Thought Leader Series : The Art Of IT Outsourcing
Welcome to The Art Of IT Outsourcing, part of the Nasstar Thought Leader series of articles and webinars, joining us for this edition is Nasstar CEO Nigel Redwood in interview with award-winning journalist Nigel Powell.
In our Thought Leader Series we attempt to take a deeper look at the big picture subjects and have a discussion about the strengths, weaknesses, opportunities and threats (SWOT) of any given subject, providing a high level view of the topic.
If you have already seen our webinar video on the subject, this article will serve as a useful refresher of the discussion we had around this subject on the day, if you have not already seen the video then read on, we have embedded the videos for you below. We created four videos, breaking the original webinar into four parts, each covering a different part of our SWOT analysis.
What Is IT Outsourcing ? At Nasstar, we view IT Outsourcing as a process that removes non-revenue or non fee earning activity from within your business. It is about handing over non core business activities to experts, who can focus on their expertise, and so to deliver a competitive edge over your competitors who will still be trying to do things internally.
What elements of IT are typically being outsourced?
Nasstar has a large client base of outsourced IT customers, some expect us to deliver an end to end service, where we're delivering the physical compute on the desk, the local network, the wide area connectivity and the hosting and delivery of applications out of our data centres. Many customers also want us to go up the value chain and get involved in the actual business process, application consultancy and development.
In most businesses, approximately 80% of their IT is exactly the same as their competitors, and the remaining 20% provides the differentiation, the idea of outsourcing is to let someone else focus on that 80% and let you focus on the 20% to optimise that value. Other clients will choose to outsource just a specific element, so for example, just outsourcing the security of their data applications. There's a range of services where it can make sense to outsource.
Why are people outsourcing?
Enterprise IT is becoming more complex, but also more commodity as well. Where we specialise is in focusing on specific vertical markets, with their different drivers. So for example, the legal sector has regulatory pressures which can compel a practice to outsource, perhaps to ensure SRA compliance at a competitive cost. There can also be compelling events, such as downtime, or loss of key personnel, such as a long standing IT manager who wants to move on or retire and the company needs to ensure continuity. Security is also a driver, breaches, cyber attacks, are a reason for outsourcing. It's a continual battle that never stops, which drives some clients to look for a more expert solution.
Business strategy can also be a reason for outsourcing. A company with a strong M&A (merger and acquisition) strategy for example, then having IT outsourced can make things much easier as new businesses are brought on stream. Efficiency, which includes things like maintaining life-cycle upgrades of hardware, IT departments struggling to keep up with business needs and suchlike.
How can IT outsourcing make your organisation stronger?
One of the key reasons is the reduction of risk, if you look at all of the data compliance regulations and also the cost of keeping up with ever changing compliance requirements, then it makes sense to outsource that risk. This makes sense from a disaster recovery and continuity planning perspective too, an outsourcing organisation will be able to implement these policies in a much more stringent way if they leave the implementation to those best suited to the work.
Agility is also important. Nasstar delivers services and applications on a per user per month basis, so customers can choose to flex that up or down as their demands and business demands change. This gives them the power to optimise their IT according to their needs from month to month. This agility also includes spinning up IT to meet unexpected demand, or to do complex testing and this flexibility is a big factor behind the power of outsourcing. The ability to access the system from any location or on any device, and to do it securely and in a compliant fashion.
Flexible costs are also a big part of what makes IT outsourcing such a compelling option to many businesses. The move from a fixed asset cost to an operational cost is especially relevant to managing these costs over the long term and the predictability of knowing what your bills are going to be month to month. Traditionally IT budgeting is very difficult, there are unexpected costs, it's not predictable and IT outsourcing removes a huge amount of uncertainty.
What are the weaknesses in outsourcing?
IT outsourcing has to be treated as a partnership, it's not a customer supplier type framework and you can't buy this type of service remotely, or over the phone. In order to realise a real return, you have to make outsourcing a decision for the long term. It is also very important to do your due diligence and take a closer look at the levels of technical and process competence within a provider, don't just trust what the marketing says and if necessary employ a consultant to help out with the evaluation.
