Why utilities must redefine their IT outsourcing strategies

The utility sector today faces unprecedented competitive pressure to introduce Internet of Things (IoT) type innovations around smart metering, smart grids, and smart cities. Agility, flexibility, and a 'fail fast' approach to technology are the order of the day. At the same time, the risk of cyberterrorist attacks that could cripple national economies puts a premium on security and operational stability. In other words, failure – fast or otherwise – is simply not an option.

To address these conflicting imperatives and strike the appropriate balance, utilities must fundamentally rethink their traditional approach to IT outsourcing. Specifically, they must move beyond discrete, IT tower-based relationships and find ways to integrate a wide range of IT and business operations and provider capabilities. This requires new service delivery models, contractual structures and – in many cases – new providers who can offer the necessary skill sets.

Revolutionising IT outsourcing

In the utilities sector, as well as in many other industries, CIOs are aiming to more clearly separate the dual responsibilities of IT. Often dubbed a 'bi-modal' approach, this strategy applies organisational structures and commercial and contractual mechanisms to optimise the contributions of the teams charged with 'running the business' (ensuring security and stability) as well as the groups involved in 'changing the business' (delivering innovation and new ideas). Equally important, the strategy needs to maintain oversight of the service delivery model as an integrated entity.

One key is to recognise that the different functions of IT require different organisational structures. Run the Business teams convene for regularly scheduled meetings. Participants prepare in advance and review detailed agendas in rigorous detail. Given the stakes involved, miscommunication or an action slipping through the cracks is simply not an option.

A Change the Business team, meanwhile, typically conducts daily check-ins and status updates. To align with the 'fail fast' philosophy of innovation, projects are generally time-boxed and defined by schedule rather than functionality. Team meetings are designed to raise issues that are then resolved offline.

Getting the right balance

To accommodate these differences, CIOs must balance the needs of respective teams appropriately, ensuring that no particular management style dominates, and that lines of communication remain open to enable collaboration. Logical touchpoints between the two organisations can allow an agile team to work with the security and stability experts to conduct beta testing of a new application – in other words, ensure a proper balance between innovation and stability.

From a sourcing perspective, client organisations have traditionally focused on working with service providers to manage Run the Business functions, while keeping change the business activities in-house, under control of the internal IT organisation. This approach misses an opportunity to leverage outsourcer capabilities and talent to implement IoT-related innovation.

The traditional structure of outsourcing agreements is one obstacle to outsourcing innovation. Service providers typically prepare and submit a proposal for a specific scope of work, execute the agreed-upon services and then charge a fee based on the terms of the agreement. This discrete, project-based approach doesn’t apply to the needs of change the business IT, where teams quickly align and realign to services and products, and where success isn’t necessarily linked to dollars invested in a function of investment in a project.

One way to break this impasse is to dedicate service provider resources to a client’s agile service teams on a long-term basis. This enables enhanced control, knowledge management, and training that typically wouldn’t result from a more tactical contracted resource model. The dedicated resource approach offers opportunities to innovate and develop new compensation models and metrics. As resources are invested in long-term success, value can be assessed against overall service performance rather than the traditional deliverables-based approach.

Outsourcing in the age of the Internet of Things can also require a new approach to recruitment. In a change the business environment, personal interaction and fit can be imperative, so client must be willing to be more closely involved in screening and interviewing team members.

In today’s demanding utility environment, the CIO must assume a role resembling that of an orchestra conductor – ensuring that each player follows the music, and, more importantly, that the strings, woodwind, and brass are all playing in harmony. Achieving a harmonious balance of security and innovation can enable a safe enterprise that accommodates change and progress.

Elesh Khakhar at Alsbridge

Image Credit: Shutterstock/Mathias Rosenthal