A New London Associates Prospective:
Information Technology Shared Services

Background
Companies have been doing some form of IT shared services since the advent of the mainframe computer, where you could purchase part of the mainframe processing, Central Processing Unit (CPU) cycles, etc to run parts of their business. During the 1990’s there was large scale proliferation of computer services, such as distributed style client server computing, web based systems, globalization of services, the Internet, and Internet Protocol (IP) networking, etc. These services resulted in increases of expenditures for information technology (IT), a spread of numerous technology vendors, platforms, operating systems, and application software, which all required integration and caused complexity in the IT environment.

Companies started to search for more efficient ways to run their IT environment, build more standardization, improve service delivery and create synergies across business units. These factors, started to increase the use of IT shared services for businesses as part of an IT organization. The primary driving factors being:

1. Leverage scale across the IT organization
2. Create standardized technologies and processes
3. Develop competency centers for key technologies or services
4. Drive down the costs of information technology

These factors also saw companies beginning to use outsourcing more as a key method of delivering lower cost services, where there has been large scale increases in contract awards over the last 10 years.

Companies who began to look at shared service models began to see large benefits. By reducing complexity, minimizing or eliminated redundant processes, maximizing asset and network services and identifying commodity based services companies can make their technical infrastructure 20 to 30 percent more efficient.

However there are trade-offs, Exhibit 1 shows the "sweet spot" for shared service functions is the highly sharable commodity technologies, such as data center facility management, wide area networks, desktop, storage, telecommunications, system monitoring, etc, or those services that span an entire company like perimeter security management. These services are being packaged more recently in a term called the "IT Factory", where common repeatable processes can be applied across all systems. As the technologies or applications become more aligned to business units or specific business services, then the IT shared service provider can reach a complexity ratio of manageability and may need to add dedicated support to effectively meet the client expectations, losing some of the benefits of shared services.

Information Technology Centers of Excellence

Companies began to form shared service functions by aggregating common services or technologies together in centers of excellence (COEs). COEs tend to more vertically specific to the technology or service being managed than the IT Factory highlighted in "Exhibit 1" with the most common services companies have introduced have been wide area network services, help desk, desktop support, call center management, security management and Internet services etc. These COEs could range from a small single business group, to larger cross business functions, to large global enterprise environment. Some firms also began to commercialize their shared service function, such as EDS, IBM and recently AIG, which now offer shared services (packaged as outsourced operations) to other companies.

Shared Services Evolution

Shared service functions will continue to evolve in line with IT industry trends, new demands from the business and the increasing focus to drive IT efficiency (best in class IT organizations produce 5% net efficiency each year) on an annual basis.

Exhibit 2 shows the phases of Shared Services. As technology organizations evolve their Shared Service capability, the largest savings (estimated up to 40%) can be realized through Technology Standardization. As companies move each phase, the groundwork is laid to enable business driven computing services based upon a more consumption based operating model. This enables an increased variable cost structure for IT with the business only being charged for their business volume, system capacity, service level needed and the product being used. At this point IT organizations will begin the professionalize their operation in a way that can run "IT as a Business" with the necessary tools, processes, relationship management and financial controls.

The next step is that firms are professionalizing their IT shared service operation in how that service is positioned and perceived by the business it is supporting. Firms are achieving this professional image as Internal Service Providers, which can provide a combination of in-house and outsource technology services, but maintaining the single contact point to the business.

As technology services become more complex, with multi-product, multi-vendor environments, increase use of outsource, offshore, and "on-demand" style computing, and finally consolidation in the industry, it will be imperative for IT organizations to create and manage the "one stop shop" for IT services for it's organization. New London Associates will be positioned in the market as the premier consulting and advisory firm helping firms maximize their investments in IT shared services.