10.0 Best Practices in Data Center Outsourcing

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Best Practices in Data Center Outsourcing

Sourcing decisions should be made by examining whether an organization is effective andefficient in providing a function that is strategic to the business. IT operations and support

organizations are often viewed as an overhead that provides a commodity function that can beeasily and safely outsourced. However, IT operations and support functions may be corecapabilities because flexible, stable and reliable operations are the foundation for enterpriseapplications and business processes.

IT operations outsourcing proposals are often evaluated and executed with inadequate informationabout services and costs. The result may be an agreement that does not define the full set ofservices required, does not result in expected cost savings, and requires retaining a significantnumber of internal staff to close service gaps and monitor the outsourcer. Good business decisionsare based on understanding services and costs, the impact of change, and the risk associatedwith IT services that do not meet business requirements.

Problems are well-documented about enterprises that engage outsourcers without understandingservices and costs. In many cases, countless “assumed” services are provided by the IT operationsgroup but are not defined. These undefined services are neither addressed in an outsourcingproposal nor considered in an outsourcing decision. Therefore, the outsourcer looks less expensivebecause the proposal is for less than what is currently provided. In such cases, cost savingsevaporate as the IT environment changes, and every change becomes an extra cost.

Many business units also discover that high-level service descriptions open the door to serviceissues. The business unit and outsourcer discover service requirements that were learned overtime, but not documented, by the now-defunct IT operations group.

The research in this chapter addresses the following Key Issues:

• What is the trend for offshore IT infrastructure and help desk services?

• Is offshore a viable alternative for data center services?

• What best practices should be included in a data center outsourcing agreement?

10.0 Best Practicesin Data Center Outsourcing

This is a sample chapter from a new report for 2005, “Next-Generation DataCenters.” To order or to learn more about the Gartner Strategic Planning Series,go to www.gartnerpress.com/reports.

140 Gartner Strategic Planning Series

Next-Generation Data Centers

10.1 The Sourcing Life Cycle

Key Issue: What is the trend for offshore ITinfrastructure and help desk services?

TTTTTactical Guideline: actical Guideline: actical Guideline: actical Guideline: actical Guideline: The sourcing life cycle is the key tosuccessful business operations; the sourcing strategy isthe enabler of the business strategy.

Gartner expounds the notion of strategic sourcing as alife cycle activity in which a sourcing strategy leads to anevaluation and selection process, followed by dealnegotiation and relationship management (see Figure 10-1). As enterprises begin the transition to this way ofworking, each of the four phases of the life cycle poses achallenge. Needs are being defined in Phase 1,transformed into tactical requirements in Phase 2,changed into contract and relationship principles in Phase3, and then ensconce themselves as managementprocesses in Phase 4.

However, once the discipline of strategic sourcing hasbeen engaged, generally little state transition ensues —such as from internal provision to outsourcing — and thecycle condenses to a continuing and fluid mapping ofthe sourcing strategy to the governance principles neededfor relationship management. Where organizations have

a virtual structure and are highly dependent on theirpartner networks, the sourcing strategy will be fused intotheir business strategies, which become relationshipbased.

10.1.1 What Should Be Outsourced?

Strategic Planning Assumption: Strategic Planning Assumption: Strategic Planning Assumption: Strategic Planning Assumption: Strategic Planning Assumption: By 2006, 80 percentof Type A enterprises (leading-edge technology adopters)will externally source at least 60 percent of their IT-relatedservices (0.7 probability).

Gartner is often asked, “What should we outsource?”(see Figure 10-2). No one-size-fits-all approach exists tothe outsourcing decision. High-level models that comparethe business value of an IT tower (for example, applicationdevelopment) with the ability of the in-house operation todeliver can be effective for channeling most analysis anddeveloping a basis for sourcing decisions. However, high-level models should never be expected to provide adefinitive answer.

