Here's A Method That Helps Corporations ... - Business 2 Community

Outsourced IT is no longer an emerging trend. Accordingly, companies are taking a closer look at the value of outsourcing. Standard methods of measuring success, such as monitoring service level agreements (SLA), may not be appropriate. For example, if your vendor drops the ball on a provision in your SLA, they are liable for breach of contract. But breach of contract is not really a true measure of value. When assessing the value of outsourced IT, we need to look to more innovative techniques.

IT Outsourcing Risks

To begin, we need to understand what the risks are of outsourcing within our enterprise. Risky ventures need to derive greater value, and a diligent executive will not support IT outsourcing unless you have achieved the appropriate balance.

The risks can generally be broken down into one of two major categories:

• Knowledge Transfer
• Regulatory // Privacy

Perhaps the most common issues that arise through outsourced IT is the lack of knowledge transfer. This comes in two flavors:

1. Key personnel working for the outsourcing firm leave your project without adequate debriefing
2. There is a general lack of communication between the outsourcing firm and your enterprise regarding the project

Outsourcing firms, particularly international firms, often fall outside the control of U.S. regulation. Regulation can be a pain, but it exists to protect you and your customers. For instance, if you are a health insurer, you are covered under HIPPA regulation; however, your partner likely will not be.

The Balanced Scorecard Approach (BSA)

So how do we hold our partners to task and ensure the value of outsourced IT?

Value at its base, is the sum of profitability and productivity. Linking outsourced IT to these metrics however, is complex.

The balanced scorecard approach (BSA) helps bridge the gap. Using the BSA we convert factors such as financial performance, efficiency, and innovation into tangible metrics. These metrics are then balanced against one another to show a better picture of value. For example, an increasing trend in ?IT is the ?fractional CIO.? ?That is, CIO services are contracted rather than kept in-house.

To upper management, this is obviously a risky proposition. CIO?s have intimate knowledge of the company?s intellectual property and drive the company?s IT strategy. However, a full-time CIO is expensive and, in many organizations, not necessary.

The BSA applied value of fractional CIO?s would thus measure:

• Efficiency with which the CIO can govern IT strategy
• Performance of IT under the CIO
• Ability for IT to deliver given the strategy

These factors would then be divided by the risks inherent in outsourced IT. Admittedly, the approach appears dicey; we are talking about a lot of data to show value (not just expenses and revenue). Tt is important in the end to communicate the metrics in as succinct a dashboard as possible.

IT outsourcing has become a less risky choice meeting IT objectives. It is important when contracting an outsourced IT to partner with your vendor in creating success metrics and weigh the value of your partner as needed.

Source: http://www.business2community.com/strategy/heres-a-method-that-helps-corporations-weigh-value-in-it-outsourcing-0263702

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