4th generation outsourcing, the current flavour of IT outsourcing, is not working as it should for many businesses. Many of their IT organisations are ignorant of, or choose to ignore, the fundamental reason. As a result, many business are not realising the commercial or value propositions of IT outsourcing.

4th generation outsourcing is defined as multi-vendor outsourcing (or multi-sourced services) enabled by service integration. The challenge for service integration is that IT organisations begin their IT outsourcing journey by deconstructing business services1 into technical services2 and outsourcing the technical services as though they are complete services and not just components of the business services.

They then try to implement service integration in an attempt to reconstruct the business services from non-complimentary technical services. They are effectively trying to use service integration to plaster over what is a dysfunctional ecosystem of 3rd service providers. The reason that the ecosystem is dysfunctional is as a direct result of the deconstruction of the business services in the first place.

Too often technical IT services are outsourced to 3rd parties on an individual basis with no interdependencies and no direct relationship to desired business outcomes. The mass-production mind-set, typical of IT organisations, focuses outsourcing on the perceived needs of the IT organisation and not those of the business. SLAs and KPI’s are technology based and not service based. OLAs are rarely if ever implemented across service providers. Multi-party governance is seldom, if ever, a contractual obligation. Furthermore, the concept of ‘IT service’ is often poorly understood by the outsourcing IT organisation.

Compounding the problem is the delivery of technical services by 3rd party service providers. Each bring their own ways of working and their flavour of service management processes, which is often one of the reasons why they are contracted in the first place. They will also bring their own culture, their collective beliefs, values, attitudes and behaviours and of course their own objectives. Where large-scale transition of staff into the 3rd party is involved, the problems of culture and ways of working are greatly exacerbated. 3rd party service providers are businesses too. They have all the pressures of business; sales, margin, costs, people, etc. The 3rd party’s business drivers can often come into direct conflict with the IT organisations drivers.

4th Generation outsourcing necessitates service integration. But the purpose of service integration is not to integrate technical services into business services but to manage the integration of technical services. Service integration must be defined as part of the business service and translated into the contractual engagement of all 3rd parties and in-house service providers to create an ecosystem which is designed to be functional from the outset.

Service integration must be designed as part of the service to ensure that the means of integration is understood by all parties when the service is being introduced and reviewed regularly to stay relevant and appropriate to the business as the business needs change.

Over the last number of years SIAM (Service Integration and Management) has become the topic of much discussion as a means to integrate services. Unfortunately there appears to be a lack of universal agreement on what SIAM actually is. (BCS: The Chartered Institute for It is trying to address this through its recently announced Foundation Course in SIAM.)

Regardless of how we define SIAM, its purpose in not to integrate services but to manage the integration of services. For SIAM to be effective the services must be already integrated by design. Without explicitly defining how technical services will be integrated to deliver business services within the ecosystem of 3rd party service providers, then the outsourcing engagement will equate to one big and very expensive experiment

_NOTES

_{1 A business service is a technology enabled service consisting of a number of technical services used collectively to enable key business functionality and business processes. Service levels between the IT organisation and the business units are agreed for the business services.}

_{2 Technical services are specific solutions used collectively to deliver business services. Some technical services may be used internally by the IT organisation and may not be visible to the business units. SLAs relating to technical services must underpin business SLAs}

Is IT outsourcing just an expensive experiment?

Gerry Flanagan

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