Therefore, sourcing decisions may be influenced to a greatextent by factors such as politics and culture not includedin the models. This is a long-term decision — typically,five to 10 years — that requires an ability to:

Figure 10-1: The Gartner Sourcing Life Cycle

• Identification• Criteria development• Organization fit• Selection process• Partnership opportunities

• Governance model• Metrics• Payment models• Terms and conditions• Provision for changes

• Relationship• Performance assessment• Goals: reach business objectives,

efficiency, quality, innovation• Transition

Sourcing Strategy Evaluation and Selection

Contract DevelopmentSourcing Management

• Alignment• Organization assessment• Core competencies• Market scan• Make-or-buy decisions• Risk analysis

Phase

1

Phase 4 Phase 3

Phase 2

Strategic Tactical

Source: Gartner



• Align IT with business goals

• Identify gaps in IT capabilities

• Understand the capabilities available in the market

• Determine how in-house and supplier responsibilitiescan best be split

Action Item:Action Item:Action Item:Action Item:Action Item: Vendors’ greatest assistance will be toensure that the enterprise approaches the outsourcingdecision process based on business value.

10.1.2 Complexity Demands StrategicSourcing

TTTTTactical Guideline: actical Guideline: actical Guideline: actical Guideline: actical Guideline: Corporate value requirements willdrive IT behavior and performance expectations;outsourcing strategies will be determined by theserequirements.

The starting point is to ask, “What capabilities do we needto meet our business objectives, and how can we obtainthem?” and not to ask, “What should we outsource?”The enterprise’s business intent must drive the sourcingproject.

Outsourcing can often be an integral part of the strategyto fulfilling business objectives — such as improvingshareholder value. By itself, however, outsourcing cannotfulfill that strategy. An early step in the process is to reviewbusiness strategies and determine if the enterprise’s ITstrategies are aligned to those business strategies. Next,examine if the strategies can be better met by internalservices or if outsourcing is the correct approach. Do youhave the skills and resources to deliver the businessrequirements, or can an outsourcer vendor deliver thismore effectively?

Separate fact from fiction in terms of the benefitsoutsourcing can achieve. Deals that are undertaken forthe wrong reasons are destined to fail. This is not aweakness of outsourcing but is the failure of managementto place outsourcing in context with the type of value itcan deliver.

10.1.3 Infrastructure Decision Process

TTTTTactical Guideline: actical Guideline: actical Guideline: actical Guideline: actical Guideline: No “one size fits all” exists foroutsourcing. The build-or-buy decision will be based ondifferent criteria for different organizations.

Figure 10-2: What Should Be Outsourced?

Keep In-houseor

Outsource

RetainInternally

High

High

Low

Low

OutsourceDevelop

orOutsource

In-houseEffectiveness

Business Value

Source: Gartner



After reviewing the business strategies and IT initiatives,the next step is to determine if the function is a core aspectof the business or if it is a commodity service that anyonecan perform (see Figure 10-3). Most infrastructures arecommodity services. The next step is to determine howcost-efficient and effective the IT organization is indelivering these services. If they are cost-effective andefficient, then the services are not good candidates foroutsourcing. However, if they are not cost-efficient andeffective, then outsourcing might be a possibility.

Perform an outsourcing feasibility study to look at a varietyof aspects to arrive at a sound business decision. Thesefactors include looking at the financial ramifications,resource needs, knowledge required, changes to thecompany, risk of outsourcing, quality requirement andoutsourcing alternatives. By evaluating these items,organizations can make an informed decision andunderstand the expectations of the service provider.

10.1.4 Data Center OutsourcingMagic Quadrant

To qualify for the Data Center Outsourcing MagicQuadrant, external service providers (ESPs) need atleast $50 million in annual data center outsourcingrevenue and 10 North American client references (seeFigure 10-4).

Data center outsourcing services are one of the mostmature IT service categories available in the market. In amature market, one should expect ESPs to understandmarket dynamics — as well as client wants and needs— and invest in making their services better, faster andless expensive. The descriptions of the quadrants areas follows:

••••• Leaders are performing well today, have a clear visionof market direction and are actively buildingcompetencies to sustain their leadership position inthe market.

