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Technology

Mapping the Route to Business Transformation and High Performance through IT Outsourcing

Before the advent of technologies that afforded aerial views of the land, maps of the world frequently had blank spotsover the North Pole, for example, or in the heart of Africathat were marked simply, "Unknown." Although senior executives like to think that much of the territory of their business is mapped, they are likely to come upon an undiscovered country the moment they take on an IT transformation program focused on driving business results. The revelatory moment may sound something like this: "I know that this transformation program is not only about doing things better, faster and cheaper with my IT function it's also about doing the right things better, faster and cheaper to drive high performance. But what, exactly, are those right things?"

The issue is really one about both inputs and outputshow an IT function works, but also what it works to produce. From an output perspective, organizations need to understand exactly what the links are between IT capabilities and business results. They also need to have specific business outcomes in mind as they enter a period of IT transformation, especially one that leverages an outsourcing and/or offshoring model.

From an input perspective, the topperforming IT organizations identified in our research are especially adept at a suite of activities that enable them to manage, deliver, monitor and measure IT functionality in a way that is both cost effective and value-generating. These activities include new approaches to service management and governance; industrialization techniques focused on streamlining processes and delivery capabilities; repeatable tools and assets; and measurement programs that gauge progress and success. Outsourcing is also a key management tool in generating business value from IT. As outsourcing arrangements continue to expand their reach and scope within today's IT departments, they frequently become the means by which technology executives seek to shake up their existing structures and processes to make an impact on the business. At the same time, however, if the company as a whole has set its compass on using outsourcing

merely as a means to make the cost center of IT more efficient, then the journey toward doing the right things is actually made more difficult. Instead of focusing on enabling key business drivers, the pressure is put on a management team to cut costs just to keep the lights on. That's no way to run a transformation program. Based on research and on experience with the kinds of outputs and inputs that characterize high-performance IT, Accenture has developed a road map to help companies reach their ultimate destination of IT and business transformation, particularly by leveraging IT outsourcing. At the heart of this new road map is a transformation program that moves away from repeated attempts just to reduce costs and moves instead toward creating measurable business value with an IT outsourcing approach that includes industrialized delivery capabilities, optimized applications and infrastructure, strong governance

and service management, effective leadership and culture change, and a metrics program focused on measuring business results from IT. IT transformation that is aided by a strong outsourcing program is about more than just reducing costs; it's about achieving positive business outcomes. IT transformation is about managing and sustaining change to the underlying capabilities of an IT function and is focused on driving better business results and high performance.

The road map to high-performance IT through outsourcing


By any measure, IT is a huge business investment and a critical factor in the performance of any company. Globally, spending on information technology and communications exceeds US$2.8 trillion annually and constitutes nearly 7 percent of global gross domestic product.1 Yet IT has to date been leveraged modestly, with most efforts focused principally on cost relief. ITs traditional mission of costefficient delivery excellence will surely endure. Accentures view, however, is that high-performance IT organizations are now adopting a more expansive definition of their mission: enabling high performance not just in IT, but across the extended enterprise. Accenture's High Performance IT Researchconducted in two phases in 2005 and in 20082has mapped the defining characteristics of an IT function that is more likely to achieve long-term positive business results for today's organizations. Our 2008 research highlights leadership along two dimensionsIT innovation and IT execution/flexibilityas key to driving better IT productivity in a way that achieves and sustains high performance (Figure 1).3 Outsourcing has a critical role to play within that broader mission to execute more effectively while maintaining flexibility and the capability to innovate. Although IT was one of the first business functions to leverage an outsourcing approach, such solutions have been and remain primarily tactical in nature. Business executives initially began offshoring their IT work in search of cost relief, primarily through labor arbitrage the cost advantage of engaging labor in lower-cost countries. This tactic delivered rapid results, to
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the accolades of shareholders and chief financial officers alike. Today, however, as those same executives survey their far-flung IT operations, the question weighing on their minds is: "Now what?" In light of the ongoing need to drive increased business value from an organization's investments, including IT, the cost savings from offshoring now seem only like an intermediate destination. Because every company is to some extent relying on lower-cost overseas talent, offshoring alone is a strategy unlikely to create competitive advantage. In short, offshoring is able to take the IT organization only so far. It decreases costs, but it does not increase power.

