outsourcing and managed services - developing a common language between suppliers and purchasers to...
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Outsourcing/Managed
Services: Developing aCommon Language BetweenSuppliers and Purchasers toReduce Risk
Alan McSweeney
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Objectives
Describe at a high-level a structured approach toimplementing outsourcing/managed services from bothservice provider and end-user organisation
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Scope
Provide a high-level view of a common set of processes tobe used by service providers and end-user organisations toimplement and operate an outsourcing/managed servicesarrangement
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What is Outsourcing
Outsourcing is delegating the responsibility for performingan information technology or business function to a thirdparty
You outsource because the outsourcing supplier will do: What the organisation currently does At the same or better level of performance For the same or lower price
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Advantages of Managed Services
Better use of staff: allows agencies to focus humanresources on strategic planning and core mission support
Cost savings: choose not to build and support IT andnetwork infrastructure available in the commercial sector;use limited capital to purchase needed service levels andreduce total cost of ownership
Ability to use optimal technologies: adjust types and mix of hardware, software, skilled labour, capital investment andtechnology to support changes in mission needs
Rapid response to organisation and business changes:supplier is measured by ability to produce solutions
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Types of Outsourcing Arrangement
Efficiency/Utility (Make it Cheaper) arrangement outsourcingfocuses primarily on cost control and, over time, cost reduction, withthe goal of maintaining consistency in the delivery of services
Business Enhancement (Make it Better) arrangement is aboutbusiness productivity. The organisations performance, as comparedwith their competitors, will improve, resulting in movement towarddefined business goals
Transformational (Make me Money) arrangement is characterisedby a partnership between the service provider and service recipient
that is focused on innovation and new business, changing the verybasis on which an organisation competes
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Benefits of Managed Services
Managed Services offers an alternative approach for a client to acquire IT or telecomsupport services
Managed services solutions are designed and delivered by service providers according to apredefined statement of deliverables and generally includes end-to-end service, service levelagreements, and assets (if desired)
A managed service typically includes monthly recurring service-based pricing offering amore predictable cost approach for the client
Ongoing visibility of operational performance is provided and managed through pre-agreedperformance parameters (known as service-level agreements)
The client may include their unique performance requirements such as degree of control andvisibility, security, availability, capacity, service continuity and other requirements as it relates tothe specific service
Because this is a core competency, the service provider is able to optimise the best balanceof facilities, processes, resources, tools, and metrics, resulting in the best overall value forthe client
Cost effectiveness is typically achieved through instituting process standards and establishing andsupporting a standard operating environment (SOE) consisting of COTS (Commercial Of the Shelf)services and solutions
Managed services can be delivered either in a BOCO (Business-owned, contractor-operated) or COCO (contractor-owned, contractor-operated) model and is largely based onclient preference
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Outsourcing Organisations - Developing a Vision for
IT Services is Required What do we do today?
What do our customers want us to do? What changes do we need to make to align with our
customers needs?
How will they pay for those services? How will we deliver those services consistently and
measure their delivery?
What kind of organisation (Governance/ContractManagement/Structures/Staff/Skills/Service Providers) willwe need to achieve it?
What service management processes we should use?
