But IT leadership skills do not necessarily translate from the day-to-day workings of IT. ISG observes what leaders in IT actually do and has found these Top 5 principles to be common elements of successful practice.

1. Improve communication skills at all levels of your organization. Ensure all IT staff display good communication in every interaction with every client. Senior managers, account managers, the service desk, and even those IT people normally hidden away in darkened rooms whose knowledge really make IT work must commit to this approach.

2. Develop the skills and careers of your IT staff. Resist the temptation to cut costs by reducing the training budget for staff, even in tough economic times. Use workplace challenges to enhance the career development of individuals. Even if your organization is seen as a place to gain an education that can then be taken elsewhere, remember that if you think education is expensive, a short trial of ignorance as the alternative will prove that it’s not.

3. Align the IT strategy with the business strategy. Develop strategy parallel with that of the business units served, and communicate it frequently to IT staff and to the business units. The IT staff can then make decisions in their day-to-day work that are clearly aligned with corporate and IT strategy, avoiding persistent escalation upwards and, more importantly, allowing the entire organization to move forward in concert. Invite the business to take an active part in the ongoing IT strategic governance activities, particularly in information systems and information management.

4. Go to the theater. See Shakespeare’s Henry V and reflect afterwards on the fact that leadership in IT, as elsewhere, is ultimately a lonely profession. As Lao Tzu said, “But of a good leader, who talks little, when his work is done, his aim fulfilled, they will all say, ‘we did this ourselves.’”

5. Think task > team > individual. The three circles model (by John Adair) is a simple way to remind leaders that their responsibilities should be balanced across the development of the team, the care of each individual’s needs and the achievement of the task. Strong business process and strategy can support the transformation you desire, for all of the participants; metrics that emerge from these operational best practices are essential for continuing to develop your people and environment.

ISG has been helping IT organizations achieve operational excellence for more than three decades. Contact David Cousin for information on the ISG services that can help you achieve your IT management objectives.

To ensure that you benefit from the best market prices for all your outsourced services, ISG recommends a keen focus on removing risk from outsourcing deals. These Top 5 points identify ways to reduce the level of complexity and uncertainty, and therefore, the key drivers of risk.

1. Buy standard services wherever possible. Risk is a reality when you are buying non-standard services. Standard services, which are well-defined and predictable, are available from most IT service providers through a price book, rather than a custom-built and often complex financial model. Before any major outsourcing venture, take time to understand the IT requirements of the business, and value any non-standard services or constraints so you can make a decision based on its relative importance when compared to the market standard.

2. Follow a clear process. Being clear and engendering trust in a process reduces uncertainty in the mind of the person responsible for pricing the services. Be specific and consistent in your communication about the Request for Proposal (RFP) process, and ensure you understand and support the service provider’s due diligence requirements.

3. Articulate service requirements in terms of outputs. Describe your service requirements, or the “what,” in output-based terms, and let your service provider worry about the “how.” In addition to allowing the service provider greater control to leverage economies of scale across multiple clients, you are removing a layer of complexity in the solution.

 4. Understand your business demand. Because many IT organizations don’t fully understand the business needs that the outsourced IT services must fulfill, they often focus on installed units rather than utilized services and have to “re-baseline” their volumes during the outsourcing process. Constantly updating volumes part-way through a sourcing transaction can heighten confusion and uncertainty. Understand your consumption of IT services: the number of active devices, utilized ports and the amount of occupied storage. If you don’t already measure your consumption, start measuring it, and return to the business units to ensure it is what they really need today and in the future.

5. Fight for the “A-Team.” Every organization has a group of people who they consider to be the best – the “A-team.” These employees bring with them experience, certainty and confidence in a solution and price. To get the best team assigned to your organization, approach the right service providers for specific IT service bundles. Your service provider must want your business and consider you an important client. Conduct a market analysis, and initially spread the net wide to test the appetite of potential service providers. Then ask for the A-Team. If you don’t ask for it, you won’t get it.

For more information on how to reduce risk in your outsourced contracts, contact Jessica Kane or Robyn Singlehurst.

1. Know your company’s strategy. Being clear on what the enterprise wants to achieve in support of the corporate and functional objectives will ensure project money is spent in support of the overall strategy. Take time to develop a financial base case that maps your current costs to deliver the services (in- or outsourced) to an industry standard approach so that your sourcing activities are performed with deliberate strategic objectives in mind, rather than being ad-hoc acts of contracting.

