Outsourcing, defined as the contracting of a business process to a third party, is becoming increasingly popular in the IT industry. By outsourcing functions or tasks where they lack some of the necessary skills or expertise, companies are able to focus and perform well in their core competencies.
There are other compelling reasons to outsource. Outsourcing enables greater budget flexibility and control when companies pay for only the services they need and acquire these services at the time that they need them. Additionally, outsourcing reduces the need to hire and train specialized staff, brings in fresh expertise, and reduces capital and operating expenses. By taking this approach, companies can focus money and resources on their core business.
Today, many organizations are asking themselves whether or not they should outsource their IT Asset Management (ITAM) programs and are exploring their options. Before addressing this question specifically, let’s consider the analogy of maintaining your home.
When it comes to caring for your home, do you clean your house or do you have a cleaning service? Do you do the cooking or do you have a chef? Do you have a gardener or a landscaper? If you live in a cold climate, do you have snow removal service? These are just some of the many tasks that you can outsource to experts to provide you with more time to focus on other activities in your life.
Your ITAM Program
If you are considering whether or not to outsource some or all of the ITAM functions in your organization, the first step is to take a close look at the state of your current program by performing a self-assessment. The self-assessment will help you understand where you are today in terms of people, process, tools, integration and the ability to generate complete and accurate information about your IT assets, by answering the following questions:
- Do you have formal processes in place for tracking and managing IT assets through their lifecycle, from the time they are requested to the time they are retired or decommissioned?
- Do you have resources with skills and experience in ITAM?
- Does your program include tools for discovery, software license metering and management, contract management and an IT asset repository? Do the tools generate complete and accurate information about your IT assets?
- Is there solid integration of process and tools?
- Do the various teams involved in and impacted by ITAM work well together?
- Is your current program delivering value to the business?
- Is there available budget to improve and grow the program?
Once you understand the current state of your program, the next step is to identify any gaps, risks and inefficiencies. What improvements will fill the gaps, mitigate the risks and reduce the inefficiencies?
After the analysis, the next step is to design, at a high level, a future ITAM program that will meet all your requirements, and identify the steps needed to achieve this solution. You are then ready to deploy the solution, whether through insourcing, outsourcing, or a hybrid approach that combines the two.
The options of insourcing or outsourcing your ITAM program are not a matter of black or white; there are shades of gray. Between the extremes of insourcing your entire program on one end of the spectrum and outsourcing on the other end, there is a range of hybrid scenarios. The following chart demonstrates this continuum.
Insourcing is the opposite of outsourcing and involves building ITAM processes internally, or bringing in-house processes currently handled by third-party firms. If you choose to insource, what are the major steps you need to take? The following is a list of the main tasks that will need to be accomplished:
- Hire skilled resources
- Establish roles and organizational structure
- Design, document and implement processes
- Evaluate, select and implement tools
- Train on process and tools
- Integrate and communicate the program
What are the hybrid options that lie between a complete insource and an outsource model?
1. Leverage External Expertise On-Site
One hybrid option is to leverage external expertise on premise. You can bring in experts to fill the gaps identified during the self-assessment. Here are some examples of the types of resources to engage, depending on the specific findings from the assessment:
- Process consultants
- Tools experts
- Software license analysts
- Contract analysts
- Professional negotiators
- Vendor managers
2. Use External Resources Off-Site
A second option on the continuum is to use external resources off-site. Once again, you can hire experts to fill the gaps identified during the self-assessment, but retain these services off premise, which can create greater efficiencies and cost savings. By employing a shared services model, you can reduce the cost of additional resources by sharing them with other organizations and paying only for a portion of their time. As with leveraging external resources on-site, the same types of resources can be leveraged off-site.
3. Out-Task Complete ITAM Functions
A third option along the continuum, approaching the full outsource model, is to out-task complete ITAM functions to provide further efficiencies and cost savings. The following types of functions are typically out-tasked with this approach:
- Hardware Contract Management
- Software Contract Management
- Software License Analysis
- Physical Inventory
- ITAM Program Development
- IT Asset Disposal
Finally, at the far end of the spectrum on the continuum is an outsource model, whereby hardware and software assets are managed within a private cloud. The following diagram represents this managed services solution and how it works:
This diagram shows end users accessing a managed services solution in the cloud, consisting of a Software Enterprise License Portal, a Transaction and Contract Repository, a Software Depot and business analysts. It illustrates the request process, showing how an IT asset is managed and tracked from the beginning to the end of its lifecycle. Users connect to the Software Enterprise License Portal and make a request for a software license. The request goes through the license portal. Upon receipt of the request, a business analyst validates it by making sure that the end user is entitled to the software. If not, the analyst determines whether the contract allows for substitution, where swapping product licenses is permitted in order to increase entitlements for the software the organization requires. This validation is accomplished through the Transaction and Contract Repository.
A critical step in determining whether or not to outsource, and what functions to outsource, is to conduct a financial analysis. Let’s review at a high-level the process for conducting the financial analysis.
First, identify the cash flow elements. Know what to measure in terms of real or soft dollars so that you can evaluate compared to your current “business as usual” cost and create various models based on the options available. Secondly, understand your corporate objective for return on investment (ROI) and actual payback period, and calculate the ROI. Assess the cost and savings using the calculation (gains – cost)/cost. Finally, calculate the net present value, or present value of future cash flows minus the investment required, as well as the internal rate of return, measuring and comparing the profitability of the investment.
The following are real-world examples of companies that have chosen a hybrid option for ITAM:
Fortune 1000 Pharmaceutical Company
A Fortune 1000 pharmaceutical company manages ITAM in-house, but they have chosen to outsource software compliance and audit preparation. They arrived at this decision based on an audit experience with one of their leading software publishers. They received an audit request letter from an external auditor on behalf of their software supplier. Knowing that they did not understand their compliance position with this publisher, they engaged an external consulting firm that specialized in software licensing. During the engagement, the firm determined that the company would owe their publisher $25 million if they did not change some of their licensing schemes. The consulting firm reduced this exposure to $500,000. Through this process, the pharmaceutical company realized that they needed to engage software licensing and audit preparation experts to eliminate significant financial and compliance risk.
Fortune 100 Financial Services Company
A financial services company manages hardware and some software internally; however they outsource the management of their contracts and associated licensing with their leading software suppliers to a managed services provider. Over a decade ago, one of their largest software suppliers introduced the company to this managed services provider to help the company understand their compliance position in real-time. The managed services provider proved that they could not only manage this contract and the licensing efficiently, but also identified and presented numerous, significant cost avoidance opportunities. As a result, the company retained the services of the provider and also asked them to manage all of their largest software contracts and licensing.
As you can see from these examples, companies often choose a hybrid approach to ITAM, which very often provides the greatest efficiencies and cost savings.
As you initiate the process of determining whether or not you should outsource, begin by assessing your current program and identifying the gaps and risks. Rather than settling for a strict insourcing or outsourcing solution, consider all options to fill the gaps and eliminate the risks within your program, and analyze the expected ROI of each option. Choose the approach that best meets your business, technical and financial requirements, and implement your new, more efficient and cost-effective ITAM program.