Page 80 - DCAP307_PLANNING_AND_MANAGING_IT_INFRASTRUCTURE

Planning and Managing IT Infrastructure

Notes The time and cost required to perform a benchmark depends on the size, scope, and complexity
of the process being measured and the number of metrics used. It can cost more than $100,000 to
hire an outside consulting firm to perform a benchmark. Doing the benchmarking with employees
can be much less expensive and take less time because they already are familiar with the people
and the process. However, employees need to be trained to perform the benchmark process, and
internal benchmarks can be tainted by bias, especially if the people doing the measuring are
part of the in-house process.

Notes Increasingly, experienced organisations include broad measures of desired business
outcomes into the performance measurements they expect outsourcing partners to deliver.
These measures define valuable business benefits that the organisation wants from the
outsourcing initiative, including increased speed to market, reduced product or service
defects and rework, and lower working capital requirements made possible by higher
efficiencies.

4.5.6 Developing an Outsourcing Contract

The development of an outsourcing contract is a job for experienced procurement and legal
professionals. Although numerous issues should be addressed, only a few are covered in this
section. The ownership of assets and facilities is an important factor in determining the cost of
the outsourcing contract. There are three basic alternatives:
 The firm can transfer ownership of the assets along with operational responsibility to the
outsourcing service provider. The provider typically offers a financial incentive to do this,
such as a reduction in charges or a cash transfer to cover the value of the assets.
 The firm can transfer the assets to a third party (financial services firm) under some sort of
leaseback arrangement.
 The firm can retain ownership of the assets while the provider takes on the operational
responsibility.

!
Caution Experienced members of the client’s finance and accounting organisation must
become involved in analysing the various options.

Example: Electronic Data Systems (EDS) was awarded a $1 billion, 8-year contract to
provide a variety of IT services to KarstadtQuelle AG, which is headquartered in Essen, Germany.
The firm’s core activities include Karstadt department stores throughout Germany, domestic
and international mail-order companies, and its tourism business (Thomas Cook). As part of the
arrangement, EDS will gain a 75 percent stake in Itellium, the firm’s in-house IT subsidiary. EDS
will update Itellium’s IT infrastructure to form a new outsourcing centre that will serve
KarstadtQuelle and other European retailers. As another example, IBM won a contract to manage
the IT resources of Switzerland’s Banque Cantonale Vaudoise, and is following a similar strategy
to create a Swiss-based outsourcing centre for European banks.

The current trend is to reduce the size and complexity of outsourcing contracts. Instead of
entering into all-encompassing outsourcing contracts with a single firm, organisations are opting
for simpler, more business-specific arrangements that employ multiple service providers.

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