Wednesday, May 11, 2011

The 7 rules of successful IT outsourcing

How can CIOs protect themselves from the risks associated with outsourcing

There is one thing about a honeymoon period that is universally true: it never lasts forever. So it is with IT outsourcing. No matter how promising the vendor relationship, no matter how ideal the solution and no matter how capable your outsourcer seems to be … the chances are better than even that at some point the project will be stopped - either permanently or temporarily.

This is especially the case with complex, enterprise-wide implementations like the electronic patient record (EPR) in the case of healthcare, or Enterprise Resource Planning (ERP) in the corporate supply chain. As a rule of thumb, the more ambitious the project, the more room there is for scope creep, budget blowout, integration glitches, software bugs, testing failures and a variety of other downstream nightmares. In the worst cases, the catalogue of problems can be so extensive that multi-million pound projects are just quietly shelved, on the basis that what is required to bring the project into production faces the law of diminishing returns.

So, how can CIOs protect themselves from all this? How can they ensure that the burden of risk is on the oh-so-willing vendor and not on themselves? Well, here at ImprovIT we have put together seven rules of outsourcing which aims to ensure clients have the tools they need to a) negotiate the best price and b) ensure supplier contracts are framed in a way that favours the client - safeguarding them from these unforeseen risks.

1: Where possible enter into collaborative procurements. This is a growing trend in both the commercial and the public sector whereby organisations club together in new infrastructure projects or hardware renewal cycles for volume pricing advantage. Providing their aims are collaborative (which should be ascertained first), this collective bargaining can be very effective.

2: Know you know what you want. It is crucial that you are clear on the needs of your stakeholders and have made sure the vendor fully understands your requirements before work begins. Anything that is vague or relies on ‘figure-it-out-as-you-go’ may seem OK in the feel-good flush of a new relationship but loose ends can come back to haunt you when things get tough.

Unless everything is nailed-down, itemised and agreed upon upfront, it’s often difficult to predict the levels of complexity involved in the project. As implementation progresses, new requirements may be discovered and goal posts may shift. Unless the formal specification documentation is precise and contractual, vendors may be tempted to use any grey areas to either cut corners or add costs which can rapidly mount until they are out of control.

3: Always do your due diligence. You and your project team must be convinced your supplier has the track record to deliver. Since expensive, time-consuming legal redress for below-standard results and broken contracts is not a valid option. Take the time to speak with users and visit reference sites and companies that have been on the receiving end of the vendor's services. It’s odd that many customers will spend vast sums on a software installation but not take the time to see the solution in production.

4: Be proactive on pricing. Whether it’s a solution or service, don’t count on your supplier to point out the most cost-efficient options. By example, IT Service Level Agreements (SLAs) can be notoriously opaque and the terms often tend to favour the service provider. Unless specified, you may find on digging into the contract that you are paying for a premium 24/7 level of support when a 9-5pm/5 day one would be perfectly adequate.

5: Compare before you buy. It’s not always easy to work out if you are paying the fair market price for a service or solution, as it involves comparing different suppliers, each of whom bundles their products differently. This makes it difficult to break offerings down into components so that they can be compared on an apples-to-apples basis. And even if you could do this, market pricing data of this type (involving highly detailed service catalogues) is typically only available to specialist outsourcing consultancies.

6: Insist on phased delivery. Too often the first time a company sets eyes on its new software application is when it takes final delivery. At which point the vendor is paid and moves on, and the IT team is left to iron out the bugs – a process that can take longer than the build itself. Worse still, not infrequently the solution turns out to be something other than what was wanted. A simple way to avoid this is by insisting on a staged/agile delivery (and staged payments) so that each module can be tested and confirmed as fit for purpose.

Another way to avoid problems is to insist the vendor be responsible for all aspects of system implementation including guarantees that it performs as promised, is delivered on schedule and is maintained for its entire lifecycle.

7: Maintain the dialogue. Sometimes customer/outsourcer relationships break down simply due to lack of communication. This is most likely to happen when the service provider has taken over offsite management and maintenance of a company’s whole IT operation. Without clear direction from the client, or with messages left unreturned, drift occurs and a frustrated supplier can end up taking decisions by default, thus taking the client’s IT strategy in unintended directions. Or extra ad-hoc services are ordered by different departments directly with the provider without going through any internal management. Sometimes this activity only comes to light with the annual audit of outsourcing spend, with the CFO wondering why costs have exploded. Remember, to make outsourcing work, responsibility lies with the supplier AND the customer.

There are at least another, equally valid, set of rules for successful outsourcing but if you can tick off all of the above, then you are ahead of the curve in best practice sourcing.

(Source :

For Microsoft, Skype Opens Vast New Market in Telecom

Microsoft has peered into the future, and placed a bet that people the world over want to stay in touch with someone anytime and anywhere — preferably at no cost.

In agreeing Tuesday to pay $8.5 billion to buy Skype, the pioneer in Internet phone calls, Microsoft is embracing a technology that is transforming the way people communicate at home and at work. And by stitching Skype technology into Microsoft products, used by hundreds of millions of people, the software giant could hasten the mainstream adoption of video communications, especially in businesses.

