If you receive errors when attempting to view this white paper, please install the latest version of
"Business Continuity Management must expand beyond the traditional IT focus to include
the Business Unit operational needs. These include relocation, revised operational
procedures at the relocation site, staffing, provisioning for the relocation site, human impact
from the disaster, corporate policies on compensation until normal operations resumes,
supply chain or outsourcing due diligence"
Source: Estrella Partners Group LLC
Retained IT Staff: One Size Doesn't Fit All Models
is also known as :
Retained Staff Performance
Value Retained Staff
Outsourcing Retained Staff
Agreement Retained Staff
Aspects Retained Staff,
Conditions Retained Staff,
Retained Staff Shortage,
Retained HR Staff,
IT Staff Size,
Retained Executive Recruiter,
Staff Human Resources,
By Al Uretsky
Retaining good IT staff on behalf of a client organization is no simple task.
They face issues with regards to competitive rates, contracts, benefits,
environment, locations, safety, liabilities, quality, and more. So, how do
organizations determine if they have the right model of retained staff? How much
of a firm's IT should be outsourced vs. internal resources? What is the right
level of shared responsibility between a service provider and a client
organization? What are the typical billing models leveraged by service
providers? How does one manage the communication process with their services
providers? The simple answer is to be honest and forthright with your services
provider / client and they will in return treat you with the same level of
respect and good faith. This paper will touch on some of these issues, primarily
addressed from the perspective of the services provider.
Successful size / ratios for a retained staff model
Best practices will indicate that there is no set of parameters that fits
most or even all situations for a successful model of retained staff. Those
organizations that look to drive their sourcing activities based on a scientific
/ mathematical approach around some percentage of their internal staffing or as
a percentage of their technology spend, will find themselves facing additional
issues around effectiveness and that is part of the problem in many unsuccessful
I have personally seen this ratio vary in organizations from 0 - 100%,
dependant on a number of variables, mostly on the philosophy of the executive
officer. Some executives will take the stance that if they do not have the
skills internally to support their operations then they don't have the right
resources, and rather than looking towards retained staff they replace internal
staff. This is short sighted and will not allow for the benefits associated with
an outsourced model. The other extreme would be the executive that outsources
their entire IT department, which is more acceptable in smaller organizations
due to economics, but this too has potential pitfalls that one needs to avoid.
The ideal model will reside somewhere in between. The client organization
must determine their level of comfort working in such a model and identify the
potential risk factors with doing so. There is always risk in such arrangements,
but if an organization understands their risk tolerance level and is aware of
the potential risk factors, it can be done. Retained staff by default does not
equate to risk, but rather needs to be managed to some degree, be it
billing, contracts, SLAs, expectations or milestones.
It really depends on the client organization and how business and IT interact
/ align with one another. The level of retained staff should be based on the
client's overall strategy. Clients should be looking for retained staff in areas
that are not part of their core business and areas in which they do not have, or
can not afford, subject matter experts.
Another consideration is whether IT is strategic to the company's product
delivery or primarily a support or admin function. To the extent that it is
strategic the formula for outsourcing percentage can and should change
Another key decision criterion is what the CEO hopes to accomplish from the
specific outsourcing exercise.
It is strongly suggested that the ratio of retained staff be determined on a
case by case basis for each client organization after first understanding their
technical and business environment, funding levels, mode of operation, internal
skill capabilities and risk tolerance.
Division of responsibilities
No new studies of value have been issued recently on the division of
responsibility, however it has been seen numerous times that situations managed
strictly to SLA's are on a course for disaster and tend to result in an us vs.
them relationship that becomes increasingly counter productive and controversial
over time. Outsourcing engagements that are purely managed on an SLA basis have
service provider penalties embedded that often become points of contention when
not clearly defined. This is important because if the value from support
services providers is not achieved on day 1 of an outsource relationship,
depending on the size of the effort, a kick-off / ramp-up period may be
required. For larger multi-year engagements, such as 10-yr outsourcing
engagements, the first 12-18months can be used to transition and build
infrastructure. This is often the reason why the majority of the cost of large
outsourcing engagements are front loaded.