Accenture believes that a fundamentally different operating model is necessary if companies are to attain high performance through ITand a new breed of outsourcing strategy can accelerate the process. In the next era of IT outsourcing, organizations will achieve not only lower labor costs, but lower total cost of ownership for their applications and infrastructure. They won't just be buying capacity, they'll be leveraging the skills and expertise of a service provider acting as a collaborator and business partner. They will be masters of execution as well as innovation, and capable of driving high performance from IT (and IT outsourcing) in measurable ways.

Figure 1: Accenture research has found that high-performance IT organizations are leaders in innovation, execution and flexibility

IT innovation 5% 11%

IT execution/ flexibility 5%

10%

84%

85%

High performers

Leaders

Others

From labor arbitrage to driving high performance

Accenture's vision for the possibilities of driving high-performance IT through outsourcing is broader and more comprehensive (Figure 2). Because cost pressure is the "new normal" for every CIO, offshoring labor in low-cost countries remains a key component. However, in addition to labor-arbitrage advantages, IT leaders are setting the bar even higher, to include four key dimensions: Industrialized and optimized capabilities and capacity Governance and service management Transformational initiatives in leadership and culture Advanced measurement programs

Figure 2: To drive high performance through IT outsourcing, organizations must focus on key dimensions beyond lower-cost labor (Accenture analysis)

Value
Enabling Metrics-Based Business Performance

Optimizing the Infrastructure and Application Portfolio

Industrializing Delivery Leveraging Labor Arbitrage

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1. Industrialized and optimized capabilities and capacity


An industrialized, end-to-end delivery discipline is imperative to deliver a transformational, service-oriented IT functionone that eliminates fragmentation and reduces cost, complexity and waste. Improving quality is a definite concern of the executives surveyed in our High Performance IT Research. The data shows that only 27 percent of surveyed executives believed their quality and process adherence is performing at the level required.4 To succeed with an industrialization agenda, IT services companies must be guided by a framework that is client focused and powered by industry-leading and consistent IT processes. Through automated, integrated, repeatable tools and measurement techniques companies can drive innovation and help ensure that customers receive the same results from delivery centers throughout a global network. The basic characteristics of nextgeneration IT industrialization that helps enable high performance include: An integrated delivery management network based on global sourcing. High performers are able to deploy the right mix of onsite and offsite resources in light of both cost and quality goals. They can operate 24 X 7 at the same level of service from everywhere, to anywhere; and they can scale delivery based on growth requirements, within the cost constraints set by the business. Aligned organization models. The most effective companies develop an operating model that aligns and integrates IT with the business. They streamline processes and work across all internal and external resources, and they provide flexible access to employ the right people where and when needed. Integrated processes, methods and tools. Essential components of the industrialization agenda are services "factories" that enable repeatable business processes and technologies.
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With the right technical and business architectures in place, organizations are able to automate key IT processes, deploying self healing and automation to reduce the need for human intervention. Companies can leverage integrated processes and tools to manage end-to-end IT, governance and service management, as well as business and IT demand. A structured framework for project execution and performance helps create standardized execution, delivery and performance from every site of the operation. Optimization of the IT infrastructure and the application portfolio. By rationalizing technology platforms and by simplifying and optimizing hardware and software assets, companies can move beyond labor cost reduction and begin lowering their total cost of ownership across their infrastructure and portfolio of applications. Equally important, this optimization directly translates into simplified business processes, which can dramatically increase the overall value delivered to the organization. An effective IT outsourcing partner can help drive industrialization by moving toward a new phase of IT organizational growth and innovationwhich can in turn lead them toward high performance. By using a pre-defined transformational blueprint to apply new concepts to a capital and labor intensive part of their firm, companies can transform something that was formerly a burden into a strategic asset.

Organizations need to update and extend their existing IT governance and service management structures so that they provide guidance for the development and maintenance needs unique to today's IT environment. New kinds of governance can provide better support for funding, managing and operating the IT organization in support of transformation. Accenture believes that changes in traditional approaches to IT governance are needed to drive greater value. The following are two important aspects of these changes.