Select an outsourcing organisation which fits in with your company's vertical market and strategic position. You really can't cut corners. Going to a provider that doesn't know your sector inside out can be a big weakness because you lose that industry knowledge and experience. Sometimes its best to use a consultant to help you pick a provider, if you are under duress and you've got to move quickly, that's when a consultant can be of maximum use, because they would have done due diligence on many providers already. Another big weakness is that a lot of the outsource models are remote, you have a central call centre, all your data in the cloud somewhere and an account manager that deals with the key stakeholder in the business, but it can be very remote to the end user. That can be a real weakness because the true customer in an outsource model is the end user, it's not the FD or CEO, it's the end user and any outsourced model has to address that reality. You have to build in regular meetings, walk the floors and meet the end users on a regular basis.
What opportunities are there from doing IT outsourcing properly?
Hosting or infrastructure as a service, just replaces buying tin and putting it in a data room and you still need a skilled person team to overlay those applications, and a team to support the end users. IT outsourcing is about embracing the latest technologies, having a partner who will work with you on your business processes, a partner who knows how to deliver efficiencies, how to go to market and deliver a better service to your end users.
Drivers towards the adoption of Outsourced IT is very different from one company to the next. There are times when we deal with businesses which have grown and the IT department has become too big and complex, in this scenario cost savings can be a valid driver. Other common drivers are the focus on the value add, what advantages can be gained, and the removal of risk in an ever more regulated world.
How important is expertise, in terms of selecting a partner?
Expertise is really important, the problem with any SLA is the person looking after the end user has to understand what is business critical, for example a fee earner who is due in court in half an hour and can't print, that's business critical. Or a secretary who can't use her foot pedal. What you have to rely on is the experience of your team in recognising the real issues. Which is why the team needs to understand the business they're handling, so vertical specialisation of the partner you choose is really important.
Where are the success stories to be found in IT outsourcing?
Nasstar has worked with enterprise businesses where we become their enabler for things like startup scenarios, where you're talking about innovation in a company, you have an oil tanker which can't change direction easily. Enterprises which take advantage of this use outsourcing to deliver flexibility and speed where it counts and we've grown with a lot of our customers, with some from 5 employees to hundreds.
Where are the threats in IT outsourcing?
The biggest threat in outsourcing is choosing the wrong partner, when you don't do the due diligence and you choose a partner that isn't aligned with your business strategy. Security is a threat to outsourcing, but security is a threat for business as a whole and if you choose the right outsourcing partners, then your security will be protected.
The SLA is important. We've seen instances where the SLA doesn't reflect what the end users need from their service, and a lot of the time people don't really know what they need, this is where a good consultant can be invaluable as a big threat is signing up to an SLA which doesn't deliver what you need.
Are there any instances where outsourcing is simply not suitable or relevant?
There's no doubt that IT outsourcing is not right for all companies and there could be any number of reasons. It could be down to the type of applications they run, regulation requirements. IT outsourcing is not right for all people, it goes back to choosing the right partner and doing due diligence in both directions.
Should we be wary of low cost outsourcing contracts?
If a contract seems too good to be true, then it normally is, the partner won't be able to invest in the people, technology and service you need and its important to move away from cheapness and look at value, ask yourself what value can it bring and what strategic business aims can it deliver? A key thing is for the partner to be able to re-invest in the process and refine it to deliver the value proposition as quickly as possible.
How do you plan for exiting an outsourcing relationship elegantly?
This is where the contractual obligations are important as IT outsourcing can almost like signing a pre-nuptial agreement in that rarely do you get into trouble, but it needs to be carefully defined at the beginning of the agreement. Any outsourcer would be naive not to make a migration easy, the minute you become obstructive, that message can get around very quickly. Typically once an organisation makes the decision to outsource their IT, they don't change that decision quickly and if they do, it usually means that either the relationship has soured, or they are not delivering the value that's needed, especially if needs have changed over a period of time.
We're all hearing a lot about cybercrime. What are you doing to protect your clients?
It's a continual threat and process. Nasstar have a three pronged approach to cybersecurity, a control and compliance manager, who works with an internal dedicated ethical hacker to constantly tests the system to try and find weaknesses. We also take clients through a Cyber Essentials program, since 80% of all cyber activities is preventable through people and processes. The final part is working with a partner called Falanx who specialise in cyber crime and we are part of a cyber crime sharing program, so we get a lot of warning through that system about local and international threats. It's a continual agitation for improvement and we will never be 100% secure, no provider ever can be, but you have to be always vigilant.