Many organizations implementing an ERP (e.g., SAP, Oracle, etc.) plan to partner with 3rd party service providers to contain project costs, fill skill and resource gaps, and ensure strong service levels. It is common for such organizations to consider an outsourced support model to provide ERP application management and support (AMS) starting immediately after go-live.
When planned correctly, this can be a highly effective strategy. It is WGroup’s perspective that additional factors must be evaluated when developing a sourcing approach in new ERP implementations, as opposed to sourcing support for mature or existing ERP environments.
1. Prepare for System Stabilization Issues & Phased Deployment
Typically, ERP functionality is rolled out in phases. Each phase of a new ERP implementation usually encounters issues related to data migration, integration with legacy systems, knowledge transfer, etc., – all of which can negatively impact call volumes and increase support requirements. There will be a potential need for additional “SWAT-team” support resources for 3-6 weeks post-go-live (or longer depending on complexity) to deal with such issues.
Plan to retain availability with some portion of the “implementation team” to support the SWAT-team and troubleshoot & fix issues. Such support must be engaged with an adequate level of contractual rigor and governance oversight to accommodate the selected AMS vendor(s), even if the AMS vendor is the same as the ERP implementation vendor.
Be prepared for a period of stabilization that could last ~3+ months post go-live, after which SLA measurement & monitoring of the AMS service provider should begin.
2. Evaluate Change Management Opportunities
The potential for business impact (to end users) post go-live, as a result of “new” processes and interfaces, and limited hands-on experience with these processes and systems may be significant.
Prior to go-live, support calls and ticket volumes are best guess estimates and service level requirements and implications may not be fully known. Additionally, a spike in call volume and support requests – both from end users (e.g., “how-to” questions) and for technical issues (e.g., integration, data flows, data migration errors) is likely to occur in the first few months of any release.
The size, structure, and make-up of the “super-user” group(s), if any, being considered as part of the overall planning for AMS, should be evaluated.
3. Be Thorough with Vendor Selection and Transition Planning
Resource ramp-up requirements based on the release approach and schedule must be planned and aligned.
Adequate knowledge transfer planning should be ensured with respect to solution design between the implementation team or vendor and the AMS support team or vendor – even if implementation and support requirements will be managed by the same service provider.
Select an AMS provider that understands your industry and business processes to support ongoing process improvement.
The sourcing process for new ERP environments is different and more challenging than a typical sourcing project, and therefore the strategy and approach must be adapted. It is recommended that organizations considering sourcing for new ERP environments meet with an IT strategy-based sourcing advisor to ensure the development of an optimal approach, selection of the best-value vendor, and success in a long term relationship with the AMS service provider. Further Reading: WGroup Case Study – SAP Applications Outsourcing.
To meet changing customer demands and evolving business requirements, organizations regularly evaluate and deploy new applications. The accelerating shift in application ownership from IT to the business units coupled with M&A activity has created a new environment where multiple applications may be supporting similar functional requirements. In order to decrease unnecessary costs in software licenses, support staff, MIPS, and server cycles, we suggest following these seven steps when considering new applications.
Analyze your current Application Portfolio. By understanding what is currently in your organization’s portfolio, you may find opportunities to optimize usage of existing applications and software packages. Utilizing existing applications in new ways may be more cost effective than deploying new applications – especially with respect to database, license, and support costs.
Develop a business case. Gain support from all stakeholders. A well thought out business case includes solution solving alternatives with cost-benefit analysis as well as a risk and sensitivity analysis.
Develop decision criteria for application selection. Coming to agreement early in the project helps to keep emotion out of the selection process. Project members are more likely to make decisions based on facts like TCO, strategic fit with objectives and alignment to functional requirements.
Identify key features and necessary functionality. Consider all stakeholders to determine what features and functionality are most important to the business. It may be helpful to prioritize requirements and prepare a gap analysis against your current application portfolio.
Perform a market analysis to determine available options in this solution space. Research all avenues to understand your options. Make sure you focus on overall value in this market analysis, not just cost alone.
Evaluate options and weigh against the previously developed decision criteria. Consider how each solution will: support both routine and strategic business requirements, accelerate deployment, maintain compliance with complex and ever-changing regulations, and operate within an enterprise-wide IT architecture that is sustainable. Evaluate which solution will provide the most value in the short and long term.