Figure 10-3: Infrastructure Decision Process

Retain FunctionYes

Yes

Outsourcing Candidate

DecisionFactors

Resources

Financials

Knowledge

Quality

Changes Alternatives

Risks

No

CoreFunction?

Cost-Effective

and Efficient?

Source: Gartner

No



••••• Visionaries have a clear vision of market direction andare focused on preparing for that, but they still canimprove in terms of optimizing service delivery.

••••• Challengers execute well today, but they have a less-defined view of market direction and, therefore, theymay not be as aggressive in preparing for the future.

••••• Niche Players focus on a particular segment of theclient base, as defined by characteristics such as size,vertical focus or selective service offerings. Positioningin this quadrant does not imply that these ESPs donot execute well. They do. However, their ability tooutperform the competition or be innovative may beaffected by a narrow focus.

10.1.5 Data Center OutsourcingService Providers

TTTTTactical Guideline: actical Guideline: actical Guideline: actical Guideline: actical Guideline: Because of economic pressures, thelarger providers will be forced to be more restrictive in thedeals that they will accept, which will open moreopportunities for Tier 2 service providers.

Several Tier 2 service providers can provide quality datacenter services. During this current economic situation,the largest global outsourcers are experiencing significantchange or transition, visible failures, or depressed marketcapitalization. As a result, the door may open for Tier 2 orniche-focused outsourcers. These smaller vendors —which have less overhead and are less burdened bydemanding growth targets — may offer greater stability,higher client relationship focus, and technical expertiseat a more cost-effective price.

This enables enterprises to pursue these other providers.The Tier 2 or niche outsourcers with efficient operationsand customer focus may have a window of opportunityto attract organizations that opt for a smaller, niche playerto ensure stable project teams and more personalizedcustomer support.

Other data center outsourcing service providers include:

• Alltel

• Atos Origin

Figure 10-4: Data Center Outsourcing Magic Quadrant

Source: Gartner

Niche Players Visionaries

LeadersChallengers

AffiliatedComputerServices

ComputerSciencesCorp.

IBM GlobalServices

PerotSystems

EDS

Hewlett-Packard

UnisysCGI

SystemsManagement

SpecialistsInfocrossing

Lockheed Martin

Abilityto

Execute

Completeness of Vision

(i)Structure

Northrop GrummanAcxiom

October 2003



• Blue Hill Data Services

• Cap Gemini

• Digica

• Fiserv

• HCL Technologies

• OAO Technology Solutions

• One Neck IT Services

• Pemco Corp. Computer Services

• SAIC

• Siemens Business Systems

• SunGard

• T-Systems

• Verizon Information Technologies

10.2 Offshore Data CenterFacilities

Key Issue: Is offshore a viable alternative for datacenter services?

Data centers have been most resistant to offshore(nondomestic) outsourcing, and the reasons arenumerous:

• Regional infrastructure maturity

• Security

• Network latency

• Network reliability

• Complexity of infrastructure (requiring internalintegrators and architects)

• Geopolitical influences render the offshore outsourcingof data centers problematic.

In addition, data center leaders seem to be highlyskeptical of turning over their operational centers toremote parties outside their immediate influence orcontrol. To minimize these risks, consider establishingdata centers in familiar territory.

Network latency is a reason to outsource an enterprise’sinfrastructure to same-continent providers to get over thatissue. If latency is not a problem, some aspects of datacenters could conceivably be outsourced to semidistantproviders (for example, Australia to the Philippines), but astrong pattern does not exist for global or offshore datacenter outsourcing.

Organizations that have established offshore facilities canmove data center functions to their overseas site (that is,insourcing offshore), enabling them to leverage the culturaland economic knowledge gained through experience inthe region. When planned and executed in considerationof overall business needs, a more comprehensive moveoffshore can also reduce costs by consolidating multipledata centers in the offshore location.

