The Retained IT Organisation

Are you receiving the full benefit from your outsourcing arrangements?

Did you sufficiently revise your IT's organisational structure when you outsourced some IT services?

Many organisations in both the public and private sectors are not gaining all the benefits that they could from their outsourcing initiatives. This is because they have not sufficiently modified the structure of their in-house (retained) IT organisation to optimise their operations in an outsourced environment.

Even though some delivery staff may have transferred to the service provider under a TUPE arrangement, there is still a need for the IT department to be restructured in order to effectively manage the delivery of the IT services to the business under the new model. Changes are required in both the roles and the skillsets within the retained IT organisation, and a specific exercise should be undertaken to design the new organisation.

As part of the development of the sourcing strategy, decisions must be taken as to which functions are to be kept in-house. These may vary between a multi-source and a single outsourcing arrangement but they will typically include at least:

• Management of the overall IT function, including
  
  • in-house resources
  • external service providers
  • other suppliers (hardware, software, consumables, etc.)
• IT strategy and policies, including architecture and security
• Interfaces with the business
  
  • senior executives
  • business functions
• Business continuity strategy and planning.

Service providers may contribute advice and support to these retained functions but the responsibility for these areas should remain in-house.

Having established which functions will be performed in-house and developed a new sourcing model, time should be spent defining, in detail, the services to be provided by external providers and those to be provided by internal resources. As part of this, there will be activities that need to be performed by one party in order to allow the other party to fulfil its responsibilities. For example, the customer has to approve change requests in order to allow the service provider to implement those changes. These service definitions will provide essential input into the design of the retained IT organisation, and the definition of the associated roles, required to manage the IT function under the new service model. They will also help to identify the number of in-house resources required.

In essence, the retained IT organisation is responsible for managing the demand and supply of IT services within the business but what exact activities should it own?

1. Managing Service Demand

The retained resource responsible (e.g. Business Relationship Manager) must ensure that IT services are aligned with business priorities and continue to meet business requirements at an affordable cost through:

• Working with the business to identify opportunities and potential solutions for the (improved) use of IT to meet current or future business requirements
• Prioritising business requests for IT services and projects
• Identifying potential changes in service volumes to facilitate planning
• Co-ordinating with business functions regarding IT operational issues
• Monitoring industry trends relevant to the business.

1. Managing Service Delivery

For outsourced services, the Service Manager should ensure that the service providers are meeting their contractual obligations by:

• Delivering all the services contracted
• Meeting agreed service levels
• Adhering to agreed pricing arrangements
• Providing reliable management information.

Where there are multiple service providers, the Service Manager also needs to ensure that they are interacting effectively, eliminating any gaps or overlaps and communicating in a timely manner.

For any services being delivered by in-house teams, the obligations listed above still apply and these teams should be managed in a similar manner.

1. Integrating Demand and Supply

An intermediary role also needs to be performed, ‘bridging’ between Service Demand and Service Delivery in order to:

• Align service requests with delivery contractual commitments
• Review and approve/reject change requests
• Agree user involvement in IT projects e.g. functional specification, testing
• Ensure the continued alignment of IT services with stakeholders’ objectives
• Agree project timescales and critical events
• Consider and approve innovation initiatives.

As well as ensuring certain responsibilities are retained, there are other considerations, such as skill requirements and optimal team size, which must also be addressed by the organisation.

Skill Requirements

The retained organisation must have a blend of skills covering the following areas:

• Business – a strong understanding of the organisation, its strategy, priorities and culture
• IT – a more strategic approach to IT with a focus on outcomes and results, rather than how IT services are delivered
• Relationship Management – strong interpersonal skills to work with the service providers in order to obtain optimum service delivery and resolve any operational or contractual issues, thus managing the expectations of stakeholders and users
• Financial – an ability to understand the contractual pricing arrangements, analyse any perceived variations and monitor the realisation of benefits
• Contract Administration – a strong understanding of the contract structure and critical provisions so as to be able to monitor the service providers’ compliance and to effect any necessary changes in a timely manner without any adverse impact on the service delivery.

Retained Team Size

It is important that the retained IT organisation ensures their team size is optimal. Unfortunately there is no golden rule to determine the optimum size but there are dangers inherent with being either too large or too small.

• If it is too large, it is likely to be duplicating some of the activities outsourced to external providers and potentially creating friction with provider personnel by scrutinising service delivery at too low a level
• If it is under-resourced, it will be ineffective, governance will be poor and the service providers will not be held sufficiently accountable for the services they deliver to the business, decision making is likely to be slow and may be made on the basis of inadequate information

Factors that will influence the size of the retained IT organisation include:

• The number of service providers and other suppliers used by the business
• The number of business locations
• Whether the company operates in a centralised or de-centralised manner
• The level of maturity of the company in operating with an outsourced service environment.

So in order to obtain all the benefits from an outsourcing initiative, it is essential that the internal IT organisation is re-assessed and restructured to address the change in roles and skillsets required to effectively manage the new IT environment.