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Integrated IT Outsourcing: Total Package or Total Chaos? - Ideas for Leaders
Idea #275

Integrated IT Outsourcing: Total Package or Total Chaos?

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KEY CONCEPT

There’s a growing trend in IT outsourcing towards integrated solutions. Clients no longer want to buy service components separately from multiple vendors: they want the ‘total package’ from a single provider. Integrated solutions, however, can be particularly challenging to implement, requiring intensive co-ordination by vendors. How can they be delivered on time — and to clients’ satisfaction? Recent qualitative research, looking at integrated IT services from the provider’s perspective, points to some answers. 


IDEA SUMMARY

Buying integrated services is now the dominant ‘modus operandi’ for clients in IT outsourcing arrangements. But relatively little is known about how integrated services are co-ordinated and implemented by providers.

Combining multiple service components into a single working portfolio can be complex — and often amounts to a major change programme that involves the in-sourcing or the transfer of assets and people.

What kinds of co-ordination challenges can be identified during the implementation of an outsourcing arrangement to deliver integrated IT services?

Recent research looks at that question — from the provider’s perspective. Based on qualitative studies of four IT outsourcing vendors, including interviews with executives, transition managers and service delivery managers, and covering multiple outsourcing arrangements, it highlights three problems for vendors during the implementation phase.

1. Aligning roles and responsibilities in the governance structure

The researchers found that the vendors were highly fragmented, monolithic organizations, in which units acted as functional silos.

Departments were split into two broad camps: service (responsible for the client relationship and tasks such as contract management) and delivery. The latter could consist of multiple — and often geographically diverse — technical departments subdivided into units for specific service components. (The hosting department, for example, might be split into units for servers, operating systems, licences, security and maintenance.)

Interviewees revealed that vendors struggled to align roles and related responsibilities between units — and that the performance of integrated services provided for clients declined significantly as a result.

Moreover, the researchers found that the governance structure of vendors hindered effective organizational collaboration by failing to reward units for the integration of services. In all cases but one, each unit had its own profit and loss responsibility to build and provide IT service components in the most efficient way. 

2. Orchestration

Remarkably, the study found that all vendors struggled with the initiation of clear agreements on orchestration — i.e. on the internal method for managing the processes to fulfil clients’ service requests and the interdependencies between activities.

Orchestration was seen as the responsibility of the unit most involved in delivery but no vendor had a predetermined strategy. Decisions were made case by case. The way of working could, in other words, be described as somewhat chaotic.

3. Resistance between units

Tensions arose between client demand for customised IT services and the vendors’ standardisation strategies to provide IT services in an efficient way. (Adaptation of standardised technical sub-components results in additional production costs that have a negative effect on the profit and loss objectives of a unit.)

The researchers found that the vendors were resistant to adapting the various service components as part of the integration process. All vendors in the study struggled to integrate the service components because of a lack of adaptive behaviour. Essentially, units persisted in delivering standardised solutions rather than adapting to small changes.

To sum up, the organizational structure of the vendors increased the complexity of delivering IT services and had a negative impact on the duration of the implementation phase. Vendors struggled to manage tasks and responsibilities.

The problems were compounded by the degree of resistance between units: disputes about the co-ordination of tasks affected the implementation phase further. 


BUSINESS APPLICATION

While the results of the research are difficult to generalise, given the size of the sample, they reveal the kinds of flaws that derail and delay the implementation of integrated IT solutions.

The researchers say vendors need to develop ways to deal with the orchestration of integrated IT services consciously — and that the strategy for implementation should stress the need to mobilise coalitions between departments.

There are clear implications, too, for clients. Organizations that want an integrated solution will need to ask a series of questions before awarding contracts. These might include:

  • What mechanisms are there for co-ordinating the project internally?
  • Which department will be responsible for co-ordinating activities? Will there be a ‘holistic’ perspective?
  • How will departments adapt solutions to meet the needs of my business?

Given that previous research has revealed that vendors generally struggle with the implementation phase, often resulting in a fragile start to service delivery, and that over two-thirds of the problems in unsuccessful ‘engagements’ are due to poor execution, these kinds of questions could prove critical — and a vital part of risk management.


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Idea conceived

February 1, 2013

Idea posted

Dec 2013
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