Unleashing IT’s potential
– delivering corporate value
through agile IT sourcing
3gamma.com
Lars Narvselius Senior Manager and IT Sourcing lifecycle capability lead
Jens Ekberg Director and Head of Solutions

1
In this whitepaper, 3gamma explores how IT can sup-
port cost reduction and innovation strategies through
a business-oriented, agile approach to IT sourcing. The
IT sourcing strategy needs to be viewed as an enabler
of the overall corporate strategy. IT sourcing is not
something that can be isolated to IT.
• Time to market plus business development require-
ments have made IT agility a top priority for large
organizations. Acquiring new capabilities, in a
flexible way, has become increasingly important.
• In today’s market, there is an abundance of highly
specialized vendors and solutions available, IT needs
to manage and integrate these into existing delivery
models.
• To realize the true value of IT sourcing, the IT
sourcing strategy needs to be linked to corporate
objectives and not focus on isolated IT metrics.
While the pressure on IT budgets remain, the
need for IT driven innovation increases. IT can
no longer be an isolated cost centre, IT needs
to become a high-performing service integrator.
• IT sourcing should be leveraged to enhance the
strategy execution on a corporate level, not be
a strategic objective in itself.
Acquiring capabilities through an agile approach to IT
sourcing, will enable IT to deliver increased value to
the business. In achieving this and creating the neces-
sary prerequisites, IT needs to revisit the setup of
existing sourcing agreements, the current sourcing
object definitions, internal ways of working, the inter-
faces towards the suppliers, the overall application
strategy and IT architecture.
Time to market and business development require-
ments have made IT agility a top priority for large
organizations. In 3gamma’s ‘the state of IT service ma-
nagement in agile organizations’ survey1
, over 90 % of
the respondents stated that IT has become an integral
part of business development. The vast majority also
stated that robust and high-quality service delivery
and cost efficiency were hygiene factors that could not
be disregarded. Altogether, the picture was clear, IT is
expected to enable business development while at the
same time supporting continuous operations.
Gartner2
has identified the need for IT to work in a
two-speed mode, to build ‘bimodal capability’; IT
needs to support both traditional ways of working
(waterfall development, known vendors, strong
governance, and minimized risk) and a non-linear
mode (agile development, small innovative partners,
and lightweight governance). In essence, to be able
to support both stable operations and deliver inno-
vation, IT must excel in two quite different areas
and modes of operation.
Operating in a two-speed mode creates new challenges
in how IT organizations acquire, integrate and organize
resources and capabilities. Second and third generation
IT outsourcers have recognized these challenges and
are revisiting their IT sourcing strategies. As noted in
3gamma’s survey, a common trait is that these compa-
nies are moving away from the notion of ‘one strong
partner’ to an ‘ecosystem approach’ to IT sourcing.
Ecosystem variety is an enabler of innovation, as new
capabilities can be developed through multiple diffe-
rent ways; through a single supplier, by joining capabi-
lities from different suppliers or through acquisitions
of capabilities. In supporting an innovation agenda, IT
organizations must make sure that they can provide
the right mix of services and delivery models to the
business, using multiple suppliers to create a consis-
tent IT service. IT becomes a service integrator.
In a fast-paced economy, IT organizations must have the ability
to continuously acquire and integrate new capabilities in order
to support the business strategy, increase flexibility and improve
efficiency. An organization, IT in particular, can no longer rely on
internal capabilities to stay competitive; IT needs to become an
agile service integrator that can manage and govern a portfolio
of ever-changing and evolving internal and external capabilities.
Disagree Somewhat Somewhat Agree Don’t know
disagree agree
IT has become an integral part of business development
0%
10%
44% 46%
0%
IT has become an integral part of business development (The state
of IT service management in agile organizations, 3gamma 2014)