10.2.1 Offshore Data CenterInfrastructures

TTTTTactical Guidel ine: actical Guidel ine: actical Guidel ine: actical Guidel ine: actical Guidel ine: Despite economic woes andgeopolitical uncertainties, offshore sourcing and globaldelivery will become an integral part of a sourcing strategy.

Despite the issues surrounding offshore data centerfacilities, some subsets of infrastructure data centerservices are likely to succeed when outsourced offshore.The most viable offerings include:

• Remote network monitoring

• Remote hardware monitoring

• Security

• Database administration support

• Enterprise resource planning (ERP) operations support

• Technical support

• E-mail support

• Help desk

As the business environment continues to evolve,enterprises should thoroughly examine each situation todetermine whether offshore insourcing or outsourcing isappropriate. Determine which segments of infrastructureservices to consider, such as e-mail problem support orTier 2 support for the help desk. Next, planners shouldconduct an outsourcing feasibility study designed to weighfactors such as financial ramifications, resource needs



(onshore and offshore), knowledge requirements, changesto the organization, risk of offshore outsourcing, qualityrequirements and outsourcing alternatives.

Evaluating these items will lay the foundation for informeddecisions. The real question is not whether you canoutsource offshore but rather whether you should.

Action Item:Action Item:Action Item:Action Item:Action Item: Conduct a careful analysis before shiftingany infrastructure work offshore and understand theimplications and the escalation procedures.

10.2.2 Remote Monitoring Services

TTTTTactical Guideline: actical Guideline: actical Guideline: actical Guideline: actical Guideline: As offshore outsourcing becomes astandard goal of senior executives, IT organizations mustdecide how best to deploy and use infrastructureresources worldwide.

Some opportunities exist for offshore infrastructure services,but these opportunities lie in the remote managementcapabilities. Remote monitoring services include:

• Logical extensions of backup or off-shift work

• Contract on-site support as needed

• Capabilities to monitor:

– Data and voice networks

– Mainframe computers

– Midrange systems

– PCs

– Applications

One of the issues of many data centers is staffing for off-hours and weekends. One solution is to outsource thesefunctions offshore and take advantage of the lower laborrates of developing countries. Some of the functions toconsider are:

• Remote hardware monitoring

• Remote network monitoring

• Remote security monitoring

• Remote e-mail support

Each of these functions can be provided from a remotesite as long as the network capabilities exist. If a problemoccurs that requires on-site support, the offshoreoperators monitoring the systems can page a localtechnician or operator to respond to any problems.

It is possible to monitor a variety of IT systems from dataand voice networks, mainframe computers, PCs andspecific applications. Therefore, the need to pay forpersonnel at night or weekends is reduced. The outstandingconcern is the possibility of network failures that can beovercome by instituting a back-up plan, which includescalling operators into the local site or having an additionalnetwork site if a failure occurs in the offshore country.

10.2.3 Specialized Support Services

TTTTTactical Guideline: actical Guideline: actical Guideline: actical Guideline: actical Guideline: Transferring assets should be properlyplanned with a defined and structured process. Without astructure, process details can, and often do, slip throughthe proverbial “cracks,” costing both parties time and money.

Application outsourcing and remote monitoring have ledto additional opportunities for the offshore providers.These functions have opened up new businesses in theform of support for:

• Database administration

• ERP operations support

• Technical support

• Help desk services

These services are often offered as a supplement to anyonshore support. Rather than having onshore peopleworking evening and weekends, this work is transferredto the offshore provider, which handles this work duringoff-hours. If a problem occurs whereby the offshoreprovider needs on-site support, the provider can thenpage the local people.

Another option is to outsource the e-mail and Webservices support problems offshore. Help desk agentsare more likely to respond in writing to these issues,negating any verbal communication issues.

A third scenario is to outsource the Tier 2, or more technical,help desk support. Once users realize that they have a moredifficult problem to resolve than can be handled through



the Tier 1 desk, the users are more apt to work effectivelywith the remote agents to resolve the problem.