Implement the chosen solution and define long term governance. Having a well-defined project structure can make or break a successful implementation. Establishing a well thought-out governance process will help to ensure the business achieves the optimal value of the selected solution for many years to come.
Read more about a recent application assessment WGroup conducted at a leading Fortune 50 retailer – Click Here
Emerging trends in many industries are opening up multiple opportunities for Big Data analytics. Given the sensitivity of data security, and the fact that leveraging Big Data implies cultural changes that require time to take hold, CIOs need to start preparing diligently now for a secure, robust analytic capability. WGroup has identified 10 things CIOs can do before even the first Big Data project is launched:
Review the organization’s strategic plan for opportunities to apply big data analytics. Identify an analytics-savvy team within the organization to help with brainstorming ideas.
Develop and execute an educational awareness campaign on Big Data possibilities.
Inventory all the data that is available – structured and unstructured, internal and external, streaming and operational.
Architect the required infrastructure and establish an investment plan.
Identify potential third parties to assist if required in specific parts of the process, e.g., opportunity definition, hosting, data modeling, data sourcing, etc.
Develop a Big Data pilot program that is concise, executable and delivers results quickly.
Develop, identify and/or recruit the skills required to execute and capitalize on the Big Data pilot projects.
Develop an organization strategy and governance model to support, manage, and leverage the expanded analytics capability.
Update security policies and key procedures such as change control to establish a foundation for the program.
Chart out the funding profile for a multi-year Big Data program – make it a key part of the strategic plan.
Big Data has the potential to generate significant value to an organization, but it is a multi-step, iterative journey, and the risks in terms of security, compliance and invalid conclusions are real. By establishing a robust Big Data-ready operating environment CIOs can confidently lead the organization to embrace the opportunities Big Data can provide.
Some clients tell us that they have considered or are considering running the sourcing strategy, financial modeling, RFP development, provider selection, contracting, and negotiation process for an IT or business process outsourcing project internally. WGroup’s point of view – the business case for using an experienced, strategy-based sourcing advisory firm can be very strong. Here are 10 considerations:
Outsourcing is a highly specialized IT, strategy, and sourcing process.
Crafting successful outsourcing agreements requires specialized skills, experience, and knowledge in several key areas including; financial analysis, risk management, IT operations, IT governance, service provider capabilities, IT outsourcing “market pricing,” contract negotiations, and contract development.
Advisors understand the service providers.
An experienced advisor, with a full understanding of the service provider landscape including their capabilities, reputation, pricing, strengths, delivery models, cultural compatibility, references, and market momentum, will ensure that you consider all appropriate options.
Advisors ensure the full attention of service providers.
Service providers will bring their best team and best pricing when they know that they have a fair chance to compete for your business.
Strategy design is essential & long term governance must be established.
Experienced advisors possess specialized skills to find and articulate the intersection between sourcing efforts and top-level business strategy. An experienced advisor ensures that long-term governance is never overlooked.
Complete financial modeling is required.
An advisor will: build effective and understandable cost models that capture the true costs of delivering IT services, convert client budget-based costs into something that can be compared to the deal pricing, and establish the cost of retained services and governance.
Risk Management is crucial.
Tracking, measuring, and mitigating risk is an ongoing process in an outsourcing deal. The associated risk to the company and its core functions must be focused on and managed by an expert.
The RFP lifecycle is labor intensive and responses must be normalized.
From writing the RFP, to facilitating provider questions, reviewing RFPs, and conducting due diligence, a lot of work goes into the RFP lifecycle. An advisor augments a client’s staff to ensure a well-organized and efficient RFP process. Beyond price, an advisor will help a client through a thorough evaluation of all provider responses to locate the best fit and value for the client’s requirements
An advisor can quickly identify proposal pricing and establish any areas that might have been over or under scoped. They will also guide a client through negotiating the best price for the services required.
Contract development and negotiation requires a great deal of work.