2
IN TODAY’S MARKET, THERE IS AN
ABUNDANCE OF HIGHLY SPECIALIZED
VENDORS AND SOLUTIONS AVAILABLE.
IT NEEDS TO INTEGRATE THESE INTO
EXISTING DELIVERY MODELS
The market for IT services is booming, there is an abun-
dance of capabilities readily available to outsourcers
- consider the dramatic rise in software as a service
offerings during the last couple of years. Apart from
general offerings such as Salesforce.com and ServiceNow
and the like, there is a clear rise in so-called vertically
focused vendors offering a differentiated service for
a specific industry niche3
. These vertically focused
services are offering highly tailored, industry-specific
expertise that can be readily integrated into an IT ser-
vice portfolio. This creates significant opportunities for
outsourcers to acquire highly specialized capabilities.
In a fast-paced economy, innovation is likely to occur
outside of the legal structure of the company4
. Inno-
vative capabilities need to be acquired and incorporated
into an organization through an outside-in approach
to support an organization’s innovation agenda, for
example, consider a start-up that uses open-source
technologies deployed on a public cloud to build an app
that uses other companies’ APIs - innovation through
assembly of external capabilities. Although the approach
can’t be directly scaled to an enterprise level, the mind
set and strategy can be used by mature IT organizations
to drive innovation and business development.
TO REALIZE THE TRUE VALUE OF IT
SOURCING, THE IT SOURCING STRATEGY
NEEDS TO BE LINKED TO CORPORATE
OBJECTIVES AND NOT FOCUS ON ISO-
LATED IT METRICS
The key rationale for outsourcing, is often to reduce
IT spend and to enable focus on the core business5
. IT
is viewed as a cost centre and is tasked with providing
low cost IT services. The IT departments’ tactic becomes
standardization, automation of IT services and reduction
of cost per resource through outsourcing. As was clearly
shown in 3gamma’s survey, this is not good enough
in today’s economy, IT needs to move from being a
peripheral cost centre to becoming a part of the core
business for a majority of Swedish companies:
• The business needs reduced cost within the
business, not reduced IT costs.
• The business needs new, innovative IT services,
not an increased focus on ”an IT-free business”.
This is not to say IT spend is not important, it still is,
but to create sustainable, long-term value for the
business, it is critical for the business that there’s an
alignment between the IT sourcing strategy and the
overall corporate strategy. All too often, IT sourcing
strategies are crafted to support IT’s own agenda,
thereby undermining IT’s ability to realize business
initiatives, create cost savings within the business as
well as enabling new business. It creates a significant
risk of underperformance and sub-optimization.
• The business needs reduced cost within
the business, not reduced IT costs.
• The business needs new, innovative
IT services, not an increased focus on
“an IT-free business”.

3
WHILE PRESSURE ON IT BUDGETS
REMAIN, THE NEED FOR IT DRIVEN
INNOVATION INCREASES
From a business perspective, cost reduction is often
achieved by;
• Reduction of the volume/amount of resources
needed to deliver the products or services.
• Reduced cost of each resource in service delivery
and production processes, either by direct cost
reduction or improved utilization.
• Increase through-put per resource.
A common strategy is to reduce process variance, often
by reducing the number of services offered or activities
performed within a company. Companies can acquire
less costly resources and use them effectively and
efficiently, e.g. through outsourcing. IT organizations
in ”cost reduction mode” often share one or more of
the following characteristics:
• ”Centre of excellences” that group similar resources
together to improve utilization across the company.
• Standardized IT services with a limited number of
variations of each service that are offered to the
business customers/users, often based on a
consolidated enterprise resource planning system.
• Major part of IT outsourced to a single/prime
vendor with a considerable off-shoring component
to leverage deal volume and size to reduce cost.
The negative side-effect is often an inability to manage
innovation. Standardization of processes and services
(internally and towards suppliers) reduces flexibility.
A focus on ‘resource efficiency’6
within IT creates a
substantial risk of sub-optimization, as IT focuses on
improving utilization of its own resources, lowering
the cost of its own resources and not optimizing the
potential of the business. Consider the lock-in effects
of a long-term contract with an off-shore provider
and how this will contradict the need for continuous
development of the business processes in staying
competitive.
In contrast, IT organizations in ”innovation mode”, often
share one or more of the following characteristics:
• Advanced capabilities within project portfolio
management and supplier portfolio management.
• Autonomous, self-organizing teams with ”good
enough” processes.
• Modularized IT architecture, solution components
and systems.
• Non-standardization, both from a process/gover-
nance point of view and a service point of view.
• A multi-sourcing strategy balanced with in-house
development.
To drive business development and innovation: IT’s
internal processes, development methods, resources
and partners all need to be flexible and continually
developing, from an IT sourcing perspective, three
key practices are apparent:
• Business-oriented, flexible and agile ways of
working are needed to support demands on
shorter time to market7
.
• IT’s service integration capabilities are instrumental
in ensuring a robust, cost-effective and stable
service delivery while at the same time managing
an evolving supplier portfolio.
• IT needs to have access to a portfolio of internal
and external capabilities to support a wide
variety of requirements – there is no ”one-
stop-shop” available.
Viewing IT as a pure cost centre under these circum-
stances is detrimental to the strategy execution.