Action Item:Action Item:Action Item:Action Item:Action Item: Weigh the pros and cons before determiningwhat, if any, functions can be taken offshore.

10.3 The Contract Wheel ofFortune

Key Issue: What best practices should be includedin a data center outsourcing agreement?

ESPs are looking for new service opportunities, andbuyers are looking to use ESPs to help them move intonew businesses. ESPs are becoming strategic by thenature of their work. Resource issues and the inability torecruit talented people are driving organizations to relymore on ESPs, and are moving ESPs to a resource-brokerrole, rather than a supplier-of-services role. It is crucialthat both parties understand that the nature of therelationship required is highly dependent on the type ofservice to be delivered, from efficiency-focused througheffectiveness-focused to competitive advantage.

The outsourcing contract should comprise a constellationof components affixed to a standard set of master termsand conditions. The master terms and conditions willremain the same from contract to contract. Thecomponents will be addenda to each contract. Theaddenda will be used as the basis for governing therelationship between the service recipient and the ESP.The relationship will be governed with equal participationfrom both sides.

Action Item:Action Item:Action Item:Action Item:Action Item: Build sourcing contracts as living agreementsthat can adjust and change with the service requirementsover the life of the entire contract term.

When establishing a contract, the components can beclustered into four categories:

• Relationship Intentions

• Relationship Benefits

• Change Methods and Processes

• Relationship Management

Based on these clusters, each item can be describedwith its purpose and importance.

10.3.1 Relationship Intentions

The Relationship Intentions cluster has three components(see Figure 10-5):• Strategic Objective Statement• Independent Advisor Charter• Communications Plan

Strategic Objective Statement:Strategic Objective Statement:Strategic Objective Statement:Strategic Objective Statement:Strategic Objective Statement:

• Purpose: The strategic objective statement describesthe strategic intentions of the parties when enteringinto the agreement, and should provide a clearstatement of what constitutes success within theservice recipient’s and the service provider’sbusinesses in the context of the deal. The statementwill enunciate how value is derived in cultural, process,financial and output terms for the service recipient,and the regional, vertical and resource leverage termsfor the service provider.

• Importance: Deals tend to fail when the service levelsare being met, but no alignment occurs of the scopesof work to a higher notion of business value. Makingthe business value proposition of the relationshipexplicit for both parties should significantly assist inaddressing this issue.

Independent Advisor Charter:Independent Advisor Charter:Independent Advisor Charter:Independent Advisor Charter:Independent Advisor Charter:

• Purpose: The independent advisor charter describesthe role of the agreed third party in facilitating dialogand trust between the service recipient and serviceprovider, and introducing best practices for theirconsideration. It also deals with the continuousimprovement expectations as well as the operationaland financial arrangements associated with theinvolvement of that independent advisor.

• Importance: Once trust has been damaged betweenthe parties to a service provider relationship, it is oftenvery difficult to re-establish. Introducing a credible andtrusted independent advisor will tend to ensure thattrust is maintained between the parties by impartiallyvalidating the discussions between them. For a thirdparty to deliver this value without controversy, the roleshould be spelled out explicitly in a charter documentat the time of execution of the master contract. Theindependent advisor is also responsible for introducingbest practices to the contracting parties to stimulatediscussion and innovation in their dialogs.



Communications Plan:Communications Plan:Communications Plan:Communications Plan:Communications Plan:

• Purpose: The communications plan describes theapproach for disseminating contract-relatedinformation to internal stakeholders, suppliers andother identified information recipients. The plan servesas the basis for developing and sustaining trustbetween supplier and recipient. It includes theinformational requirements of stakeholders andinformation recipients, identifies the appropriatecommunication forums and medium, and ensures thatthe communication strategy supports the businessobjectives of the service recipient and service provider.

