Diversity has Future
Successfully Managing Cooperation of IT Service Providers
Managing the conflicting directions of economies of scale and coordination expenses, the cooperative creation of IT services enables an optimization of IT costs. Nevertheless, the participants find themselves confronted with major organizational challenges. We take a close look at the possible ways clients can minimize these risks.
IT services contribute a significant share to the turnover generated by services in general. The procurement of such IT services from third parties has recently enjoyed a rise in popularity, whether through IT outsourcing or in the form of additional services made available by other organizations. From the perspective of clients requiring IT services, the uncoordinated sourcing of services from specialist providers makes little sense because of the many and diverse interdependencies among the various specific services. Moreover, modularization of IT services is not a task which can be performed in a few moments of spare time. So clients need and want holistic solutions.
Such solutions can be realized either by procuring all of the services from a single provider or by coordinating the sourcing from a number of different service providers. The first option has the inherent risk for the clients that they will end up with services which are less than ideal or comparatively expensive because a single provider cannot necessarily guarantee that each of the solutions is ideal from a cost standpoint or offers the desired service quality. Multi-provider management, on the other hand – whether under the auspices of a general contractor or handled by the clients themselves – entails the risk of conflicts in performance and communication among the providers.
Options for technical and organizational standardization can cut costs
As a general principle, third-party procurement of IT services is worthwhile from the clients’ perspective only if they can realize cost reductions from this decision. Such benefits are, as a rule, the consequence of the service provider performing the services externally being able to achieve economies of scale and exploit standardization potential beyond the reach of clients who do the work themselves.
When we look at the standardization potential – and with it the existence and scope of possible cost reductions – in these services, we need to distinguish between technical and organizational standardization potential. Technical standardization options are essentially related to the nature and qualities of the service which must be performed; organizational standardization possibilities, in contrast, are closely tied to customer requirements and the degree of freedom which the provider has. From the provider’s viewpoint, the operation of a large computer center where the systems of many different clients are hosted promises tremendous economies of scale. But the requirements of each of these individual clients which are highly specific to their organizations, such as myriad service level agreements, hinders the full realization of this optimization potential.Next page