In my previous blog I discussed the growing use of alternative service delivery models to reduce overall IT costs. As a recap, examples of these delivery models include:
- Software as a Service (SaaS) or remote hosted agreements where the application vendor provides application support and operational services.
- Cloud based services where the processing and storage required to support the provider’s IT environment are outside the traditional data center.
- Managed services or outsourcing agreements where a provider contracts with a third party to provide specified IT services.
In addition to the previously discussed cost savings there are also a number of benefits including:
A more stable application environment
Under SaaS agreements the vendor maintains the application environment and supports it (including applying any patches or application upgrades) which provides a more stable environment than if a customer was making these changes in their own environment.
Greater flexibility to adapt to changing business requirements
Changing business requirements can be difficult to deal with from an IT perspective. Rapid growth may require additional capital expenditures or hiring more staff while decreases in business or divestitures may lead to staff reductions. Contracting for IT services makes it much easier, and typically less expensive, to respond to these type of changes since service contracts can include the ability to scale up or down.
Defined service levels with contractual assurances
In my opinion this is one of the biggest benefits of contracting for IT services. The risk of not meeting defined service levels is passed to the vendor and, typically, there are financial penalties if they don’t meet the agreed-upon service levels.
Access to skills which may be difficult to hire
Organizations that provide SaaS, cloud or outsourcing services have access to employees with all the skills required to support their service delivery. Provider organizations may either find it difficult to hire employees with certain skills or can’t justify a full time resource for limited support requirements. By contracting with a delivery organization this issue can be easily resolved.
Ability to mitigate risk
I’ve already mentioned the ability to define service levels in IT agreements. However, you can also address areas like disaster recovery, fault tolerance and infrastructure security through these agreements. Also, insurance and indemnification provisions can be safeguards against the vendor’s failure to perform. Even for risks that can’t totally be transferred (like HIPAA) the audit rights and indemnification provisions can at least provide significant incentive to ensure the vendor takes all appropriate steps to protect their customer’s interests.
The ability to focus on strategic objectives instead of routine operational concerns
Finally, if you are able to contractually obligate another party to perform the more routine IT delivery functions it frees the provider IT management team up to focus on areas of strategic importance which ultimately delivers more value to the organization.
As you can see, alternative IT delivery models have many potential benefits. There is no “one size fits all” solution but I would strongly recommend you understand the options and incorporate them as appropriate to meet your unique delivery requirements.