• Importance: Sourcing agreements are most successfulwhen there is effective communication of projectstatus, internal and external changes, and the effectson the service recipient’s overall business. Effectivecommunication to relevant and interested partiesrequires service recipients and service providers tohave developed standards for the communication onsourcing related information.

10.3.2 Relationship Benefits

The Relationship Benefits cluster has three components(see Figure 10-6):

• Innovation Plan

• Measurement Charter

• Scope of Work, Service Levels and Pricing Framework

Innovation Plan:Innovation Plan:Innovation Plan:Innovation Plan:Innovation Plan:

• Purpose: The innovation plan describes the methodsand procedures for both parties to introduce innovationinto the sourcing arrangement. The plan identifies thestructure and process for introducing new innovations,the deliverables and any rewards or incentive plans.These innovations should support and provide benefitsto both parties.

• Importance: Lack of innovation is one of the biggestcomplaints in outsourcing deals. Often, the servicerecipient asks for a static environment, and that is whatthe vendor agrees to deliver. In reality, innovations arean important part of IT services and should beincorporated into the plan.

MeasurMeasurMeasurMeasurMeasurement Charter:ement Charter:ement Charter:ement Charter:ement Charter:

• Purpose: The measurement of a relationship willdescribe how, when and by whom the relationshipbetween the service recipient and service provider isto be measured. The charter contains tactical

Figure 10-5: Contract Wheel of Fortune: Relationship Intentions

StrategicObjectiveStatementIndependent

AdvisorCharter

Master Termsand

Conditions

RelationshipIntentions

CommunicationsPlanComponent clusters

relate to certain dealfunctionality, such as:

Source: Gartner



measures of service performance as well as successmetrics derived from the strategic objective plan.

• Importance: Service recipient organizations tend tomeasure the wrong things and find themselves quitedissatisfied with the services delivered by serviceproviders, even when all the operational metrics showthat delivery is a success. Building a balancedmeasurement plan based on consideration of pricingand service levels, customer satisfaction, contractsand relationships, strengths, and alignment and visionis critical to the continuing success of a deal.

Scope of WScope of WScope of WScope of WScope of Work, Service Levels and Pricing Framework:ork, Service Levels and Pricing Framework:ork, Service Levels and Pricing Framework:ork, Service Levels and Pricing Framework:ork, Service Levels and Pricing Framework:

• Purpose: The scope of work, service levels and pricingframework, as a triumvirate linked together, willdescribe the methodologies, processes and timelinesfor defining, developing, and using these functions toassist in managing the relationship between the serviceprovider and service recipient.

• Importance: The scope of work, service level andpricing, when linked together, are key foundationaltools to assist with the management of the relationship.Without these three items linked together, the abilityof relationships to properly function is significantlydiminished. Therefore, by developing a methodology

and process around the scope of work, service leveland price as a linked framework, a significant tool formanaging the relationship is clearly provided.

10.3.3 Change Methods and Processes

The Change Methods and Processes cluster has threecomponents (see Figure 10-7):

• Role and Responsibilitities Matrix

• Process Ownership Matrix

• Risk Framework

Role and Responsibilities Matrix:Role and Responsibilities Matrix:Role and Responsibilities Matrix:Role and Responsibilities Matrix:Role and Responsibilities Matrix:

• Purpose: Linked to process ownership as thestructure, the roles and responsibil ity matrixcomponent of the contract defines the service recipientand service provider responsibilities and the valueassociated with the responsibilities. This matrix alsohelps the service recipient and service providerunderstand, recognize and align priorities.

• Importance: Understanding the roles andresponsibilities provides insight into the costcomponents associated with each of the functional

Figure 10-6: Contract Wheel of Fortune: Relationship Benefits

StrategicObjectiveStatement

IndependentAdvisorCharter

Master Termsand

Conditions


CommunicationsPlan

Component clustersrelate to certain dealfunctionality, such as:

Source: Gartner

Scope of WorkService Levels

and Pricing

InnovationPlan

MeasurementCharter

RelationshipBenefits



outsourced areas, which is invaluable when doing peercomparisons. Additionally, an understanding of theservice recipient’s and the service provider’s alignmenton priorities and value are also derived from thisdeliverable.