Establish a service management program


Today's IT environment requires a unique governance approach that both centralizes and decentralizes aspects of control. IT must increase its control over common architectures, services, applications and infrastructure, while simultaneously granting business units greater autonomy in developing their business capabilities. A key to making this dual approach work is adding a service management program to existing IT governance structures, which could be implemented either as a broad program or as a dedicated board or group. The service management program would provide ongoing central management of the services created from new IT solutions. The program would establish appropriate repositories and tools for registering and describing the services that are created, modified or retired. These repositories would capture and maintain the mapping of each business process to the services used for its orchestration. This new service management group would also oversee several distinctive aspects of IT development: Maintaining and enforcing centralized technology standards Enforcing a common architecture Controlling and documenting change management Ultimately, organizations would put this new oversight board in place for compelling business

2. Governance and service management


Although most IT organizations have begun their overall journey toward transformation, our experience suggests that many are finding their progress impeded by inadequate IT governance. CIOs often discover too late in the journey that their existing IT governance processes are unequal to the task of resourcing and managing an IT organization to support an evolving business and technology environment and to deliver measurable business outcomes.

reasons: so that their IT capability can drive consistent business logic across the organization, and to avoid problems of interoperability or inadequate ongoing operations of services that would undermine the overall business case. Effective oversight helps the organization bridge traditional silos and operate as a single, integrated entity.

Minimizes and manages IT-related risks Prioritizes initiatives and spending Allocates scarce resources Aligns business and IT objectives and incentives Measures outcomes and adjusts direction based on hard metrics

2. Reinforce those behaviors through performance reviews conducted more frequently than on an annual basis. It is difficult to change behaviors of people who are reviewed only once a year on a cursory basis. Provide mechanisms for richer, more personal and more immediate feedback. 3. Make sure the managers and executives demonstrate the same kinds of behaviors. A "do as I say, not as I do" approach will not work when it comes to cultural change. Leaders must model the behaviors they expect from their staff. 4. Take specific steps to inculcate a deeper business understanding among IT executives. One capital markets firm, for example, deliberately rotates application developers and managers into positions literally alongside the customer-facing business executives who actually deliver products and services. Traditional IT approaches often implicitly encourage an attitude of "tell me what you do, and I'll build the system that supports it." But the realities of today's business environment usually have to be experienced to be deeply understood. The best IT outsourcing programs include a healthy dose of focused work on change management, and on IT workforce transformation. For example, as part of an outsourcing arrangement, it's vital for IT departments to perform long-range planning about their people infrastructurean analysis of the competencies needed to succeed in an increasingly global IT delivery environment, where work is handed off in a "follow the sun" fashion. Capacity planning from a workforce point of view can then inform the sourcing and learning strategies needed to supply the workforce power needed to sustain high performance. The need for engaged, committed and aligned IT and business leadership is intensified in an operating environment characterized by global sourcing. As organizations become more geographically dispersed they require multiple teams at the top of the organization working in concert so that leadership is not weakened or diluted by being
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Restructure IT
The centralization/decentralization issue at the heart of today's IT governance may require changes to traditional IT structures. Depending on circumstances, Accenture believes two actions can greatly enhance an IT department: Create a business architecture function. To generate the full business value promised from an IT initiative, organizations should create a business architecture function that understands the objectives of the project and provides guidance with important issues such as reuse and interoperability. A similar group may already exist within an organizations enterprise architecture team, but we have found it advantageous to move the business architecture function out of IT into a new business innovation unit. This can help establish clear ownership of business and process architectures. Implement new operating processes. The service-oriented operating environment that is increasingly being adopted today necessitates several updates and modifications to existing IT operating processes. For example, modified processes are required to define, request, approve and fulfill services. Service change requests and service rollout are other areas for which altered forms of governance must be planned and executed. Different kinds of servicelevel agreements are required for complex IT environments, so service performance management must also be established and governed. IT outsourcing helps enforce better governance and service management in several ways:

3. Leadership and culture


Accenture's ongoing High Performance Business research initiative has identified a strong cultural component among high performers, something we call "performance anatomy." The anatomy of the best IT functions involves a suite of mindsets that are fundamentally different from their peers, and uniquely capable of producing business results. As is typical with business functions with a legacy of being perceived as an essential overhead, the traditional IT department has been more reactive than proactive, more focused on operational measurements than on financial outcomes, more technically oriented than business-oriented, and more inclined to see itself as serving "users" than "customers." As the IT delivery environment becomes increasingly global, with sourcing strategies that bring together people from different cultures and time zones all over the world, the challenge of managing change intensifies. IT leaders and business executives must put in place well-planned programs for change management, leadership development and cultural change. They must help to transition IT from a reactive, technical, inefficient and sometimes even obstructive domain to a proactive, commercially aware, enabling, agile, predictable and cost effective function. How to make that kind of culture change happen is a broad and complex topic, but the following are some key points to bear in mind: 1. Identify the specific behaviors that must be different among your IT staff. Do not simply send your IT staff to a training event. Training is essential, but must be something that reinforces a stronger and more fundamental move focused on behaviors.

spread too thin. That means that leadership development programs, and ultimately the monitoring of leadership effectiveness, move from a focus on the top ten or top 50 leaders to perhaps the top 500 or 1,000 or even more in a large, decentralized organization. To effectively engage in culture change, put measures in place that are aligned with the new behaviors you need. If you want people to be more innovative and more effective collaborators in a global environment, then you cannot have all of your metrics focused on individual performance only, or only on driving out costs. (For more on metrics, see the next section.)

metrics. Findings from Accentures current survey confirmed both the persistence of traditional metrics and signs of coming change. One in five IT organizations surveyed is still using only simple operational metrics to measure performance, while nearly half (46 percent) utilize metrics that track impact on business performance only some of the time. The news was not all negative, however. With one-third of the companies surveyed using metrics that more closely monitor IT outputsthat is, the impact on business performanceAccenture sees IT organizations beginning to assess IT performance within a broader business context, thereby enabling high performance throughout the enterprise. When respondents were asked about their aspirations for the development of future IT metrics, three in four (75 percent) aspire to higher-level metrics within two years. Earlier Accenture studies prefigured this shift: high-performance IT organizations were much more likely than low performers to have access to performance-based metrics. For example, when IT organizations were asked whether they knew how much time their people spent in delays, only seven percent of low performers tracked the metric, while 69 percent of high performers had this data. ITs transition to the use of metrics that track the impact on overall business performance is a major change journey, overturning many years worth of measuring performance only from an input perspective. An important insight here is that IT can be cost-efficient (using input-based metrics) and still waste a lot of time, create redundancies and fail to have an impact on business performance and shareholder value. The CIO of a major consumer goods company in our study lamented the complexity of the task: The biggest challenge is synchronizing the business initiatives with the IT initiatives and then prioritizing. A lot of times that decision is somewhat left up to (IT), which is never the right way to do it.5 What types of business performance metrics are IT organizations

introducing? At one retailer in our study, IT executives are now measuring IT-driven improvements in the supply chain by tracking on-shelf availability and assessing the value of decisionsupport tools by watching percentage of sales at regular price. The reasoning is that if IT is doing its job, trends in both these areas should be headed in positive directions. These kinds of innovative changes can enable companies to continue their drive toward high performance. The most effective leaders of change have a relative handful of critical metrics that they look at on a weekly, monthly or quarterly basis. They are relentless in tracking those behaviors, outcomes and results and they correct course at the right times to hit their marks. Metrics can also be applied to the leadership and culture dimensions discussed in the previous section. Performance reviews and career advancement should be based on demonstrating the leadership behaviors needed to create an IT function that is proactive and focused on business results. More general culture change has to be reinforced not only with a communications program, but with performance metrics tied to the behaviors (e.g., customer response time) needed to transform IT. With IT outsourcing, metrics become just a natural way of doing business and are integrated into the overall scope of work. Achieving high performance through IT depends on breaking down the technology towers and delivering a transformational, service oriented, end-to-end solution. IT outsourcing can be key to removing fragmentation, cost, complexity and waste. Contracts and pricing are handled very differently in an effective IT outsourcing arrangement. The conversation needs to be focused on more than just the total cost of ownership and data center uptimes. Focus also needs to be placed on how well IT is enabling strategic business expansions, expediting new product rollouts, rapidly integrating acquisitions and helping to outperform the competition and achieve high performance.