Master Service Agreement (MSA) creation, Statement of Work (SOW) creation, and all of the associated schedules are required in sourcing relationships. Only an experienced advisor can provide best-practice templates and customize them to the unique objectives of the client. Advisors also possess the negotiating skills and knowledge required to ensure the resulting contract is fair, balanced, and profitable for all parties.
The value an advisor brings far exceeds an advisor’s fees.
It has been WGroup’s experience that in every sourcing deal that we have supported, the additional value (including better price) built into the contracts we create far exceeds the sourcing advisory fees. Just ask our long list of satisfied clients!
One of the biggest challenges organizations face today is the changing relationship between IT and business/functional areas of the company. WGroup sees several major factors contributing to this shift.
Most notably, cloud computing and as-a-service delivery models make it easier for non-IT areas of in terms of internal dissatisfaction, inefficiency, and confusion. WGroup’s strategy is to embrace the change, but with a logical and governed approach.
Governance Cannot be Overstated – the importance of a strong enterprise-wide governance strategy and framework is critical in this new world. Not only has the divide between IT and the business converged internally, but enterprises have to manage the complexity of global delivery models such as outsourcing, multi-sourcing, and shared services.
Partner for Innovation – business functions now have technology tools at hand that give them the ability to support their own needs without having to go through the IT department. Increasingly, software and technology providers are directly targeting and selling to business function leaders such as the CMO. Instead of discouraging or fighting the business functions’, IT should proactively and strategically identify requirements and partner for innovation to bring value to the process through strategy, governance, security, and enterprise IT.
IT Focus on Business Value – this requires a shift of focus from IT services required to run the business and cost improvement initiatives to services and priorities that drive top-line growth, innovation, agility and enterprise business performance improvement.
The best performing shared services operations go beyond cost efficiency and service effectiveness and focus on delivery value to the business. As part of their brand and value proposition to their internal customers, these shared services operations make “customer engagement” a critical component of their shared services strategy and delivery model.
Five simple yet informative reasons why customer engagement is so important:
Clarity on what work is truly valuable and important to the customer
Mutual understanding of the customer’s needs for service and information
Creation of a culture where the customer feels “ownership” of services being delivered
Incorporation of the customer’s perspective and experience in service improvement
Prioritization of workload through demand management
Sourcing can drive tremendous value for an organization but unfortunately far too often, sourcing strategies built with the wrong approach do not create value and often destroy it, leading to years of recovery.
Here are five straightforward yet common mistakes in outsourcing that destroy value:
Not having a clear service strategy aligned to business outcomes
Failure to engage in sufficient upfront planning and analysis resulting in a sourcing strategy that does not align to overall business strategy and complement the business its serving
Too narrow of focus on cost reduction and short-term results vs. tangible opportunities to drive growth, innovation and operational effectiveness which can be achieved through the right outsourcing arrangement
Deficient workload and transaction tracking resulting in inaccurate data in an outsourcing RFP, and simply a bad deal for both the client and service provider
Underestimating the management effort and attention required to successfully develop and manage an outsourcing relationship to ensure it delivers on the intended business case
Many organizations have turned to outsourcing to help with cost reduction, and to improve operating efficiency. Historically, we thought of two types of outsourcing – IT Outsourcing (generally referred to as ITO) and Business Process Outsourcing (generally referred to as BPO). For some organizations, ITO and BPO are treated as separate initiatives, with separate business owners. But a new generation of outsourcing, fueled by experience, technology trends, and economic factors is causing a convergence of ITO and BPO. The lines between process and technology have blurred. The silver lining is that this can be good news to the CFO, and business executives.
Pioneers in leveraging the convergence of ITO and BPO outsourced IT and one or more business processes at the same time, frequently to the same provider. Examples include outsourcing the company’s ERP, finance applications and finance & accounting processes to one provider. They quickly realized that the contract structures could be identical, the value of outsourcing both the IT and the process at once brought them benefits faster, the structure was less expensive to operate (i.e., one governance organization, one contract manager, and one bill) and there was typically only one provider to deal with if there were issues (i.e., less finger pointing). The primary challenge was that IT, Finance, Procurement, HR, and other business organizations had to agree to one provider, one contract structure, and one governance organization.
