The two evils are: Paying for Nothing Paying Twice for Something I provide examples of the traps that firms can find themselves exposed to in an outsourcing relationship.. Many outsourci
Trang 1Outsourcing’s Two Evils
By Ernie Zibert Copyright 2012 Ernie Zibert Smashwords Edition Smashwords Edition, License Notes Thank you for downloading this free ebook Although this is a free book, it remains the copyrighted property of the author, and may not be reproduced, copied and distributed for commercial or non-commercial purposes If you enjoyed this book, please encourage your friends to download their own copy at Smashwords.com, where they can also discover other works by this author Thank you for
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Table of Contents
Paying for Nothing Paying Twice for Something About the author Other books by this author Contact the author
In this booklet I discuss outsourcing’s two main evils The two evils are:
Paying for Nothing Paying Twice for Something
I provide examples of the traps that firms can find themselves exposed to in an outsourcing relationship
Paying for Nothing
Nobody wants to ‘pay for nothing’ Yet, firms enter into contracts with pricing models that reinforce this evil For example, many contracts have minimum volume requirements Once the firm goes below the minimum volume then they might have to pay for a proportion of the cost even though they no longer require that service volume
High-risk areas where firms can pay for nothing are;
Strategic Services Examples of strategic services are innovation and architectural
services These offers simply do not warrant pre-payment in any outsourcing relationship If they are
included in your deal then sit down with your provider and ask them to value it and remove that cost from your agreement
SLAs Service Level Agreements (SLAs) represent another area where, almost without
exception, the firm is paying for nothing The business need might need 99.9% uptime on servers but the firm is paying for 99.99% Agreements which automatically/formulaically ratchet up SLAs as part
of the yearly review have no value If these are in your agreement get them removed and save yourself some money
Development and Test environments – These environments are sometimes not
differentiated from the production environments That is, you are paying the same service cost for a development/test environment as you are for a production environment Even when the cost of supporting these dev/test environments is differentiated and less, they have the same level of SLAs
as production servers If this is in your agreement get it removed and save your firm money
Pre-paid Services The golden rule of any effective outsourcing relationship is not to pre-pay
for any Services The worst offender tends to be paying for Professional Services Simply avoid this If the provider tempts you with a discount then negotiate a rate discount following a review of the annual
Trang 2spend for professional services This way, the firm gets a discount on actual costs incurred and the provider bases the discount on actual revenue and not smoke and mirrors
Messaging Services Many Service Agreements require the customer/firm to pay by the
Active Directory (AD) account When staff leave they are not removed from the AD and when groups are added the costs for the Service keep going north To alleviate this cost inflation, ensure you have
a bullet-proof policy to clean up AD accounts when staff leave the firm Also, ensure you have a policy for the creation of distribution lists or generic accounts or apply a different and cheaper price for these accounts This same principle applies to all billable objects in your Services Agreement
The ‘paying for nothing’ pitfall in many outsourcing agreements has been recognised by most Vendor Managers and CIOs XaaS solutions (e.g., IaaS, SaaS) alleviate some cost traps, but not all For example, many SaaS providers require you pay by the account On the surface this is quite fair and reasonable It is aligned with the ‘pay for what you eat’ model The problem resides in the fact that with this cost structure the providers are not incented to inform you that accounts have not been used or that you are creating billable accounts that serve no value So remain vigilant and ensure you have the processes in place to mitigate this cost inflation
Paying Twice for Something
Nobody wants to ‘pay twice for something’ Yet, firms continue to enter into contracts that expose them to this evil
High-risk areas where firms can pay twice for the same thing are;
Operating Systems Many outsourcing relationships include an equipment refresh service
Most providers include the Operating System (OS) in the price of the refreshed kit (laptops, PCs, servers), which in turn is bundled in the monthly managed service fee Yet, neither providers nor firms re-use the OS, despite the fact that most OS licenses are perpetual So if you have a refresh service
in your agreement, check that it uses existing OS and that you are not paying for a second OS
Software Maintenance/Extended Warranty Many outsourcing relationships include the
supply of software by the provider as part of the Service offering Yet many firms do not terminate their existing software maintenance contracts when they enter into a managed service agreement Ask your provider to take over your maintenance and any fees you have pre-paid and reduce the cost
of your service The same principle applies to all your extended warranty on items which are managed
by your service provider, including your servers As a rule, never enter into extended warranties in a managed services environment
Desktop refresh Many outsourcing relationships include an equipment refresh service
Ensure that you have a clear policy of decommissioning refreshed assets Don’t leave them in
drawers/cupboards/filling cabinets and furthermore reuse the office application (e.g., MS Word, MS Excel) licenses Otherwise, your provider will rightly charge you twice for the one staff member Check that your ratio of billable units to headcount is 1
Server monitoring Many outsourcing relationships include a monitoring service The provider
will use their monitoring agents Ensure that you have the minimum number of agents on your servers and convey this policy to your service provider Ideally, if you have agents installed sell them to your provider
Backup strategy Many outsourcing relationships include a Backup Service This is has
evolved to become the most apparent area of duplicate cost for the firm Many providers will simply execute the firms existing backup strategy And good luck to them Most firms have a backup policy which is outrageously costly and silly For example, the firm performs snapshots, mirroring, backup to tape (daily, weekly monthly, quarterly, annually, etc), and off-site backup storage Multiple backups that afford the firm no additional risk mitigation are simply the firm paying twice for the same thing Bottom line is clean up your backup strategy and ensure that you ask your provider for the most efficacious backup solution for your firm Ensure that your backup strategy aligns with your business needs and not simply time-honoured IT tradition.( see
http://en.wikipedia.org/wiki/Recovery_point_objective)
The moral is to ensure you are clear on what is included in your outsourcing deal Then and most importantly, cancel your overlapping agreements In this way, you will extract more value from your outsourcing agreement
Avoiding these outsourcing evils is of benefit to both the firm and provider It ensures the long-term health of the relationship
Trang 3There are numerous other areas where firms are exposed to outsourcing's twin evils To get
a health check of your outsourcing agreement, see the contact details below
About the author:
Ernie Zibert is a senior IT sourcing professional and brings two decades of international management experience across government, communications and media, and finance industries His transferable skills include IT sourcing strategy and governance, and financial, relationship and commercial management of external service providers Annual spend under management includes up to $200M
AUD along with 20% savings
Other titles by Ernie Zibert
Discover other titles by Ernie Zibert at Smashwords.com
The Science of Sourcing Governance What’s the difference between a million and a billion dollar IT sourcing deal?
Ordering IT Services: Would you like CHIPS with that?
AMS - The next stage in the evolution of IT Outsourcing The IT Outsourcing RFx COW is Too Fat
Sourcing's Three Fates
Connect with Me Online:
My blog: http://strategicsourcingblog.blogspot.com For more information, contact Ernie Zibert at ernie.zibert@gmail.com
Title page shows the angels on the bottom of La Madonna di San Sisto, an oil painting by Raphael,
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Thanks go to Mohandass Ayyappath for his insightful comments and editing