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Reasons Organisations Outsource17%
16%
12%
12%
8%
6%
6%
4%
3%
3%
Reduce And Control OperatingCosts
Improve Company Focus
Gain Access To World-ClassCapabilities
Free Resources For OtherPurposes
Resources Not Available
Internally
Reduce Time To Market
Take Advantage Of Capabilities
Accelerate ReengineeringBenefits
Share Risks
Function Difficult To Manage
Or Out Of Control
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Outsourcing Experiences
13% to 25% of outsourcing contracts are brought in-housewithin the first two years
Buyers replace 80% of their service contractors in the firstthree years
Contractors turn over 40% of their contracts each year, onaverage
Nearly 70% outsourcing organisations feel their service
provider does adequately understand what they aresupposed to do
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Key Issues For Successful Outsourcing
Many outsourcing relationships fail, are terminated early,are unsatisfactory to either or both of the service providerand the client
Outsourcing is a business issues and should be treated assuch
Many common issues, problems and concerns arise acrossoutsourcing contracts
Learn from the issues to avoid them
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Hidden Costs of Outsourcing
Transfer of knowledge Processes and procedures Documentation Personal knowledge
Quality issues and their resolution Inspection programmes Sustaining quality programmes Cost of rework
Communication Poor customer service Daily operational issues
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Phases of Outsourcing Relationship
Ongoing
Initiation Delivery CompletionAnalysis
For outsourcing organisation
For both outsourcing organisation and service provider
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Phases of Outsourcing Relationship
Management of outsourcing lifecycleManagement of outsourcing lifecycleOngoing
Close-out the service after the contract endsor the service has been terminated
Close-out the service after the contractends or the service has been terminated
Completion
Provide service and manage and measure itsprovision
Provide service and manage andmeasure its provision
Delivery
Prepare for and transition to provision of service
Prepare for and transition to provisionof service
Initiation
Analyse operations and functions toidentify those services, processes orfunctions that could potentially beoutsourced and develops the approachto be taken to source the identifiedopportunities
Analysis
Service ProviderOutsourcing OrganisationPhase
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Roles of Service Provider and Outsourcing Organisation
During Phases of Outsourcing Relationship
Initiation
Delivery
Completion
Analysis
Ongoing
Service Provider Outsourcing Organisation
Determine if outsourcing represents a businessopportunity
Prepare for service transition, transfer resources andpersonnel from outsourcing organisation and ensure
service continuity
Plan for outsourcing of selected services, evaluate andselect a service provider, create an outsourcing
agreement and transfer resources and personnel toservice provider
Define and agree requirements, negotiate contract,plan, design and deploy service, implement service
delivery
Implement the capability to manage the serviceprovider, administer the agreement and the issues,
challenges and changes that arise after the agreementhas been reached, reviewing the service providers
performance
Implement knowledge management processes,perform people management, implement
performance management, manage relationship,manage technology and manage risks and threats
Develop outsourcing strategy management, managerelationship with service provider, ensure value,implement knowledge management processes,
manage technology and manage risks and threats
Prepare for service transition, transfer resources andpersonnel from outsourcing organisation and ensure
service continuity
Plan for completion, ensure service continuity,transfer resources and personnel from outsourcing
organisation and transfer knowledge
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Roles of Service Provider and Outsourcing Organisation
During Phases of Outsourcing Relationship
Initiation Delivery CompletionAnalysis Ongoing
Service Provider
Outsourcing Organisation
CommonLanguage
andExpectations
Agreed Rolesand
Responsibilities
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Key Capabilities and Constituent Practices
Idealised set of steps for a service provider and end-userorganisations and outsourcing organisation to performwhen taking on a new outsourcing service
Provides a detailed checklist of work to be done
Each practices contains a set of activities and tasks Can be modified to suit the circumstances: scope of
outsourcing, size of service, duration of contract
Can forms the basis of a project plan for elements of outsourcing work such as initiation
Reduces risk of failure
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Key Capabilities Within Outsourcing Lifecycle for
Service Providers
Ongoing
Initiation Delivery Completion
PeopleManagement
PerformanceManagement
RelationshipManagement
TechnologyManagement
KnowledgeManagement
ThreatManagement
ContractingService Design
and
Deployment
ServiceDelivery
ServiceTransfer
ServiceTransfer
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Key Capabilities Within Outsourcing Lifecycle for
End-User OrganisationsOutsourcing
StrategyManagement
GovernanceManagement
RelationshipManagement
ValueManagement
TechnologyManagement
PeopleManagement
OutsourcingPlanning
OutsourcingAgreements
SourcedServices
Management
OutsourcingCompletion
OutsourcingOpportunity
Analysis
Ongoing
Initiation Delivery CompletionAnalysis
Knowledge
Management
OrganisationalChange