If leveraged correctly, ITO/BPO convergence can result in lower cost and better control—two priorities on the CFO’s agenda. Lower cost is obtained through both simplification and standardization of outsourcing deal structures and ongoing outsourcing provider management. For example, standardization of outsourcing agreements reduces the cost of negotiating the contract and allows companies to leverage their experience in contract structuring across multiple agreements. Essentially, we’re seeing that the more comfortable and experienced an organization gets with outsourcing, the easier it is to go through the process of outsourcing other areas of IT or business process. Cost reduction also results from the convergence of ITO and BPO deals in the management of the agreement. Fewer employees are required to manage multiple agreements due to their common structure, and better still, these fewer employees can conduct a more consistent analysis of agreements costs, service levels, provider performance, and value to the organization.
Three VALUES You should Require from Your Outsourcing Consultant to Create VALUE.
#1 Impartial Outsourcing Leveraging outsourced resources to create value is a powerful option for many companies, but unless the right analysis has been done the results can be value destroying. WGroup is agnostic about outsourcing and we are driven by our discipline to make recommendations based on rigorous fact-based analysis. In some cases, firms can deliver the greatest value to their shareholders by continuing to perform work themselves. And more and more, services are being delivered across a diverse model of multiple vendors and a combination of insourced/outsourced services. Answering the What, Who and Where questions correctly is the essence of our analysis.
#2 Provider Navigation The ITO and BPO service provider market is crowded and differentiation is difficult. Outsourcing services, whether it is aimed at achieving greater productivity and lower cost for back-office processes, or aimed at swapping a fixed cost structure for a variably priced service based on consumption, companies are quickly learning that they can find numerous providers anxious to assume the operations. WGroup is not only knowledgeable about the provider capabilities and pricing, but makes it a priority to understand what providers have significantly different service models and capabilities to deliver strategic, innovative and value-adding services. It is in your best interest to ensure providers have the opportunity to showcase their ability to deliver value and not be boxed into templates that don’t allow for creativity. It is also important that your outsourcing consultants ensure providers are making a fair margin.
#3 Tailored Strategies WGroup believes “non-prescriptive” approaches, developed collaboratively with service providers, result in the best outcome you want to achieve. Rather than contentiously directing providers to respond to a service delivery model that has been created for you by a consultant, we work with all providers, agnostically, to help them understand your requirements and how they can best leverage their capabilities to deliver the optimal solution that will result in value creation. Collaboration and hard business analysis always works better than creating a contentious relationship with a potential partner.
Today, BPO and ITO Agreements Leverage the Experience of Both to Support an Evolving Business Environment.
In the early days of BPO the structure of deals was modeled after the ITO deals of the day. The primary goals of the original BPO deals were to make sure the client got every bit of margin possible out of the provider and to structure the deal so that it was absolutely clear what services were to be provided at what cost based on the client’s current environment. Any fluctuations in demand, up or down were forced into the ITO adopted ARC/RRC approach whether it worked on not.
This strict approach to structuring contracts for both ITO and BPO was a detriment to both the provider and the client. The challenge was as the businesses evolved, needs changed and as technology became more accessible the strictly structured contracts were not able to address this evolution. Through WGroup’s experience in working with numerous CFO’s and Contract Managers, we have found that their one complaint was that their contracts made it too difficult to address business changes. This resulted in frustration on both the client and provider side of the agreement.
The good news is, next generation agreements are being re-structured or newly structured to deal with the realities of business and the fact that a successful business changes and evolves.
As we see IT moving into the business due to the demands for better business knowledge, the consumerization of IT, and the use of outsourcing as a tool to optimize overall business performance, we understand the need to leverage the lessons learned from both ITO and BPO deals. Therefore, WGroup works with you to structure contracts with this evolving environment in mind…not the old rigid contract that had to be renegotiated whenever changes occurred.
Outsourcing Buying Behaviors Are Changing and IT Services Are Becoming More and More Commoditized—Are Service Providers in the Value Game?
Systems Integration, BPO and ITO providers are increasingly being asked to differentiate themselves through their solutions and their ability to commit to linking services to value creation. The alternative is to submit to the “low price” auction process for cookie-cutter solutions. The market is bifurcating into commoditized services that offer low value, contrasted with solutions that enhance shareholder value and allow service providers to achieve a level of intimacy with their customer, along with an acceptable level of risk and responsibility.
