Lead and Govern IT to Deliver Enterprise Performance

1
Improving Business Performance Through IT
Outsourcing
NYU-IBM Workshop January 26, 2007
Jeanne W. Ross Center for Information Systems
Research (CISR) MIT Sloan School of Management
Cynthia M. Beath University of Texas, Austin
2
IT Outsourcing Objectives
Percentage of Contracts Pursuing Objective
Efficiency Objectives
Cost reduction
Variable capacity/expertise on demand
Architectural Improvement Objectives
Reengineer internal business processes
Increase business process discipline
Strategic Adaptation Objectives
Management focus on competencies
Strategic agility
Leverage new IT
Mitigate technology risks
Technology/expertise transfer
Percentage of 80 outsourcing contracts citing
the objective as important (4) or very important
(5) on a scale of 15.
Source Ross, J.W. and Beath, C.M., Sustainable
IT Outsourcing Success Let Enterprise
Architecture Be Your Guide, MIS Quarterly
Executive (54), December 2006.
3
Stages of Architecture Maturity
Strategic Business Impact of IT
Standard interfaces and business componentization
Enterprise-wide technology standards
Standardized enterprise processes/data
Locally optimal business solutions
of Firms
Findings based on a survey of 103 companies.
Source Enterprise Architecture as Strategy
Creating a Foundation for Business Execution,
J. Ross, P. Weill, D. Robertson, HBS Press, June
2006.
4
Three Viable Outsourcing Models
Three Mutually Exclusive Models
Strategic Partnership
Co-sourcing
Transaction
Broad responsibility for operational activities
Project management and implementation
Narrowly defined, repeatable process
What is outsourced
Bottom-line impact
Project success
Quality and/or cost per transaction
Key metrics
Negotiated accountability
Joint project management
Arms length
Client-vendor relationship
Cost savings Variable capacity Management
focus on core competencies
Cost savings Access to expertise on demand
World class processes Variable
capacity Management focus on core competencies
Client expectations
Capability to deliver broad range of specialized
services Integration expertise Disciplined
practices Economies of scale
Labor arbitrage Project management
expertise Expertise on specialized technologies
Standard best practice process components
Economies of scale Distinctive platforms or
assets
Vendor deliverables

• 50
• 50

• 63
• 75

• 90
• 90

• Client success
• Vendor success 1

Increasing risk
1 Client perception based on 80 surveys.
Questions asked Within the firm we view this
outsourcing agreement as a success and The
vendor is profiting from the outsourcing
arrangement. Percentage is based on number of
respondents who rated the statement as a 4 or 5
on a scale of 1 to 5.
Source Sustainable Value from Outsourcing
Finding the Sweet Spot, J. Ross and C. Beath,
CISR Research Briefing, Vol. V, No. 1A, March
2005.
5
Outsourcing Support of Architecture Maturity
Source Ross, J.W. and Beath, C.M., Sustainable
IT Outsourcing Success Let Enterprise
Architecture Be Your Guide, MIS Quarterly
Executive (54), December 2006.
6
Achieving the Architectural Benefits of
Outsourcing

• Recognize your architecture maturity stage
• Let outsourcing take you to the next level
• Implement a portfolio of outsourcing arrangements
• Shape relationships according to vendors value
  proposition
• Isolate and outsource industry standard practices
• Use outsourcing to gradually get out of the
  commodity business