Different Models for Sharing or Outsourcing IT Services

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Different Models
for Sharing or
Outsourcing
Services
Consolidation, Compromise and Outsourcing

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Why Consider Shared or Outsource Services?
Reducing organisation costs
Gain economies of scale by using an organisation that only provides that service to
many
Forming partnerships with other organisations that require the same service and
develop a single tender to gain economies of scale
Reducing the skills required in your organisation
Outsourcing your non core skills, reducing the need to continue training and simplify
your organisation structure
Removing the need to maintain your own IT (asset rationalisation)
Many IT organisations now provide online systems reducing the need for maintaining
internal software and development
Developing partnerships
Developing partnerships to explore additional opportunities for shared services
There are lots of reasons why organisations share or outsource services. These fall into four
main categories

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What Type of Services can fit this Model?
You could consider outsourcing or sharing any of your services. Some of the most common
are:
Outsource / shared Reason for change
Core IT applications Growth in cloud based applications to support key functions that enable
you to purchase per user rather than per organisation. Data can be
segmented to make it a seamless user experience
Data centres / hardware
/ hosting
The expanding IT data centre services outsource market reduces the cost
of ownership and the need for costly in house skills. Economies of scale
are achieved the more services you buy
Desktop applications Improved purchasing power for licence costs
Desktop support The expanding desktop support outsource market reduces the need for
costly in house skills. Economies of scale are achieved the more services
you buy
Networks and telephony Improved purchasing power, considered particularly where organisations
have contact centres. Paves way for future shared contact centre model
Payment processing Improve per transaction rates for payment processors, e.g. PayPoint etc.
by partnering to increase transaction rates

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How can Shared Services be Delivered?
There is no single model to deliver shared service benefits. Example models can include:
Internal only (public procurement)
• Outsourcing elements of ICT to a public provider
• Solutions unique to organisation available from market, e.g. Housing Applications on cloud based platform
• Volume limited to number of internal transactions
Joint Committee Procurement
• Joint procurement of IT outsource services
• Solutions based on volume where economies of scale (e.g. desktop support, hosting)
• Requires commitment to shared decision making, potential compromise of requirements and on-going
contract management
Joint Venture (partnership)
• Creation of a partnership organisation to deliver shared services. Jointly managed under commercial
agreement
• Tactical solutions that are core to your business that the market cannot deliver cheaper
• Requires commitment to shared decision making, potential compromise of requirements and on-going
contract management
One organisation lead and provide services to another
• Lead organisation provides chosen IT services for a number of others
• Organisations in similar market that can buy services from existing HA
• Requires relationship to be managed like any commercial arrangement and structure in place to support it

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What Should you Consider?
Is the service a key skill you require in your organisation?
• Do you want to be a service provider or a buyer of services?
• Is it a core skill that adds value to your organisations?
Is the service readily available in the market at a lower cost than you currently pay?
• Could the private sector deliver the service for less?
Could you work in partnership with another Housing Association (HA) or Local Authority (LA)
to form a partnership to gain economies of scale in buying?
Could another HA or LA provide the service for you?
• Could you become a buyer of services from an existing HA or LA?
Are there any legal reasons that you should not change your working model?
Do you know what your objectives are and what you would want to gain?
• The various models deliver benefits in different ways. Before embarking on an approach it is
important for you to understand the objectives you are trying to achieve
• Time, cost and improved service objectives could all be nest delivered by differing options
What would your new operating model look like?
• Consider how you would work with a partner and the hand off points and SLA’s
• Consider issues of cultural fit between organisation
Will shared services or outsourcing necessitate your organisation acquiring new skills?
• Outsourcing always requires the development of contract management skills
Before embarking on a project there are a few key questions to consider

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Opportunities for Cost Saving by Sharing
Manpower savings
– Less overall manpower required to deliver a shared service
– Manpower reduction overall for outsourcing
– Should always consider requirement for a commercial type role to manage on-
going relationships
Asset Rationalisation
– Less overall assets required to serve the total number of users
– In outsourcing, model can move from asset owners to pay per user model, so
overhead of asset ownership is removed
Increased purchasing power
– Reduced licensing cost per user
– Reduced rate per user for desktop support etc.
– Reduced cost for IT support per user
Process Efficiency / Standardisation of working practices
– Process of creating standard desktops etc. will identify process efficiencies
– Mapping processes will identify opportunities for improvement
The following areas should be considered when gathering benefits for the project

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Building a Business Case
The case for shared services can look daunting as there is
often significant up-front costs
Total cost of ownership provides a simple methodology to
present the facts and take the emotion out of decision
making
The following model can be used to evaluate all of the
options you are considering
To evaluate the options open to you and provide a true comparison to ‘do nothing’ you need
to consider the true life cost of the options you are considering

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Total Cost of Ownership
Up-front IT costs Up front solution costs
Project delivery costs
Project costs including personnel and up
front process mapping activity
Partnership set up costs
Cost commitment to create partnership
arrangement
Procurement costs
Where public procurement is included,
personnel costs of managing process
Training & deployment costs
Costs to train all new users and any costs of
deployment (inc. Communications etc.)
Licence costs (annual costs) Annual Licence costs if any
Support costs (annual costs)
Annual support costs, include any fte
required to carry out support
Upgrade costs (annual costs) Any costs related to future upgrades
Future changes (annual costs) Costs to make future improvements
On-going training costs
(annual costs)
Costs to train new users and all users on
upgrades to system
On-going resource costs
Annual costs for resources required to
manage arrangement
Number of years of use Number of years the solution will be used for
Total Cost of ownership
= (total upfront cost / number of years) +
annual cost
Upfront
costs
Direct
on-going
cost
Indirect
on-going
cost
TCO
Total cost of ownership of a solution takes into account the direct and in-direct costs
(training, support, future change etc.) of the solution for its full lifecycle.