4. Metrics and measurement programs


Our research has shown that highperformance IT organizations are more likely to use key performance metrics to align ITs work with the performance and strategic goals of the business. Mastering metrics that matter means moving outside the four walls of IT so that IT executives can dialogue with business colleagues about operational priorities and enterprisewide initiatives. Nearly three-fourths (74 percent) of respondents to Accentures High Performance IT survey anticipate that IT investments will become high corporate priorities over the coming years. Clearly, such a finding is subject to the changing winds of the global economy. However, in an era marked by fluctuating market conditions, corporate commitment to IT spending must remain as consistent as possible if a company expects to sustain high performance. When the economy is strong, leaders must look upon IT as an investment with business-building potential, rather than as another cost of doing business. In a bearish economy, the IT executive supported by measurable business outcomes is better positioned to justify budgets based on a clear return on investment (ROI) rather than just anecdotal evidence. IT metrics have historically tended to focus on efficiency and cost, hindering the shift to business performance
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Aligning transformation to outcomes involves measuring more granular outcomes at the executive, management and operational levels: At the executive level, alignment needs to focus on common goals around value and risk. Frequently, this involves sharing both risks and rewards so both the client and the outsourcing provider both have "skin in the game." At the management level focus should be on measurements guided by a balanced scorecards using four key measures of performance: financial, customer satisfaction, operations/service efficiency and innovation. At the operational level, measurements need to be guided by things such as version 3 of the Information Technology Infrastructure Library (ITIL v3) and version 4 of Control Objectives for Information and related Technology (COBIT v4). These frameworks of best practices help companies focus on the right sets of metrics for continuous improvement.

Conclusion: IT outsourcing is more than a cost play; it's about achieving high performance

As senior executives increasingly insist that IT services be aligned with business goals, current commercial arrangements to support an IT outsourcing approach are lagging. This situation is not uncommon organizations often begin their outsourcing journey by looking for a "provider," but soon find that what they actually want and need is an outsourcing partner with whom they can collaborate. IT outsourcing is more than a contract; it's a business relationship. It's more than just about reducing costs; it's about achieving measurable improvements in business performance. Accenture believes that given today's market imperatives, the commercial proposition to support high performance through IT must focus on an outcome-based contract. The proposition must move away from input-based metrics to an output-based perspective built on trusted collaboration. The outsourcer must have experience in using advanced, multi-sourcing
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capabilities and services to help organizations achieve and sustain high performancean organization that consistently outperforms the competition by quantifiable standards, across economic cycles as well as new generations of leadership. Accenture believes there is a strong link between IT outsourcing and the more rapid achievement of high performance by the business itself. As the high-performance IT organization embraces its broader mission of driving value creation, enterprise enablement and business growth, IT executives increasingly base strategic decisions, the adoption of new technologies and budget allocations on what is required for the betterment of the entire business, and not simply on what is good for IT. To be certain, more than just IT is required for high performance; companies must master a spectrum of capabilities and achieve levels of operational excellence across all functions. But it is just as certain that chief executives must

increasingly focus on the right kind of IT outsourcingone characterized by a rigorous and demanding focus on business outcomes. That's part of the overall road map to high performance in the 21st century.

References
1 See "IT Investing for High Performance: A Global Survey of CIOs," Accenture. 2 See "High Performance IT 2008: There's No Substitute for Substitution," Accenture, and "IT Investing for High Performance: A Global Survey of CIOs," Accenture. 3 "High Performance IT 2008: There's No Substitute for Substitution," Accenture. 4 See "You're Offshoring. Now What?" Accenture. 5 See "In Pursuit of High Performance: Defining High-Performance Information Technology," Accenture.

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Whats next?
To learn how Accenture can help you outperform, reach us at www.accenture.com/accentureoutsourcing

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About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 176,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.58 billion for the fiscal year ended Aug. 31, 2009. Its home page is www.accenture.com.

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