IT outsourcing deals consistently highlight cost reduction as the primary business driver. Constrained by the terms of the contract, the outsourcer is generally required to run the company’s existing systems and platforms ever more efficiently, but all too often they have little incentive to propose, plan and implement solutions that are innovative and that, by implication, carry a higher level of risk. Yet this sits uncomfortably with the need for IT to support business agility in response to external market pressures or changes in business strategy. The resulting conflict of business objectives is a common source of friction between the outsourcers and their clients.
Typical of many IT outsourcing deals is that a company decides to establish a ‘fire break’ between its business architecture (which it manages) and the corresponding IT architectures (which are seen as the preserve of the outsourcing partner). Two kinds of dysfunction can result from this.
- If the outsourcer is not kept abreast of changes in business strategies and priorities, the IT architectures will fail to reflect these developments.
- On the other hand, if the company’s retained IT staff fail to keep track of technology developments relevant to the business, the outsourcer may be tempted to maintain the status quo in respect of the technical architecture.
By acknowledging this situation and incorporating a suitable strategy for dealing with it in their outsourcing agreements, organizations can start to resolve the tension between ‘lowest cost delivery through stable baseline’ and ‘highest business value through agility’.
To resolve these issues many firms now accept the need to agree strategic objectives with their outsourcing partners, and then to work together to create and manage a jointly owned project portfolio designed to deliver business value while also achieving reduced costs.
This is where we as architects can help. A shared enterprise architecture will provide an anchor point for discussion and the necessary framework for establishing the project portfolio – for example, by enabling the critical interdependencies to be identified.
The key to making this work is to ensure that, rather than being two independent streams of activity, the combined organisations’ change programme governance mechanism administers the budgeting process at the portfolio level. While the management of particular architectural domains may be assigned to one or other party, the alignment process must be handled as a joint responsibility, supported by strong, shared governance mechanisms.
For users of our Essential EA tool, we would typically highlight the outsourced elements against a capability model, showing areas of change, and then use the strategic plans tied to those areas to identify any interdependencies where the scope of a change is crossing both organizations. We use the objectives mapped to those plans to communicate the outcomes of change to the wider organization. As architects we can use the information to understand where the issue exists, monitor the alignment to objectives and increase the effectiveness of the shared governance process.
Other enterprise architecture and outsourcing related content here Outsourcing Risk, the Regulators and Essential