Management
Threat
Management
OutsourcingApproach
Service
Transfer
ServiceProvider
Evaluation
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Key Capabilities Within Outsourcing Lifecycle for
Service Providers and End-User OrganisationsOutsourcingCapabilities
and Skills
Analysis Initiation Delivery Ongoing Completion
OutsourcingOrganisation
OutsourcingOrganisation
ServiceProvider
OutsourcingOrganisation
ServiceProvider
OutsourcingOrganisation
ServiceProvider
OutsourcingOrganisation
ServiceProvider
OutsourcingOpportunity
Analysis
OutsourcingApproach
ServiceTransfer
ServiceTransferContracting
Service Designand
Deployment
ServiceDelivery
OutsourcingCompletion
SourcedServices
Management
OutsourcingPlanning
ServiceProvider
Evaluation
OutsourcingAgreements
ServiceTransfer
KnowledgeManagement
PeopleManagement
PerformanceManagement
RelationshipManagement
TechnologyManagement
ThreatManagement
OutsourcingStrategy
Management
GovernanceManagement
RelationshipManagement
ValueManagement
OrganisationalChange
Management
PeopleManagement
KnowledgeManagement
TechnologyManagement
ThreatManagement
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Analysis Phase
Service Provider Concerned with analysing operations and
functions to identify those services,processes, or functions that couldpotentially be outsourced
Understanding the current, or as-is, state of the client organisations structure andprocesses
Identifying the relevant criteria for selectingoutsourcing opportunities
Identifying outsourcing opportunities tomeet outsourcing objectives and criteria Organising options for outsourcing Developing and validating the Business Case
for each outsourcing option Identifying the outsourcing approach and
governance model for the proposedoutsourcing action Performing impact and risk analyses of theproposed outsourcing action
Making the decision whether or not tosource the proposed outsourcing action
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Initiation Phase
Service Provider Concerned with preparation for and initiation of
service delivery
Gather requirements Perform due diligence to validate customerinformation
Assess if and how the requirements can be met Prepare for negotiation Negotiate and sign contract Confirm assumptions Confirm responsibilities and commitments Design the service Review the service design Create service specification Deploy the service Transfer resources - personnel, technology,
infrastructure, applications Transition of service
End-User Organisation Concerned with preparation for and initiation of
managing outsourced services
Preparing for service selection by developing thesolicitation and criteria for selection Soliciting and evaluating potential service
providers Preparing for negotiation by having an
organisational position on cost, quality and othertopics that need to be negotiated
Defining the formal service level agreements andservice provider performance measures
Understanding service providers capabilities bygathering information about the service providerand confirming the assumptions that impactcommitments
Establishing a formal agreement with serviceproviders that clearly articulates the clients andservice providers responsibilities andcommitments
Providing feedback on the service design in orderto ensure that the services are meeting theclients requirements and the agreed-uponcommitments
Managing the effective transfer of resourcesneeded for service delivery, including personnel,technology infrastructure and work environment
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Delivery Phase
Service Provider Concerned with service delivery including
management of service delivery, verificationthat commitments are being met andmanagement of costs associated with theservice provision
Planning and tracking the service deliveryactivities
Delivering services according to the agreedcommitments
Managing the finances associated with the servicedelivery
Identifying and controlling modifications to theservices being provided
Identifying and controlling modifications toassociated service commitments
Identifying problems that impact the servicedelivery and taking both preventive andcorrective actions
End-User Organisation Concerned with monitoring the service
providers service delivery capabilities, includingthe ongoing monitoring of service providerperformance to verify that commitments arebeing met, monitoring changes, management of the finances and agreements associated withthe service provision, fostering realisticexpectations and performing value analysis
Planning and tracking the outsourcingmanagement activities
Ensuring that services are delivered according tothe agreed-upon commitments
Managing the finances associated with the servicedelivery
Identifying and controlling modifications to theservices being provided or to the associatedservice commitments
Facilitating problem resolution for problems thatimpact the service delivery
Reconciling performance against expectations andensuring that the service provision returns valueto the client organisation
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Ongoing Phase
Service Provider Management functions that need to
be performed during the entireoutsourcing lifecycle
Manage and motivate personnel toeffectively deliver services
Manage relationships with clients,suppliers and business partners
Measure and review the organisationsperformance and taking action toimprove it
Manage information and knowledgesystems so that personnel have accessto the knowledge needed toeffectively perform their work
Identify and control threats to theorganisations ability to meet itsobjectives and client requirements
Manage the technology, systems andapplications infrastructure used tosupport delivery of service
End-User Organisation Management functions that need to