4
IT SOURCING SHOULD BE LEVERAGED
TO ENHANCE THE STRATEGY EXECUTION
ON A CORPORATE LEVEL AND NOT BE A
STRATEGIC OBJECTIVE IN ITSELF
In order to stay competitive, support innovation and at
the same time deliver cost-effective, stable IT services,
flexibility and agility need to be built into the sourcing
strategy. The following guidelines should be considered
for IT to stay in tune with ever evolving business demands:
• Break up the monolith applications into more auto-
nomous components, both legacy solutions and
major sourcing contracts. Move in the direction of
delivering more autonomous solution components
and gradually transition to more flexible appli-
cation and vendor portfolios. Major enterprise
resource planning solutions are often coupled with
a major sourcing commitment and are, as such,
not supportive of flexible acquisition of capabilities.
• Revisit the existing definition and clustering of sour-
cing objects, their IT architecture and integrations.
Make sure the definitions and the IT architecture
are business centric and not vendor-specific.
• Manage and maintain the sourcing objects’ integrity
during the contract life-cycle to avoid lock-in effects.
Do not transfer the company’s technical strategy
to the vendor(s) and implement governance for
significant architectural decisions.
• Upon re-sourcing and renegotiation, focus on the
exit strategy upfront and include the exit strategy
in the contract.
• Regularly assess the organization’s vendor shift
readiness and maintain an up-to-date sourcing plan
to avoid panic shifts.
• Regularly assess external capabilities and techno-
logies that can be adopted within the organization
to support the business strategy.
• Develop and maintain execution capability within
the organization, i.e. ability to transfer services from
one vendor to another (or insource).
True, an IT organization following these guidelines will
not have the lowest IT cost within its industry. It will,
however, have the potential for cost reductions, reduced
operational and strategic risks and the ability to deliver
future-proof IT services for the business as a whole.
As a part of the outsourcing strategy, the company
transferred all their existing IT assets and existing
agreements to the new outsourcing partner. They
signed a five-year ‘IT as a service’ contract. Three
years into the contract none of the planned effects
had been achieved:
• No access to a development roadmap; the company
was required to finance all development activities
directly as change requests to the existing services.
All development was, in contrast to what was ex-
pected, custom development just for the company.
• The quality of the services was poor and not in line
with the business requirements. The vendor focu-
sed on optimizing its resource utilization on the
account. This resulted in poor service, long lead
times and operational disturbances.
• The relationship was focused on reactive conflict
management rather than service delivery. The
company was required to invest heavily in managing
IT, as opposed to focusing on its core business.
To rectify the situation, the company is transitioning
to a new sourcing model where, it can acquire external
capabilities in a more flexible way.
• Moving from a single-sourcing model to a
multi-sourcing model.
• Insourcing critical competencies within process
management and service management.
• Establishing an IT architecture function to control
the development roadmap across its new vendor
portfolio.
The new sourcing strategy, and its execution, is driven
by the corporate strategy rather than a strict focus
on IT metrics and a set of goals defined solely for the
outsourcing agreement.
A mid-sized company in Sweden, decided to outsource all their IT to a single
vendor to achieve reduced operational risk, standardization of IT services,
enable a focus of core business and to get access to the outsourcing vendor’s
development roadmap. The company was following a low cost strategy offering
simple, second-mover products through a well-tailored distribution network.
CASE