2. Know your own organization’s skills and competencies. During the sales process, the service provider will collaborate and cooperate to define the scope. Your company’s maturity in negotiating market terms and conditions, as well as pricing, will lag significantly behind those of the service provider. The lack of comparison to other bids will deny you the data you need to negotiate effectively. Knowing specifically what your organization can and can’t do will help you to get expected results from a sole-sourced approach.

3. Increase your knowledge of current market capabilities. You may not always know market capabilities at any given point in time as well as you think you do, and you may be doing a disservice to your organization. The absence of competition prevents you from having key market knowledge to discuss scenarios and alternatives with the eventual selected service provider. Solicit bids from more than one service provider as a form of valuable education.

4. Determine if your organization can afford the lost time of a failed relationship. The lack of competitive tension in the initial engagement can mean that the service provider is less pliable. As a result, you might find that you have to start all over again, and this may cause you to put your organization through the pain of yet another transition and further delays in achieving your operational and business case objectives.

5. Take the time to gather information needed for an intelligent conversation with the service provider. Even when the need for commitment and results is urgent, the devil is in the details, and time spent discussing the principles and foundation of the agreement will save time in the negotiations phase. Except where the leverage is high, it can be difficult to secure the most favorable contractual terms, price and service levels when the service provider does not feel a competitive threat. These are complex contracts, and clarity is essential.

To discuss the benefits of a competitive transacting process further, contact Melany Williams.

1. Success comes from collaboration. Mirror your project model with the service provider’s organization model for each workstream lead level and sub-workstream lead level. Name a counterpart from the service provider for each in-house project lead position. This pair will serve as a team in making the transformation happen. Ensure both counterparts have common performance objectives with specific personal incentives, and you will benefit from a huge collaborative approach in the journey toward transformation!

2. Build one team. Don’t underestimate the value of personal relationships. Foster informal meetings up front and on an ongoing basis throughout the transformation. Provide for co-seating of each workstream and sufficient cross-workstream alignment to guarantee knowledge transfer over the course of the project. Ensure professional facilitation where required; collaborative platforms like SharePoint are a minimum pre-requisite for success.

3. Separate your operational project team from ongoing commercial negotiations. Discern what matters contractually and what makes sense operationally for each project pair. Stakeholders will spend less time writing and evaluating change requests and be able to focus on the operational objectives and business needs. Use the operational pair as separate subject matter experts to put a voice to what matters in real life. If you blindly follow the contract, you will be significantly less successful in achieving the objectives of your contract.

4. Strengthen your governance team with best-of-breed contract management from day one. Both parties signed a contract, but it’s the daily business of the provider to know the ins and outs of the contract. And if required, the provider will make use of this knowledge. It is your job to know the duties and obligations of your provider. Use a standardized tool like a tracker to anatomize your contract into manageable pieces. Your governance team or a governance services department needs to make sure that you actually receive the savings and efficiencies you signed up for.

5. Don’t forget who the client is. Some providers compare the contract to a marriage. This is a romantic idea but not a helpful one. A strong marriage has two partners on the same level, but in a contract, you need to guide your provider and stay one step ahead. Make sure you have an experienced leadership team and experts that help you assess alternatives, identify potential issues and prepare for the unexpected.

To discuss successful provider relationship management further, contact Michael Kimmigor Johanna von Geyr.

In the 1960s, the cost of software included in the first IBM mainframes (IBM 360) was minimal when compared to hardware. In the 1980s, IBM introduced invoicing that was associated with product category, charging the client for every change made. Since then, software companies have begun to invoice their software products according to hardware power.

Due to a number of recent model changes related to virtualization and cloud computing, large software companies have been creative in ensuring that their income remains inexhaustible. Published data from IBM illustrates this shift well: in nine years, its software revenue multiplied four-fold, from US $2.6 billion in 2000 to US $8.3 billion in 2009.

As software expenses continue to increase, it pays to consider the following Top 5 ideas to help get your software licenses under control.