PrPrPrPrProcess Ownership Matrix:ocess Ownership Matrix:ocess Ownership Matrix:ocess Ownership Matrix:ocess Ownership Matrix:

• Purpose: The process ownership plan documentswho is responsible for each process. Each processmay cross various business units or departmentfunctions. Therefore, one person must step up andtake responsibility for the ownership and review ofthe process to ensure that it remains appropriate forthe life of the contract.

• Importance: Understanding process ownershipprovides insight into the cost components associatedwith each of the functional outsourced areas, whichis invaluable when doing peer comparisons. Inaddition, an understanding of the service recipient’sand service provider’s alignment on priorities and valuealso are derived from this plan. Several processes (andassociated roles and responsibilities) are included inthe typical outsourcing agreement. These processesmay have to change along with the deal to continue

to serve both parties and, therefore, must be ownedand managed.

Risk Framework:Risk Framework:Risk Framework:Risk Framework:Risk Framework:

• Purpose: The risk analysis framework will describe themethodologies, processes and timelines for analyzingthe risks inherent in the relationship, establishframeworks for reviewing those risks, and identifyprocesses to manage and mitigate them.

• Importance: Risk identif ication, analysis andmanagement are skills that exist primarily within serviceproviders, and then mostly in the bid process. Byagreeing on standard risk methodologies and periodicrisk analysis processes, the likelihood of adverseunforeseen business disruption for either partystemming from (or affecting) the deal will be minimized.

TTTTTactical Guideline: actical Guideline: actical Guideline: actical Guideline: actical Guideline: It is important to establish a set ofroles and responsibilities in an associated processownership matrix and to develop a risk analysis framework.

Figure 10-7: Contract Wheel of Fortune: Change Methods and Processes

StrategicObjectiveStatementIndependent

AdvisorCharter

Master Termsand

Conditions


CommunicationsPlan


Source: Gartner


and Pricing

InnovationPlan

MeasurementCharter


Role andResponsibilities

Matrix

ProcessOwnership Matrix

Risk Framework

Change Methodsand

Processes



10.3.4 Relationship Management

The Relationship Management cluster has fourcomponents (see Figure 10-8):

• Transition and Transformation

• Demand Management

• Exit Plan

• Relationship Change Plan

TTTTTransition and Transition and Transition and Transition and Transition and Transformation:ransformation:ransformation:ransformation:ransformation:

• Purpose: The transition and transformation plandescribes the approach and continuous processesfor moving between service delivery states within thedeal. This will include all aspects of transfers, includingasset moves, software licenses, personnel transfers,human resources (HR) benefits, service-levelacceptance, implementation processes and detailedschedules to complete each item. It provides thetimetables, work-breakdown structures, resourcerequirements and implementation assumptionsrequired for ensuring successful implementation.

• Importance: Meeting strategic requirements andachieving the service-delivery goals requires thedevelopment of a plan to ensure successful transition.Successful sourcing agreements depend on a goodtransition plan. It is essential that each partyunderstand what steps are required to move the workquickly and smoothly from the current to new deliverystate.

Demand Management:Demand Management:Demand Management:Demand Management:Demand Management:

• Purpose: The demand management plan defines theprocesses for service provider and service recipientprioritization of changes to service recipient needs andrequirements. It identifies the inputs and outputs thatdrive service recipient service demands. It helps buildconsensus between service providers and servicerecipients around which projects and programs canbe enhanced or diminished over the course of theplanning period.

