How ITIL v3 is Transforming the face of IT Outsourcing

There are no two opinions that in the past decade ITIL v2 has emerged as the de facto best practice standard for IT Service Management, but with the rapid changes in  business environment and IT becoming a business as usual tool than a strategic advantage, ITIL v3 is slowly becoming much more relevant. The evolution of ITIL v3 has been driven by an increasingly complex business and IT environment and the need to move beyond a ‘simple alignment of business and IT’ to an ‘integrated view of business and IT’. There are many differences between the Service Delivery and Support core books of ITIL v2 and five components in the ITIL v3 life cycle – Service Strategy, Service Design, Service Transition, Service Operation and Continual Service Improvement. But a very important and most requested difference was to incorporate Outsourcing and its end to end Service. Probably the best way to describe the difference is “ITIL v2 is Process-oriented whereas v3 is Service-oriented”.

As per Gartner’s analysis “Organisations are concentrating on IT cost reduction and aiming to improve their business performance and flexibility. …Organisations renegotiating their outsourcing contracts should avoid long-term deals and look at cloud computing and other models”. Gartner also predicts that IT outsourcing pricing is set to
shrink by 5 to 20 percent during 2009 to 2010, as traditional service providers compete with new players. All these opinions have become breeding bed for smart sourcing, collaborative sourcing, multi-sourcing, on-demand sourcing, co-sourcing and in-sourcing, nurturing SaaS and Cloud Computing models. This is the high time outsourcers and vendors embrace innovation, set higher standards and analyze new ITSM framework recommendations which is woven around Service and Outsourcing.

Today many organizations do not have the financial transparency to enable solid strategic business decisions thus pushing them to steer their strategy, service design and tactical operational decisions inappropriately or in wrong direction. So in an economic crisis like we are in today, they cut costs (as opposed to optimization), traditionally by employee lay-offs, decreasing workforce and cancelling discretionary projects or putting them on hold. In some cases, organizations have outsourced their ‘core processes’ under these pressures. In the short-run, budget targets are met while in the long-run a price must be paid….

The cost savings from outsourcing and off-shoring can be attractive but the associated risks and costs need to be clearly understood. ITIL V3 defines the structure and dependencies of sourcing relationships and creates a foundation for more customer-centric IT service management across the enterprise. ITILv3 provides guidance on sourcing options
that support different situations. The ITIL Service Strategy and Service Design publications provide guidance on modelling services across the supply chain. By taking a structured approach, clearly defining scope of the services, responsibilities and accounting for all the service assets up front there is less risk of surprises and costly unexpected changes. The ITIL Service Transition publication provides guidance on the activities required to transfer a service between two service providers. ITIL v3 outlines the accounting framework necessary to facilitate chargebacks and total cost of ownership (TCO) calculations with effective Governance of IT Planning, Accountability of IT Spending and Predictability of IT Budgets. This Financial Management process is a key input to Service Portfolio Management because by understanding cost structures applied in the provisioning of a service, a company can benchmark that service cost against other providers.

 In this way, companies can use IT financial information, together with service demand and internal capability information to make beneficial decisions regarding whether a certain service should be provisioned internally or outsourced. In todays’ macro environment, the need is to Re-Define Outsourcing Strategy. For eg: long term or fixed FTE based deals are outdated and ineffective. There is no sense of paying vendor when there is no or less work. ITILv3 describes Supplier selection criteria and various sourcing models like On-Demand Sourcing, Multi-Sourcing, Co-Sourcing and In-Sourcing.

Portfolio rationalization is another dimension which can give better accountability and financial transparency of services. The industry has matured to a point where CIOs can now review their portfolio of outsourcing partners and set themselves up with better mixes of companies, countries and models. ITILv3’s Service Portfolio, the Service Catalog (Business Service Catalog and Technical Service Catalog) and Financial Management provides cost transparency influencing buying behaviour.

Other ITILv3 disciplines, such as configuration management, capacity management and problem management, have an important part to play in cost optimization initiatives and should be leveraged to help drive substantial cost reductions throughout the IT function. Configuration management should be enhanced to proactively identify elements of the
infrastructure that may be disposed of, repurposed or have their associated maintenance contract costs reduced rather than just asset tracking. Similarly, Capacity management should be able to recommend assets for consolidation, virtualization and  re-negotiation for more preferential capacity-based contracts. The concept of a Service
Knowledge Management System (SKMS) is introduced as an overarching set of tools and databases that is used to manage service provision through the entire service lifecycle. CSI (Continuous Service Improvement) phase of ITILv3 focuses on inputs and outputs needed for a good improvement (‘Plan-Do-Check-Act’) cycle on existing services, including service retirement. IT monitors service performance and identifies ways to improve quality and reduce costs while staying aligned with changing business requirements. As per the framework, SIP (service improvement plan) should be a part of outsourcing contract and should be addressed at the outset of negotiations.

It is clear that ITIL v3 provides a much richer outsourcing oriented service management framework and the probability of success in ITO operations can be substantially improved. Coordination and communication between CIOs and business heads for their ongoing programs and strategies, become even more critical and relevant in this rapidly changing stratosphere.

== CHEERS ==

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About msetyadi

I am an IT Strategic
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