1. Limit the number of licenses. Problems often stem from a lack of control over the various licenses in use. Missed coordination between the purchasing department and operational staff who deal with licenses means that the number of licenses in use is different than the number purchased. If software companies launch a software compliance audit and find that contractual conditions are not met, high penalties can apply. In addition, contract renegotiation often results in the client re-committing for too lengthy a period.

2. Monitor your maintenance costs. Contract models are increasingly complex with less room for negotiation, particularly around software maintenance. As one of the highest costs in the contract, software maintenance can represent up to 50 percent of total IT expenditure for CIOs. In 90 percent of cases, software maintenance is purchased at the same time as the initial license, which requires the utmost attention from day one.

3. Determine your exact software requirements. Be wary of all-inclusive offers proposing unlimited use of software portfolios for a fixed price. Even if they seem convenient, these solutions can be less profitable over the long term than buying individual software packages from a price catalogue.

4. Don’t be fooled by complex licensing models. In the past, companies had one “on-premise” software model that could be used to deploy and activate software on all hardware (servers, mainframe, desktops, network equipment, etc.). Today, this model coexists with other virtualized models and “as a service” models that are hosted by third parties, making it increasingly difficult to effectively monitor inventories of deployed software.

5. Implement Software Access Management (SAM). Experience shows that “the devil is in the details” for software management. The details are contained in lengthy and complex license agreements, and if the terms and conditions are not sufficiently shared within the organization, the consequences can be both awkward and costly. A Software Access Management (SAM) process ensures efficiency at all stages of the software lifecycle, from the initial expression of a requirement to decommissioning. This last step is often overlooked, but it can represent an important savings opportunity when you want to stop paying for what is no longer in use.

To discuss software licensing further, please contact Lucy Hermann-Taylor.

Much of the relevant legislation currently implemented by the European Union as “directives” is enacted in each member state by local legislative bodies. Although the directives ensure that there is similar legislation across the region, implementation can vary between countries and companies.

Consider the following Top 5 European employment laws when considering transferring employees.

1. Transfer employees to service providers with the same or similar contract terms and conditions. The Acquired Rights Directive (ARD), also known as TUPE (Transfer of Undertakings, Protection of Employment), stipulates that, in some countries, an employee’s contract of employment will be transferred automatically on the same terms as before in the event of a transfer of the undertaking. The new employer, therefore, cannot reduce an employee’s terms and conditions unless it meets the directive’s exception criteria. But be warned, this is not a get out of jail free card! Plenty of case law in each country challenges the law and attempts to use this derogation but rarely succeeds in expanding the restrictive criteria.

2. Keep employees informed of matters that affect their employment. Employee consultation – technically part of the Acquired Rights Directive but enacted in each country by a separate national law – gives employees the right to request their employer to inform them of business matters that affect their employment. Most multinationals, including large service providers, already have consultation arrangements in place and are familiar with the local requirements. Be sure to integrate HR representatives and employee committees along with local employment lawyers when addressing country and company-wide projects that may impact employees.

3. Transfer employee data during the transfer window, not before. The Data Protection Directive allows only a short period of time before contract signature for receiving service providers to see the data of employees in scope. The national legislation prevails here, too; in the UK this transfer window is two weeks before the contract is to be signed. An alternative is to use either estimated or aggregated data, which is much easier to manage. A new and updated Data Protection Regulation, which should reduce the diversity between country laws, will be introduced in the next few years. Current proposals include a mandate for regulators to levy much higher fines for late data transfer (up to 2 percent of Gross Sales Revenue).

4. Understand local laws governing employee rights regarding unfair dismissal. National employment law gives all employees the right to sue their employers if they believe they’ve been unfairly dismissed, even if they’ve received a redundancy payment. There are statutory minimums for redundancy payments; however, corporate terms in individual employee contracts may override these. Estimating total redundancy exposure can be a difficult exercise, especially if employees have been through the ARD process several times, bringing their original employment rights with them.

5. Collaborate with a specialist in employment law and the HR department for each of the countries and legal entities in scope for employee transfer. Because this mix of European and national case law has accumulated over time, and in places is a little vague, or has slipped behind in addressing the needs of the modern world, each country has various test cases that provide clarification. An individual advisor could never have full knowledge of all the applicable case law in Europe; the number of countries involved is too great and the laws are recorded in local languages. Consult experts in these areas.

To discuss employee transfer laws further, contact Sarah Seabury.