Microsoft, although rich and powerful, lags in new fields like smartphone software. Skype could help it better compete with the new giants of technology, like Google and Apple.

“Skype has been a forerunner, and this deal is Microsoft trying to become relevant in this new age of Internet communications,” said Berge Ayvazian, a telecommunications consultant. “It could really change things for Microsoft and accelerate the spread of this new technology.”

The future of communications, industry analysts and executives say, will be animated by Internet technology and rests increasingly on video calls, as well as voice and text messages. Skype started on personal computers less than a decade ago, but is now beginning to make its way onto smartphones. As it heads for living rooms with applications like at-home videoconferencing on digital televisions, it could change the way people make even the most routine calls.

This next generation of communications is both a threat and an opportunity to telecommunications and technology companies — a focus of energy, investment and anxiety for corporations including AT&T, Verizon, Apple, Google and Facebook.

Microsoft is betting that Skype can help change its fortunes. Skype is a leader in Internet voice and video communications, with 170 million users each month connected for more than 100 minutes on average. In the last year or two, video use has surged, now accounting for 40 percent of Skype’s traffic.

That large and active community of users represents a major asset, said Steven A. Ballmer, Microsoft’s chief executive. “It’s an amazing customer footprint,” Mr. Ballmer said in an interview. “And Skype is a verb, as they say.”

Mr. Ballmer never mentioned Google, Microsoft’s archrival whose name is used as a verb for Internet search. In that market, Microsoft is spending heavily to try to catch Google, and making some progress with its Bing engine, but at great financial cost.

Google, like Skype, has a free Internet phone call and video messaging service. So Microsoft, analysts say, is taking a bold step to grab a leadership position instead of risking falling behind Google in a crucial market and then facing the difficult task of trying to catch up.

“Skype gives Microsoft instant size and scale in this emerging market,” said Howard Anderson, a senior lecturer at the Sloan School of Management at the Massachusetts Institute of Technology. The merger with Skype, if successful, could give Microsoft a leading consumer Internet service — something it has lacked — and help lift its other businesses, like smartphone software, Office productivity programs and Xbox video game consoles, analysts say.

In doing so, Microsoft aims to keep people seamlessly connected at work or at home. “We want to enable communications across people’s lives,” Mr. Ballmer said in a press conference in San Francisco.

Skype, founded in 2003, is a creation of the new technology that is transforming telecommunications. “For some time, it has been clear that telecommunications is going to move to all-digital Internet technology,” said Kevin Werbach, an associate professor at the Wharton School of the University of Pennsylvania and a former official at the Federal Communications Commission. “Skype shows what can be done.”

Skype was founded by two entrepreneurs, one Swedish and one Danish, with software developed by a small team of programmers in Estonia. They deployed a version of peer-to-peer software, initially associated with illegal file-sharing of pirated music and movies. The voice and video travel over the Internet rather than dedicated phone landlines or cell tower networks.

Skype has had a bumpy ride as a business. EBay bought it for $2.6 billion in 2005, and then sold most of it to a private investors’ group in 2009, after eBay could not figure out how to make money on Skype.

Despite changes in ownership and management, Skype was a hit with users, offering mostly free calling between Skype users, while charging for some services to corporate users and for calls to traditional phone numbers. It also now sells advertisements.

Skype, based in Luxembourg, has recently made steady progress as a business. Its revenue rose 20 percent last year, to $860 million, and operating profit climbed to $264 million, though it had a net loss of $7 million after making its debt payments.

Skype also has built a formidable technical prowess. Most of its software programmers are in Tallinn, Estonia. “The secret sauce of Skype is its engineering team,” said Marc Andreessen, a founder of Netscape, which made the first commercial Internet browser, and one of the private investors in Skype. “These are world-class guys, every bit as good as anyone in Silicon Valley.”

Mr. Ballmer emphasized that Microsoft planned to expand Skype’s offerings and increase investment, and not cut back free offerings. Skype technology, he added, will help enhance Microsoft products. Mr. Ballmer said the Xbox Kinect, a game device with gesture-recognition features, could add Skype to become an at-home videoconferencing system. And Skype can also be linked to Microsoft’s business software including Office productivity programs and Lync, multimedia software for workers collaborating on projects.

Microsoft, whose growth has been lagging, could find a lucrative revenue stream in selling the service to companies. It might also benefit from placing advertisements on Skype. “There are a lot of great opportunities to optimize Skype services in Microsoft products,” Mr. Ballmer said.

Skype, analysts say, is evidence of the recent pattern of innovations coming first to the freewheeling consumer market — like instant messaging, social networks and video chat — and then cascading to businesses. “This deal is another sign of the consumerization of information technology,” said Ted Schadler, an analyst at Forrester Research.

The Microsoft-Skype deal, analysts suggest, also points to a rising wave of digital disruption in the telecommunications industry, as low-cost Internet-based communications put pressure on traditional carriers, especially their landline phone service. Says Mark R. Anderson, chief executive of the Strategic News Service, a technology newsletter, “The computer guys are going to teach the telecom carriers about the future of communications.”

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