These results can be avoided by carving out the support services into
LUMPs (Logical Units of Manageable Proportions) or
defined project engagements, each with their own charter, scope, and project
manager. If like or dependant efforts exist then a Program Office can be
considered to leverage a governance model, economy of scale, and consistency
Best practices show that organizations that have heavy oversight at a project
level will have a greater level of success vs. those managed purely on an SLA
basis. This is mostly due to the greater level of day to day involvement and
consistent ability to manage mutual expectations. All this can be accomplished
by the client organization having their own client side Project Manager or
leveraging a 3rd party organization to act as a project auditor on behalf of the
SLAs should be developed and agreed to by all parties during the contract or
Statement of Work negotiations. There should be a time period of up to six
months during which the management of the entity whose functions are outsourced
should review the SLA metrics. This will help determine if what is being
measured is meaningful and if it demonstrates realized benefits. During the
"break in" period gathered measurements will provide a baseline against which
future performance will be measured.
Billing methods for applications support work
As mentioned, there are various ways to bill for applications support
services, most commonly, Time & Materials (T&M) for
headcount, Fixed Price (FP) per milestone or
engagement, and Value Pricing (VP). Each of these
methods has their own risks / benefits to both the services provider and the
T&M has the least risk for the service organization, where the client agrees
to pay a given rate for each individual on the engagement. Rates will vary based
on level of responsibility and experience. Some variance could exist based on
location and HOT skills, those skills that are in higher demand at that given
time. Travel expenses are usually estimated at 15% of professional fees. Risk is
low for client organizations in this model, as they have more control over the
quality of the resources, often with the ability to interview / accept resources
before they engage, and can remove resources they are not happy with at any
time. There is also an assumption that basic project management tools and
templates are provided by the services provider at no additional cost.
Fixed Price engagement has some level of risk for the service provider as
they lock themselves into a specific price for the duration of the engagement.
The benefit of this pricing model for a mature organization with a proven method
that has been previously delivered is that if managed correctly, they can
reap a greater level of profitability. The risk with doing so is that they need
to fully understand the model they are performing as there is usually little
room for error. Assumptions must be clearly defined, so that in the event that
something happens during the course of the engagement that was not taken into
consideration when pricing, then the services provider will have the ability to
go back to modify cost fairly and in accordance with defined project change
control procedures. The client's advantage to this model is that they know
exactly how to budget, assuming no unforeseen project changes.
Value Pricing method has the greatest potential level of profitability for a
service provider, as this model will allow for the service provider to share in
the level of savings / increased revenue generated by the assigned engagement.
This is also the most complicated type of engagement to contract and deliver.
Due to the complexity and potential benefits, the contract has to be very well
defined so that the measurements can be leveraged for success criterion and the
bench mark levels. How will they be measured, what is the base line, what if the
achievement is met by 75%, or any partial triggers. This type of agreement can
result in the service provider not being compensated at all, or at some very
minimal base level. From a client organization perspective this is a fair risk
sharing model where the benefit covers the cost of the engagement, but could
result in the end cost of the engagement being significantly greater than if
paid on either a T&M or FP approach.
In summary, application support work billing is most straightforward when
done on a headcount basis (T&M). Parties have to be open to who that headcount
is and gain agreement as to their participation. There should be different costs
for different resources and the client should have a voice as to the acceptable
Communication / escalation best practices for outsourcing vendors
There is supporting research available from various analyst sources, such as
Gartner, Meta, and Tower. There are also countless white-papers available on the
topic with various views based on independent experiences. My personal
experiences are based on consulting for the past 20-years with E&Y, Fujitsu, and
IBM Global Services in these various engagement models, including being a part
of the largest ever outsourcing engagement.
The escalation process should be defined as a common course of practice in
any scope of engagement and better so within a Master
Services Agreement (MSA), so that both service provider and client
agree on the approach and establish expectations upfront.