be performed during the entireoutsourcing lifecycle
Manage and motivate personnel toeffectively deliver services
Manage relationships with clients,suppliers and business partners
Measure and review the organisationsperformance and taking action toimprove it
Manage information and knowledgesystems so that personnel have accessto the knowledge needed toeffectively perform their work
Identify and control threats to theorganisations ability to meet itsobjectives and client requirements
Manage the technology, systems andapplications infrastructure used tosupport delivery of service
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Completion Phase
Service Provider Concerned with closing down the
engagement at the end of the outsourcinglifecycle
Manage the transfer of resources to thenew service provider, whether it is to theclient or to another service provider
Ensure service continuity during transfer Identify and transferring the knowledge
critical for the delivery of service
End-User Organisation Concerned with closing down the
engagement at the end of the outsourcinglifecycle
Planning for closing down a outsourcedservice and managing the agreement duringthe close-down period including managingthe agreement during terminationproceedings, during renewal, or during
normal completion Managing the transfer of resources to thenew service provider, whether it is to backto the organisation or to another serviceprovider including the potential transfer of people, technology infrastructure andintellectual property
Ensuring service continuity during thetransfer of responsibilities for serviceprovision
Identifying and transferring the knowledgecapital critical for the delivery of service
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Sample Activities by Service Provider and End-User
Organisation Threat Management in Ongoing PhaseOngoing Phase
Threat Management
Service Provider End-User Organisation
Risk Management
Engagement Risk
Risk Across Engagements
Security
Intellectual Property
Statutory and Regulatory Compliance
Outsourcing Risk Management
Organisational Risk Management
Intellectual Property
Security and Privacy
Compliance
Business Continuity
Disaster Recovery
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Threat Management - Risk Management
Service Provider Risk Management Scope
Establish and implement a policy on riskmanagement
Activities Provide support for creating and maintaining a
policy for managing risk Document and implement a policy for managing
risk
Support the implementation of a policy formanaging risk
End-User Organisation Outsourcing Risk Management Scope
Establish and implement procedures to identify,assess and manage outsourcing risks
Effective risk management is particularly critical inthe early stages of a outsourcing initiative, whererequirements are being organised and service isbeing designed to meet those requirements
Problems encountered here can impact thesuccess of service delivery and associatedbusiness benefits throughout the life of theinitiative.
Activities Provide support for creating and maintaining the
procedures for identifying, assessing andmanaging outsourcing risks
Document and implement the proceduresrequired for identifying, assessing and managingoutsourcing risks Support the implementation of identifying,assessing and managing outsourcing risks
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Threat Management - Risk Management
Service Provider Engagement Risk Scope
Identify, assess and manage risks specific to theclient engagement
Activities Provide support for creating and maintaining the
work products and tasks for identifying, assessingand managing engagement-specific risks
Document and implement the work products andactivities required to identify, assess and manageengagement-specific risks
Support the implementation of identifying,assessing and managing engagement-specific risks
End-User Organisation Organisational Risk Management Scope
Establish and implement procedures to managerisks across multiple outsourced services andservice providers
Effective identification and assessment of risksenables the client organisation to take mitigatingactions to lower the impact should a risk eventoccur
Effective risk management improves thestakeholders confidence in the clientorganisations ability to maintain needed servicesand service levels
Activities Provide support for creating and maintaining the
procedures for managing risks across multipleoutsourced services and service providers
Document and implement the proceduresrequired for managing risks across multipleoutsourced services and service providers
Support the implementation of managing risksacross multiple outsourced services and serviceproviders
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Threat Management - Risk Management
Service Provider Risk Across Engagements Scope
Establish and implement proceduresto manage risks across clientengagements
Activities Provide support for creating andmaintaining the procedures formanaging risks across clientengagements
Document and implement theprocedures for managing risks acrossclient engagements
Support the implementation of theprocedures for managing risks acrossclient engagements
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Threat Management - Security and Privacy
Service Provider Security Scope
Establish and implement procedures to meetsecurity requirements
Activities Provide support for creating and maintaining the
procedures for meeting security requirements Document and implement the procedures for
meeting security requirements
Support the implementation of the procedures formeeting security requirements
End-User Organisation Security and Privacy Scope
Establish and implement procedures to meetsecurity and privacy requirements
