How to Use Infrastructure Outsourcing To Drive Business Transformation

Forrester's Phil Sayer shares practical advice on best practices in IT infrastructure outsourcing when your goal is business transformation. Beware: while the business case for infrastructure outsourcing is sound, organizations still find cost savings lower than expected.

The ever-increasing economic pressure continues to drive IT professionals to take a closer look at infrastructure outsourcing as an efficient means of filling their resource gap and driving business transformation. As a result there are a number of best practices in IT infrastructure outsourcing engagements that can help the process along.

Outsourcing Definition and Solutions

Today's competitive business environment, coupled with a volatile economic climate, demands that organizations invest time, talent, and financial resources on core competencies and activities that differentiate their business from the competition. Even if yours is a technology-centric organization, the management and support of your IT infrastructure is unlikely to be a core competency or business differentiator. Rather than deploy internal resources on non-differentiating activities, Infrastructure & Operations (I&O) professionals should look to IT infrastructure outsourcing vendors to provide or manage IT infrastructure.

This idea — focus resources on what you do best and leave the rest to someone who specializes in it — is not new. However, the imperative to drive down costs, improve efficiency, and simplify IT operations has never been stronger. Unfortunately, now is not the right time for major IT outsourcing programs. Such initiatives take many months to plan and execute, and they only make sense in a stable economy. In today's uncertain times, I&O professionals need immediate cost reductions combined with maximum flexibility. Stay focused on outsourcing the commodity elements of IT infrastructure on short-term contracts with standard service-level agreements (SLA).

While the business case for infrastructure outsourcing is sound, organizations still find cost savings lower than expected. Forrester recently wrote a report for members of Forrester's Infrastructure & Operations Council. The result, based on in-depth interviews with some of Forrester's most senior clients, showed that this happens because too many companies pursue infrastructure outsourcing agreements based purely on immediate cost savings, with not enough thought given to service quality, flexibility, and long-term needs. Organizations also often neglect to measure infrastructure service levels and therefore don't know what SLAs they need from vendors. And, infrastructure outsourcing contracts typically fail to incorporate adequate provisions for innovation to ensure that businesses stay current with emerging best practices.

Faced with the need to cut budgets and headcount, CIOs are turning to infrastructure outsourcing to maintain service levels while reducing costs. Outsourcing works best for well-defined commodity services delivered against standard service levels. I&O professionals must push back against an overemphasis on cost reduction and provide valid evidence of the issues that arise when a purely cost-driven approach rules the outsourcing decision. Aggressive demands to lower costs force vendors to respond with proposals for long-term contracts with little or no flexibility.

Such rigid contracts cannot accommodate the dynamic nature of today's business environment. As a result, organizations inevitably end up buying services á la carte or growing internal staff or contractors to accommodate their urgent needs — an approach that often costs organizations more in the long term.

To pay for the cost of transformation, vendors need long-term agreements in order to achieve ROI. Such agreements require the planning of IT for five or more years into the future. In today's economy, this is not realistic. Hence avoid the need for transformation by fixing your processes before you outsource. This makes sense anyway — the old adage is still true: "If you outsource a mess you will end up with a more expensive mess." Retain flexibility and plan for disruptive changes, such as rapid changes in external business conditions and organizational changes resulting from divestiture or M&A activity.

Plan the size of the retained organization and its skills as an integral part of the outsourcing project, not as an afterthought. Our experience is that almost all firms underestimate both the size and depth of skills they need to keep to manage an outsource contract. Why — a combination of over-optimism coupled with a naïve view that an outsourcer will deliver what the user needs without being actively managed. Preparation continues with defining the look and feel of the retained organization. While some roles become redundant during an outsourcing engagement, new roles may be required to ensure smooth contract management. Forrester found that I&O professionals are well advised to:

Retain knowledge and expertise. Consider business, technical, and governance criteria when identifying key skills and resources required for rapid response to unplanned business needs as well as control over future strategy and architecture.

Manage the outsourcing relationship. Clear, continuous communication of business needs and expectations between the internal IT staff and the external provider helps establish and manage realistic expectations all around. Regular service and contract reviews are a vital part of this process.

Monitor and manage the supplier. IT organizations need dedicated internal resources to monitor service levels, manage change, escalate late trouble tickets, and hold regular service meetings. Attention to detail is essential to obtain good service from the supplier.

Maintain the balance of control and initiative. An adequately staffed and knowledgeable internal IT organization signals independence and helps drive external providers to deliver service to the contracted quality level and to demonstrate value.

Finally, hardware platform trends and emerging technologies are enabling the commoditization of IT. The key to this is virtualization. Virtualization of servers and storage within the data center improves internal efficiency and flexibility. The next step is to add self-service to the process and turn the data center into an internal cloud. This will enable the pool of available resources to be extended seamlessly outside the organization to resources in outsourcers hosting centers — which Forrester calls 'hosted clouds.'

This on-demand approach to computing gives organizations the flexibility to add processing and storage resources both dynamically and to cope with temporary increased requirements. Consolidation and centralization of servers into a single data center reduces the total physical server resource required and simplifies management and security. As a further step you can access the cloud for SaaS delivery of applications that allow you to reduce the number of servers you need. If you can eliminate some of your servers, you are already simplifying your infrastructure and reducing the cost of your IT operations.

Phil Sayer is a Principal Analyst at Forrester, serving IT Infrastructure & Operations professionals. He is an expert in global and European enterprise networking strategy and implementation. Specifically, Phil advises enterprise clients on the selection and use of telecom and network equipment and services. For more information on the Forrester Leadership Boards and free related research, please click here.

NEW! Download the State of the CIO 2017 report