Outsourcing: A New Vocabulary

Cost center: A division of an organization that has a negative impact on profit. i.e., a part of the enterprise that is perceived to “consume” cost in the same way as traditional overhead functions.

Enterprise architecture: The organization of business processes and IT logic to reflect the business operating model.

IT chargeback: A mechanism by which IT consumption is metered and a notional fee is attached.

Infrastructure outsourcing (IO): A business model in which common IT services (e.g., computer servers and storage) that support, but are independent of, the applications, are delivered, operated and supported by a third party. The equipment may or may not be owned by the third party.

Service catalog: A set of services with differing service classes that can be selected on demand.

Service class: A package of SLAs, predefined and selectable from a service catalog.

Service-level agreement (SLA): A service contract in which the level of service and its associated attributes and characteristics are formally defined and measured.

Service-oriented architecture (SOA): A redefinition of key software, architectural components and business processes, repositioned and redefined as services.

Service-oriented infrastructure (SOI): A system for redefining and describing IT infrastructure in terms of services, providing the foundation for upper-level application functionality.

Transformational outsourcing: An outsourcing engagement in which the costs of updating a client’s existing IT investment and transforming to a service delivery model are included in the outsourcing fees. The outsourcer incurs the capital cost of the equipment replacement and systems redesign but recovers it through subsequent outsourcing revenue.

Value center: A division of an organization that provides quantified value in terms of cost savings or increased revenue. Value centers consume cost but they return quantified benefits that exceed the cost.

Mark Denne is the author of Software by Numbers (Pearson 2003). He has been involved in several large transformational outsourcing engagements and is currently leading one of the largest software-as-a-service (SaaS) transformations in the industry. His background includes prior roles as a partner with the enterprise architecture practice at Accenture, managing principal for the Veritas/Symantec utility computing practice and the manager of Sun Microsystems’ Java Center.