Breakdowns, such as security breaches, canimpact the client organisations ability to providebusiness continuity, thereby damaging therelationship and making the involved partiesvulnerable to legal action
Effective security is essential for meeting privacyrequirements and protecting intellectual property Security requirements may come from the clientorganisation or statutes and regulationsgoverning the service being delivered
Activities Provide support for creating and maintaining the
procedures for meeting security and privacyrequirements
Document and implement the proceduresrequired for meeting security and privacyrequirements
Support the implementation of meeting securityand privacy requirements
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Threat Management - Intellectual Property
Service Provider Intellectual Property Scope
Establish and implement procedures to protectthe intellectual property of stakeholders
Activities Provide support for creating and maintaining the
procedures for protecting the intellectualproperty of stakeholders
Document and implement the procedures for
protecting the intellectual property of stakeholders Support the implementation of the procedures for
protecting the intellectual property of stakeholders
End-User Organisation Intellectual Property Scope
Establish and implement procedures to protectthe intellectual property of stakeholders
Inappropriate use or disclosure of intellectualproperty can damage the relationship withstakeholders, may cause financial loss and makethe client organisation vulnerable to disputes orlegal action
Organisation should have a formalised policy onthe protection of intellectual property that is usedto provide direction for creating the procedureson protection of intellectual property
Activities Provide support for creating and maintaining the
procedures for protecting the intellectualproperty of stakeholders
Document and implement the proceduresrequired for protecting the intellectual propertyof stakeholders
Support the implementation of protecting theintellectual property of stakeholders
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Threat Management - Compliance
Service Provider Statutory and Regulatory Compliance Scope
Establish and implement procedures to complywith statutory and regulatory requirements
Activities Provide support for creating and maintaining the
procedures for statutory and regulatorycompliance
Document and implement the procedures for
statutory and regulatory compliance Support the implementation of the procedures forstatutory and regulatory compliance
End-User Organisation Compliance Scope
Establish and implement procedures to complywith applicable standards and statutory andregulatory requirements
Client organisation must implement proceduresto address governance, risk and compliance
Procedures ensure that they comply withstandards, statutes and regulations that impacttheir outsourcing capability and their outsourced
services in order to meet statutory, regulatoryand stakeholder requirements and to avoidstakeholder dissatisfaction and legal or auditissues
Activities Provide support for creating and maintaining the
procedures for complying with applicablestandards and statutory and regulatory
requirements Document and implement the proceduresrequired for complying with applicable standardsand statutory and regulatory requirements
Support the implementation of complying withapplicable standards and statutory and regulatoryrequirements
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Threat Management - Disaster Recovery and
Business Continuity Service Provider Disaster Recovery Scope
Establish and implement disaster recoveryprocedures Activities
Provide support for creating and maintaining theprocedures for disaster recovery
Document and implement the procedures fordisaster recovery
Support the implementation of the procedures fordisaster recovery
End-User Organisation Business Continuity Scope
Establish and implement procedures to ensurebusiness continuity of outsourced services Prepare for possible disasters in order to minimise
their impact on the client organisations ability tocontinue business activities
Preparation covers service delivery, security, theprotection of intellectual property, crisismanagement and the safety of personnel and
promotes confidence in the client organisationsand service providers ability to react effectivelyto adverse situations
Activities Provide support for creating and maintaining the
procedures for ensuring business continuity of outsourced services
Document and implement the proceduresrequired for ensuring business continuity of outsourced services
Support the implementation of ensuring businesscontinuity of outsourced services
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Benefits of Structured Approach
Service Provider
Minimises problems
Provides common language
Provides common understanding of roles and responsibilities
Provides mechanism for resolvingissues
Know what is expected and whatshould be done
End-User Organisation
Provides structured approach toevaluating and adopting outsourcing
Demonstrates due diligence inselecting outsourcing partner
Provides common understanding of roles and responsibilities
Provides mechanism for resolvingissues
Knows service to be provided andmeasures delivery
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Summary
Outsourcing experiences and implementations has beenpoor
A structured approach to implementing outsourcingarrangements by both providers and end-users can enableeffective outsourcing
A common language and a common understanding of rolesand responsibilities will reduce problems and assist inissue resolution
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More Information
Alan McSweeneyalan@alanmcsweeney.com
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