1. Stick to a realistic time frame. For services that have price trends that do not vary much, keep the frequency of the benchmark exercise to every two or three years. For those with pricing that tends to vacillate often, i.e. networks and storage, consider benchmarking every year. Be sure that any service price correction will cover the costs of undertaking a benchmark, and ensure that you do not stray far from market pricing over time.

2. Choose the right target. Your team has worked hard to get the very best price on the market. After two or three years of reductions in general pricing, you might match the market average, so a benchmark clause that targets the average may bring you limited benefits. At the very least you should meet the average, but wherever possible you should target the top 25^th percentile for performance. Be aware that if you aim for the lowest price in a reference group plus a small percentage, or a very low percentile, you will end up with a disruptive and time-consuming process. A provider may fight to keep its margins and may not match another provider who is willing to lose money on a single deal.

3. Ensure the future is certain. Setting a date for any revised pricing will keep the provider from slowing the process. On occasion, providers will make the process as complex and time-consuming as possible to enable them to bill longer at current rates. If a fixed date for pricing exists, even if the benchmark overruns, the pricing will be corrected retroactively.

4. Agree on providers up front. A benchmark clause that specifies a short list of providers will result in an easier choice from the selection. Be aware that service providers perform hundreds of benchmarks around the world and will have knowledge of which benchmark provider’s current database may flatter them.

5. Make benchmark results final. If you want revised pricing to be adhered to, make sure the benchmarker’s decision is final. If either party does not like the outcome and refuses to agree to the result without the benchmarker holding the final decision, the time and effort spent on performing the benchmark will be wasted.

Benchmarking can ensure that you continue to receive value for money over time. We can observe major shifts in pricing year on year as technology improves and underlying costs reduce. Tracking and staying true to these shifts can mean a savings of 15-20% year on year in some areas. Benchmarking, rather than blindly accepting a static-priced future, allows you to tie your price to these trends in the same way that you might have if you had kept services in-house. To discuss benchmarking further, contact me.

In this time of greater public budget scrutiny, these legacy government budgeting tools are being taxed to their limits. In many cases, governments have little insight into where they are truly allocating their scarce resources and, more importantly, what they are getting for that investment. Recently, the market for government budgeting software applications has improved, and a myriad of options now exists for governments seeking to replace their legacy budgeting tools, but there is significant differentiation in capabilities between available solutions. The following are Top 5 must-haves when selecting a new government budgeting solution:

1. Set yourself up for robust personnel expenditure forecasting. Often more than 70% of a governmental organization’s budget is dedicated to personnel expenditures. Position and employee level personnel cost planning and forecasting is, therefore, essential to effectively manage personnel expenditures and support forecasting and analysis on proposed compensation changes.

2. Provide users a single point of entry and review. Unlike private businesses, governments are required to publish their budgets. The resulting public scrutiny means government budgets must provide context and justification decisions. Thus, government budgeting systems need to integrate word processing with budget forms and provide automated budget book publishing.

3. Package decisions for review, prioritization and approval. Whether a government budgets incrementally or uses a zero-based approach, it is essential to provide tools to create and manage budget decision packages for software service level and other programmatic changes.  Decision packages allow governments to manage budget enhancement or reduction throughout the budget process and to quickly rank, prioritize and approve decisions in the context of available resources or reduction targets.

4. Link budgets to goals and objectives. Governments need budgeting tools that integrate strategic planning, budgeting and performance management into a full lifecycle solution that provides a foundation to manage scarce resources. With such tools, governments can more effectively allocate resources based on expected outcomes and provide greater transparency to the public.

5. Partner with public sector budgeting experts. Find a budgeting systems implementation team who knows government budgeting and has extensive experience successfully deploying budgeting solutions in government. Seasoned consultants with expertise in public sector budgeting and budgeting systems best practices can help governments better leverage these tools to improve their budget processes. Inexperienced consultants, more often than not, lead their clients to pave the same old cow path by implementing the software to support their legacy functionality and processes without regard for opportunities to improve.

Other considerations come into play when selecting a new budgeting solution for government, but addressing this list will help lay the foundation for a successful solution. To further discuss government budgeting systems, contact Jason Beal.