The escalation practices should be viewed on a project level and then on a
client level. Within any given project, communications should work through a
typical chain of command depending on the team structure i.e. 1st to the team
leader, then to project manager, then allowing for the project manager to be the
single point of communication to the client designated point of contact. If the
escalation is based on an issue that is not project specific but still needs to
be communicated to the client, then it should be done through the client
relationship manager, who is often a client partner or account executive. Issues
and escalations should be documents for future reference in a project control
binder. Issue escalation also has a tight affinity with Problem Management and
Change Management. Issues, likes problems or changes, provide an opportunity to
explore and resolve root causes. Quite frequently, these types of issues relate
to people, process, or culture in either firm. Resolving them quickly and
amicably will improve the relationship and outsourcing experience.
The best client / service provider relationships are those that are based on
honest and mutual trust and respect, therefore an open line of communication is
essential for project and long term relationship success. Issue escalation
should be done on a regular basis within a given project during weekly
check-points with the client point of contact. These issues should be priorities
and rated based on significance and dependencies. Issues should not be
communicated by themselves, but along with potential remediation alternatives,
each with pros/cons clearly defined.
About Estrella Partners Group
Estrella Partners Group LLC is a consortium of proven,
senior-level executives who possess the ability to understand their clients'
complex business problems, develop creative solutions to these problems, and
effectively help them implement these solutions. Each member of the Estrella
team contributes a unique combination of skills and style to Estrella Partners.
Each was selected not only because of his or her abilities and openness to
collaboration, but above all, because of their inherent commitment to client
service and dedication to client success.
Estrella Partners is focused on assisting clients identify revenue
opportunities and increase operational efficiency through the use of
Organization Change Management, Program Management, Risk Management, and Green
We are an organization that treats its clients with the utmost respect,
honesty, and professionalism - all with better than competitive rates. Our
resources have the hands-on experience necessary to lead client teams or manage
projects that are beyond our client's internal team's comfort level.
We are supported by a dynamic group of professionals that encompass both deep
industry and functional subject matter expertise with a proven track record of
providing exceptional value as trusted advisors.
About the Author
Al Uretsky has 20-years of consulting experience spanning Business
Development, Program Management, and Practice Operations. Consistently achieves
and exceeds management business objectives based upon well thought out
process/procedures, analysis, and concise execution aligned with corporate
strategic vision and values.
Al has consulted to executives in many prestigious organizations, such as;
JPMorganChase, Republic National Bank, American Express, American Stock
Exchange, Bank of Tokyo-Mitsubishi, Sovereign Bank, NY Institute of Finance,
Pearson Education, Simon & Schuster, EMI Records, and Standard & Poors.
Areas of specialty include: Program Management, Contracts & Negotiations,
Asset Commercialization, Business Controls, Banking Industry, Consulting
Services Business Development, Sales Management, Executive-level Client
Relations, Risk Management / Issue Resolution, Executive Coaching, Key Account
Management, Financial Budgeting, Planning and Analysis, Corporate Strategy and
Al is a graduate of New York University's Stern School of Business, where he
focused in Information Systems and International Business specializing in
Japanese management. Al is a member of Licensing Executive
Society (LES), Technology Advisory Council (TAC),
Project Management Institute (PMI) and
Technology Executives Networking Group (TENG). On a
community level, He is a School Board Member for the local Elementary District
of 4000+ students.
For further information, Contact;
Al Uretsky, Managing Partner
Partners Group, LLC
Tel.: (623) 594-9283
Web site: www.estrellapartners.com
Table of Contents
- SUCCESSFUL SIZE / RATIOS FOR A RETAINED STAFF MODEL
- DIVISION OF RESPONSIBILITIES
- BILLING METHODS FOR APPLICATIONS SUPPORT WORK
- COMMUNICATION / ESCALATION BEST PRACTICES FOR OUTSOURCING VENDORS
- ABOUT ESTRELLA PARTNERS GROUP
- ABOUT THE AUTHOR
- FOR FURTHER INFORMATION