• Importance: Managing shifting service recipienttechnology and business-user demands is crucial todemonstrate value delivered through the servicerecipient/service provider relationship. A process that

FigurFigurFigurFigurFigure 10-8: Contract Wheel of Fore 10-8: Contract Wheel of Fore 10-8: Contract Wheel of Fore 10-8: Contract Wheel of Fore 10-8: Contract Wheel of Fortune: All Logical/Functional Componentstune: All Logical/Functional Componentstune: All Logical/Functional Componentstune: All Logical/Functional Componentstune: All Logical/Functional Components

Source: Gartner

StrategicObjectiveStatement

IndependentAdvisor Charter

Master Termsand

Conditions


CommunicationsPlan



and Pricing

Innovation Plan

MeasurementCharter


Role andResponsibilities

Matrix

ProcessOwnership Matrix

Risk Framework

Transition andTransformation

DemandManagement Exit Plan

RelationshipChange

Plan

RelationshipManagement

Change Methodsand

Processes



can identify current demands and predict futuredemands that may stress the service recipient/serviceprovider relationship helps ensure the effectivenessof the relationship.

Exit Plan:Exit Plan:Exit Plan:Exit Plan:Exit Plan:

• Purpose: The exit plan defines the service recipient’sstrategy and identifies the processes required totransfer the contract’s operational and organizationalcomponents from the service provider to the servicerecipient.

• Importance: The termination of the service recipient/service provider relationship is almost guaranteed,either prematurely or on a predetermined schedule.Prior to the completion of the service provider contract,the service recipient must develop an exit strategy thatdefines the key resources, assets and processrequirements for continue delivery of servicespreviously provided by the service provider.

Relationship Change Plan:Relationship Change Plan:Relationship Change Plan:Relationship Change Plan:Relationship Change Plan:

• Purpose: The relationship change plan describes thestructure, processes and effects of managing changeswithin the constructs of the sourcing arrangement. Theplan identifies the technology and business changedrivers, change imperatives and change goals. Itprovides the requirements, guidelines and approachto identifying, evaluating, recommending,implementing and ultimately evaluating the impact andeffects of change on the client environment andsupplier delivery. The change plan does not includeoperational change control processes. These wouldbe developed as part of a quality assurance plan.

• Importance: Managing change within the sourcingarrangement is critical to ensuring a successfularrangement. Developing an agreed to change policyensures that both service recipient and service providercan examine and, when necessary, implement andmanage change to the sourcing contract.

TTTTTactical Guideline: actical Guideline: actical Guideline: actical Guideline: actical Guideline: The contractual instrument for a long-term, large-scale outsourcing agreement must be builtfor continuous change.

10.3.5 Summary of Contract Terms

TTTTTactical Guideline: actical Guideline: actical Guideline: actical Guideline: actical Guideline: The contractual instrument for a long-term, large-scale outsourcing agreement must be builtfor continuous change.

The contract must contain several key terms andconditions to manage the relationship effectively, and itmust accurately evaluate whether services are beingprovided as specified. The contract should specify thatthe client can interview key personnel and that they aresubject to the client’s approval. The contract shouldspecify the details of the transition and implementationplan, and the term of the contract must be clearly defined.

Outline the project schedule and the related deliverables,as well as approval of rules for subcontractors and out-of-scope work. Gartner recommends benchmarking and auditclauses to ensure that the contract remains competitive.

The last consideration is termination and migrationclauses. The client must consider termination and addressits many variations. Often, contracts have language thatdiscusses termination at the end of the term, but severalother termination clauses exist. If the client is terminatingthe agreement, migration plans to transfer the work toin-house sources or to another service provider shouldbe included. Plan for what will happen at the end of thecontract, or for a potential early termination.

10.4 Recommendations

• Drive data center sourcing decisions with businessrequirements.

• Outsourcing cost decisions should be driven not onlyby cost savings, but also by the provided quality andvalue.

• Every sourcing strategy has limitations and risks.Organizations must recognize, plan and manage theunique requirements of offshore service.

• Establish the key contract clauses required in asourcing agreement to allow for flexibility and tosupport the data center needs of the future.

• Focus on the sourcing governance challenge —organization, skills and processes — and retainedactivities.