1. Build projects around motivated individuals; support them, and then trust them. Ever led a project where the staff had already given their notice and were serving out their last few months, or were quite unhappy with the company they were working for, or were simply not of the skill and ability a line manager wanted so were dumped onto your project? Sadly, these unhappy situations are very common for project staffing, yet they directly lead to failure of the project. In comparison, motivated, well-supported and trusted teams can achieve great things. A team that is well-supported gets the tools and the resources they need to succeed. And if you trust your team, you will not second guess their tools and resourcing needs.

2. Talking face-to-face is the most effective and efficient method of conveying information. The people with the most visible success/failure metrics are those who sell high-cost services. Their number one mantra is “get in front of the customer.” While phone, text messaging and email are useful tools, they are not as effective and efficient at conveying information as sitting down with someone. High-quality video teleconference is a good substitute but not a replacement.

3. Business people must work together daily. The purpose of a project is (normally!) to help the business, not to seek budget, activity or employment for IT. The business needs to be engaged daily, face to face, so it can help formulate and re-formulate its needs as the project evolves.

4. Deliver frequently. Salespeople love to sell projects whose first legitimate, useable, measurable business result deliverable is three years from now. Then they can cash their checks and move on in their careers before it all falls apart! We all know that the early steps of a project are essential. Subsequent steps evolve, and each step can deliver something of genuine business value. Organize the project to do this. If valuable deliverables are not apparent, the project is in trouble. Revisit its validity and continuously evaluate the project to see if it is or will meet its objectives. Kill it if it is not.

5. Remember WIRC. This mnemonic device will help you remember key relative value lessons from the Agile Manifesto. While Agile methods operate on the idea that some fairly standard activities are valuable and often necessary, its success greatly depends on a few certain activities.

With the application of a few key Agile principles, most projects will deliver results that satisfy the business. To discuss Agile project methods further, contact Kevin Brown at ISG.

A significant part of an insurance company’s operations consists of back office processes that have been brought together through the acquisition of legacy books of business, differing client needs and an evolving regulatory environment. About 80% of insurers’ back office processes are similar to each other. The remaining 20% vary widely and can be very specific to the operation of a particular insurance company. The lack of a common operating model undoubtedly hinders companies from lowering the cost of operations and presents a significant business challenge given the difficulty of improving net book value, overall revenues and the clients’ experience in current market conditions.

To lower operational costs, many insurance companies have undertaken significant investment in both IT and business process transformation. Consider the following Top 5 ideas that will help you meet the challenges of embarking on this transformation journey.

1. Transformation is not only about outsourcing. Transformation is about developing your target operating model, potentially incorporating changes to IT systems, technology, process, resourcing and behavior, in addition to considering alternative sourcing models. Outsourcing may or may not be the chosen sourcing approach at the end of a transformation.

2. Come to “a single version of the truth” before implementing the business case for transformation. Work to define the target operating model for all business units, and ensure the benefits of the change are understood to obtain buy-in from all parts of the business. The view at the group level will be strategic. The perspective from the business unit, the IT organization and the key business functional areas is about the implementation of change. Each part of the organization, particularly the revenue generating engine, needs to understand the importance of “a single version of the truth” to realize the benefits of the target operating model (be it centralization of services, de-duplication of processes, rationalization of IT or integration of further books of business).

3. Avoid running multiple transformation programs as this adds to the complexity of delivery. Many programs take on a life of their own, make demands on limited management bandwidth and lead to budget overruns or even incomplete transformation of the business. Remember that transformation is a journey, not a destination, and insurance organizations need to restrict themselves to achievable, non-competing transformation programs to avoid failure.

4. Tap different skillsets across the life of the transformation. Be sure to understand what skillsets are needed for each phase of the transformation. The organizational skillsets required at the start of a transformation to facilitate change will be different from those needed as the transformation phases evolve and as the desired target operating model is achieved.

5. One size does not fit all. Each open book is different, and the “one size approach” may not work if you are addressing elements as diverse as the pricing of non-standard services (particularly for open books) or the reduction of the cost to service clients with different needs. Re-calibrate the effort required for transformation of each open book. Transformation in the insurance industry requires process expertise in the procedures and complexities of an insurance organization.

Though navigating the risks and complexities of transformation can be challenging, ISG can provide you with the proven experience, objective advice, knowledge and data to achieve success. Contact Rob Chapman or Yadu Singh to learn more.