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With the economic upturn driving increased IT investment, how can organisations overcome inflexible outsourcing contracts or internal headcount freezes to guarantee service levels and avoid compromising business integrity?

Co-sourcing is the flexible, cost-effective alternative which enables organisations to flex up or down IT support services in line with business needs.Over the past couple of years, as any IT Manager can attest, costs have been squeezed. The result is that most operations are running at zero spare capacity - support staff illness, for example, can seriously compromise the quality of service. Yet as the reliance on IT continues to increase the implications of service glitches are huge, and growing.

The good news is that business is picking up again. Investment banks are recruiting for the first time in years and figures from the British Chamber of Commerce reveal a five-year high in activity levels. Yet when it comes to the so-called ‘non core' business components such as IT service and support, a head count freeze remains in place. This is creating a significant potential problem whether the service is delivered in-house by permanent staff or through a managed service. How can the same number of people deliver the level and quality of service required by an organisation looking to leverage the economic upturn?

Growth means new business and new business requires additional services, products and, more likely than not, IT investment. How can these support people manage the additional workload peaks caused by desktop upgrades or product replacement programmes without compromising standard levels of support and performance, and hence exposing the business?

Despite a distinct lack of success stories and quantified Return on Investment (ROI), outsourcing has been a popular option over the past couple of years, particularly for quoted companies looking to woo city analysts with strong profit per employee ratios. Yet the economic justification for outsourcing is hard to achieve. Under an outsourcing contract the relevant IT staff move to the new service provider and, due to TUPE (Transfer of Undertakings and Protection Employment) legislation, every staff member retains employment rights.

With skills representing the biggest IT cost, the new service provider has the same cost base upon which to deliver the service from day one. Add in the required profit margin and where is the cost benefit? Yes the organisation is freed from time consuming and costly recruitment activities but on the other side most organisations find themselves expending much time and effort managing the outsourcing contract, arguing what services are included - or excluded - from the contract's scope.

Furthermore, if the objective is to reduce cost, this will require a change to the existing service model. A new level of risk is involved as the outsourcer is as yet unproven, and it is the company that bears the structural cost adjustment.

With long-term contracts, outsourcing is inflexible and many organisations struggle to negotiate contracts that can support business change. While most contracts purport to focus on delivering service, the crux of the contract is headcount.

This may be OK during periods of flat growth or recession but cannot provide the level of service required during an upturn. With a fixed headcount how can an organisation manage change and, critically, deliver the sustained service improvements that are an increasingly core component of competitive advantage?

These contracts are inflexible and intractable, requiring interminable negotiations that take up the time of senior valuable staff who could be far better employed elsewhere, to accommodate even the most basic change in system or service.

Yet there is an understandable reluctance to employ additional permanent staff until the economic upturn is confirmed, so what is the alternative? The market for contract staff all but disappeared over the past few years as belts were tightened. Will contractors now make a come back? The use of contractors is, of course, an option. It allows companies to scale requirements up and down as required and ensures access to exactly the right skills - something that is not always possible with permanent staff.

However, many companies retain memories of the negative affect of contract staff on the morale of permanent employees. With no company loyalty and a celebrated higher pay packet, contractors can foster discontent. They do not fit into the company culture and provide no service consistency.

An alternative is to co-source. A co-sourcer provides its own permanent staff to a company's site to carry out desktop, support or help desk roles under the company's own management and control.

As with a traditional managed service, such as outsourcing, there are no costs associated with recruitment, appraisals or payroll. However, whereas a traditional managed service is based upon a fixed staff headcount, co-sourcing's inherent flexibility allows an organisation to scale up or down resources according to business requirements. Additional staff can therefore be provided both to cover increased user activity and to deliver support during specific projects, such as upgrading the desktop - either resources dedicated to that job or backfilling for permanent staff involved in the project.

Furthermore, a co-source partner will always ensure staff are in place to provide holiday or sickness cover. Indeed, good suppliers will have at least one free additional member of staff on site - if numbers are in excess of six - at all times to provide immediate cover if required. Indeed, while co-sourcing provides a solution to today's problems of service delivery in the light of headcount freezes and inflexible managed service contracts it also offers huge longer term advantages over the employment of either permanent or contract staff.

Working with one co-sourcing partner overcomes the problem of contractor cultural conflicts and provides a seamless integration into the corporate environment. The co-sourcer is responsible for any HR conflicts and for providing employee career progression - an issue that remains a major problem throughout IT. With a broad portfolio of clients a co-sourcer can supplement the training required in a knowledge-based industry with diverse career opportunities. This ensures not only the recruitment of top quality people but also consistency.

The economic upturn is positive but for IT managers with zero spare capacity it is set to create a major headache in sustaining service levels for existing systems. Finding the skills to manage new projects and developments could stretch resources to breaking point, seriously jeopardising business performance.

So what are the options? Those companies with traditional outsourced and managed service contracts will now be faced with the need to renegotiate in the light of technology and business change - and incur the direct and opportunity costs associated with this process. With permanent staff an unacceptable overhead, companies are also unlikely to risk the disruption associated with using contractors.

However, a co-sourcing model can extend the managed service concept to provide companies with the flexible, cost-effective and seamless service required to meet the challenge of economic growth.

Paul Whitlock, Technical Services Director, Plan-Net

Plan-Net Support Services

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