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Making it Happen
Clear set of objectives of what you are trying to achieve by doing this, for
example
Cost saving/service improvement/access to new technology
Clear definition of what is and what is not included in the project
Senior/shared governance in place and committed to delivering
Fully documented processes for all elements considered for shared
service/outsourcing
Full understanding of the end to end technical architecture and who has
ownership for maintaining each element
Appropriate skills in place to deliver
Process, project delivery and commercial skills
Do not underestimate the cultural change involved in implementing a
shared service model
Ensure project takes into account the business change aspects of delivery
Regardless of the model you choose there are a number of things you need in place to
make this work

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What can Go Wrong?
Not clear on what it is you are trying to achieve
Too much change whilst trying to deliver, scope of services not
clear
Trying to do too much at once
Do not understand the skills within the organisation required to
manage this model
Processes and hand-offs not documented
No clear ownership, roles and service levels between partners
– Even as part of a partnership you are still a service provider
The following are the main reasons that projects of this type fail

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Example A: Online V Ownership
Company A owned a CRM system that they had not maintained due to the complexity and costs involved.
It was not providing useful information or the tracking and reporting required
Key objectives:
Clear reports
Up to date tracking of customers
Profiling of customers
Easy to use and maintain system
Key consideration:
Cost of ownership over a five year period. Hardware, software, maintenance
and development
Protection and security of customer details
Skills required to deliver and implement
Option 1
Buy new system and hardware and
maintain their own system.
Cost of system and configuration
Cost of hardware and replacement
Upgrades of the system
New skills for maintaining/support
Option 3
Buy new system and host externally
with a 3rd party
Cost of system and configuration
Maintenance and development
Cost of hosting
Support requirements
Option 2
Online hosted CRM with software
provider
Monthly licence cost per user
System configured by the provider
Upgraded regularly at no cost
Access online 24hr system & support
Conclusion: Online Hosted System
On first review the cost of licences were considerably more expensive than licences for owning the system, but when the total
cost of ownership over a five year period was calculated, it made the decision easy
The costs of support and upgrades, the initial hardware and replacement at three years and maintenance and development
far out weighted the increased cost of licences
The cost of ownership was 44% less than internal ownership and the flexibility of reducing and increasing licences based on
use would increase this

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Example B: Payment Processing
Company B processed regular weekly payments through the post office. Project initiated to tender for
new payment processing solution to reduce cost per transaction
Key objectives:
Availability of outlets
Integration of internal systems
Cost per transaction
Easy to use and maintain system
Key consideration:
Cost per transaction over a five year period. Hardware, software,
integration costs, maintenance and development
Payment security and regulatory compliance
Option 1
Re-negotiate current contract
No upfront costs/technology
changes
Potential for some reduction in per
transaction cost
On-going management of provider
Option 3
Utilise outsource providers buying
power
Improve transaction cost through
increase transaction volume
Some upfront cost
Management of existing provider
Option 2
Tender for new payment provider
Improve transaction cost through
competition
Upfront implementation costs
On-going management of new
provider
Conclusion: Utilise Outsource Provider Buying Power
On initial review the set up costs seem prohibitive, however the significant reduction in cost per transaction made significant
savings over a five year period
Payment processing is not core to the organisation and the market provided it at lower cost
Reduced the specific technical skills required internally to manage the contracts

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Example C: Desktop Support Consolidation
Company C is an organisation that includes a number of diverse businesses which are run independently.
Desktop support was initially managed separately by each business
Key objectives:
Reducing cost of desktop support
Consolidation of licensing
Improved response times
Improved compliance to security
policies
Key consideration:
Differing requirements of different organisation units
Very different SLAs required, some critical emergency fix requirements,
some 9-5
No single IT security policy across the group
Option 1
Consolidate into single team as a provider for all
Desktop standardisation and process consolidation
Consolidation of internal teams and company re-
organisation
Option 2
Consolidate and outsource
Improve transaction cost through competition
Upfront implementation costs
On-going management of new provider
Conclusion: Consolidate and Outsource
Audit to achieve standard desktop alone achieved significant benefits. Duplication of licensing was found in particular in
standard desktop applications
Implementation of standard desktop and processes applies to 80% of organisation, there is always specific requirements.
Ensure effort is focused on delivering benefits from the 80%
Market cost of buying this service is significantly lower and service level higher
Complexity of change is not in IT delivery but in cultural change in moving to a single team and moving the service outside
the organisation

Different Models for Sharing or Outsourcing IT Services

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