5
4.OPTIMIZA
TION
3. TRANSITION
1.STRATEGY
2. CO
M
M
ERCIAL
3gamma assists clients in defining and delivering IT sourcing strategies, transformations and transitions through
a variety of offerings:
• IT Sourcing vision workshop – an opportunity for the company to understand what sourcing strategy would
suit their needs best and possible strengths and weaknesses for its implementation.
• Maturity assessment – an assessment of the current performance in order to understand where and how
much effort it takes to reach a targeted performance level.
• Contract evaluation – a second opinion in commercial issues regarding contract scope, set-up and management.
• Sourcing object assessment – an analysis of applications/objects to which kind of sourcing they are most
suitable, their readiness and risk level.
• Application readiness assessment – a survey that shows in what shape applications are for being transitioned
and what actions that are needed to be taken.
• Migration management – 3gamma manages the physical transition of systems and infrastructure between
vendors and/or platforms.
• Governance review for optimal set-up – assisting the client in setting up the most suitable governance
structure based on the sourcing strategy, maturity level and performance demands.
3GAMMA´S VIEW OF THE IT SOURCING LIFECYCLE
Developement of an IT Sourcing
strategy, which can be sourced
in-house or outsourced
(partially or fully).
Manage the physical
move of enviroment(s)
between different
operating organizations.
Managing the client’s
preferred relationship
with the vendor(s), which
comprise cost controls, service
excellence realization and risk
mitigation to be able to use IT as
means of business excellence.
Managing analysis, creation
and execution of contracts
to maximize financial and
operational performance
to minimize risk.

6
ABOUT THE AUTHORS
LARS NARVSELIUS, Senior manager and IT sourcing life-
cycle capability lead at 3gamma Sweden. Lars’ focus is
on creating and developing 3gamma’s methodologies
and frameworks within IT sourcing. Lars can be reached
through lars.narvselius@3gamma.com
JENS EKBERG, Director and Head of Solutions at 3gamma Sweden.
Jens’ focus on developing 3gamma Sweden’s offerings across
IT strategy, IT sourcing lifecycle, IT operational excellence and
IT project management and delivery. Jens can be reached through
jens.ekberg@3gamma.com
BIBLIOGRAPHY
1 3gamma, “The state of IT service management in agile organizations survey” (2013)
2 Gartner, “Taming the digital dragon” (2014)
3 http://nvp-blog.com/index.php/the-rise-of-vertical-specific-saas-vendors/
4 http://www.lef.csc.com/videos/outside-in
5 http://outsourcing.about.com/od/clouds/a/Why-Do-Companies-Outsource.htm,
http://www.outsourcingindex.com/background.htm,
http://www.financialpost.com/executive/hr/story.html?id=2119807
6 See e.g. ”Detta är lean – lösningen på effektivitetsparadoxen”, Modig och Åhlström (2012)
7 3gamma, “The state of IT service management – delivering innovation while supporting stable operations” (2014)
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Copyright © 3gamma AB 2014

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3gamma is a leading professional services firm focusing on IT management.
As an independent specialist in IT Management we provide advisory and
consulting services to many of the world’s most respected companies. We
operate globally from offices across the Nordics and UK and we bring in
specialists from across our whole firm to ensure our clients get the right
team to address their most critical IT management challenges.
At 3gamma, we know great business deserves great IT. We work hard every
day to ensure that our clients get the best independent advice, the most
reliable guidance through critical transformation initiatives, the smoothest
IT sourcing transitions and the most practical and consistent improvements
to their systems and services.