon Ste. 200 San Ramon, CA 94583 United States Phone: +1-925-355-0557 Fax: +1-925-355-0558 Asia/Pacific Headquarters neoit 210, Bellary Road Upper Palace Orchards Bangalore - 560 080 India Phone: +91 80 3610371 Fax: +91 80 3610375 Corporate Headquarters Lawson Software 380 St. Peter Street St. Paul, MN 55102 United States Phone: +1-651-767-7000 Product Literature: 1-800-477-1357 Fax: +1-651-767-7141 International Operations Lawson Software Trinity Court Wokingham Road Bracknell Berkshire RG42 1PL United Kingdom Phone: +44 (0) 134-436-0273 Fax: +44 (0) 134-486-8351 IPRO-WP678/0103 2M 2003 neoit. All rights reserved. 2003 Lawson Software. All rights reserved.