WGroup believes clients should make “fact based” selection of providers rather than an instinctual selection. Ensuring the integrity of the solution is paramount. Finding the appropriate market-pricing for the solution is somewhat less problematic. Cultural matches are important.
The logic for win-win transactions based on market pricing is obvious to us as a prerequisite for success. We do not consider sourcing deals to be procurement transactions and consider all of the dimensions of risk and relationship, including future investment impacts, skill requirements, technology upgrades and refreshes, as well as IT and business process re-design. WGroup works with clients to align sourcing strategy with where they envision their business in the future, rather than creating your “mess for less.”
The pressure to reduce IT spending continues and companies have had to become more sophisticated in their approaches to finding and maintaining those cost reductions, conversely, we are beginning to see more CIO’s challenged by the prospect of driving IT initiatives which are focused on revenue increases.
WGroup’s calls this “Business Driven IT” and it is a reality that has changed the role of the CIO forever. Today’s CIO’s are questioning ALL of the work that is being done by their organization. The rationalization of services and the linkage of IT services to measurable business value is a trend that is gaining significant momentum. WGroup is seeing this impact in the way Service Levels are constructed and managed end-to-end business process measures.
The economic climate has certainly impacted the way CEO’s and CFO’s view IT. They have found that IT assets do not need to reside on their balance sheets in order to deliver value. Nimbleness associated with variably priced IT services, sometimes delivered through “Cloud” solutions offer the kind of flexibility that is required in this economy.
BPO: Should CFOs Transfer Work Before Re-engineering Processes?
Many organizations do not believe they should outsource any business processes until they are consolidated, standardized and re-engineered. This position is frequently reinforced by many of the mainstream management-consulting firms.
The logic being… if the processes are not reengineered before I turn them over to the provider, I am giving away monies to the provider to optimize the processes. They may even charge me more on a run rate basis for operating the processes.
If an organization is very good at project execution and very good at dealing with the politics of change, then the logic of reengineering the work in-house may prove to be correct.
However, in WGroup’s experience most companies are experts in the goods or services they make or sell, but are not experts at project execution and are challenged by the politics of change. Therefore, we maintain that in most cases it makes much more sense to let the outsource provider do the consolidation, standardization and re-engineering work on the processes. Provider organization’s core competency is improving and operating processes.
Changes in the outsourcing industry are subtle, but are increasingly having significant impact. The commoditization of many IT services, the obvious shift to multi-sourcing global service delivery models and the leverage of labor arbitrage have had significant impact on the industry over the past 25 years.
More recently WGroup is seeing an emphasis on linking outsourced services to value creation. cars domain In many ways we are moving from the price-focused procurement era into a more sophisticated time that requires all IT services to be linked to value creation. There are a few trends that are influencing this shift; including the shift in responsibility for IT to the business, and the imposition of the discipline of IT Portfolio management through structured IT Governance models.
The Hype is Reality and the Role of the CIO is Changing. Are You Prepared?
The CIO role has been transformed. Today’s CIO is an orchestrator of IT services delivered globally; most often by a technology provider, rather than by his/her own staff. Consequently, CIO’s are becoming more skilled at managing provider relationships to ensure that value is being created for shareholders.
CIO’s are increasingly taking responsibility for the outsourced solutions that are implemented by technology providers. CIO’s are progressively concerned about the operational risk that has too often plagued “low price” outsourcing agreements. The architectural integrity of the solutions, the quality of the team doing the work and the evenhandedness of the financial arrangement are critical components of a successful outsourcing agreement. CIO’s are actively embracing this growing and important responsibility.
The primary role of the CIO has always been “business systems/process” thinking. This role is increasing in visibility and importance. CIO’s are expected to take a leadership role in leveraging technology services, trends and solutions to create shareholder value. Accordingly, CIO’s want partners, internal and external, who are innovative, responsive and experienced to leverage the capabilities of IT. CIO’s are coming to the conclusion that competitive advantage is no longer derived from Data Centers, Networks or ERP, but rather through analytics, managing the ubiquity of our computing and communications world and the opportunity to leverage unprecedented amounts of information about customers.