There are no two opinions that in the past decade ITIL v2 has emerged as the de facto best practice standard for IT Service Management, but with the rapid changes in business environment and IT becoming a business as usual tool than a strategic advantage, ITIL v3 is slowly becoming much more relevant. The evolution of ITIL v3 has been driven by an increasingly complex business and IT environment and the need to move beyond a 'simple alignment of business and IT' to an 'integrated view of business and IT'. There are many differences between the Service Delivery and Support core books of ITIL v2 and five components in the ITIL v3 life cycle – Service Strategy, Service Design, Service Transition, Service Operation and Continual Service Improvement. But a very important and most requested difference was to incorporate Outsourcing and its end to end Service. Probably the best way to describe the difference is “ITIL v2 is Process-oriented whereas v3 is Service-oriented”.

As per Gartner’s analysis “Organisations are concentrating on IT cost reduction and aiming to improve their business performance and flexibility. …Organisations renegotiating their outsourcing contracts should avoid long-term deals and look at cloud computing and other models”. Gartner also predicts that IT outsourcing pricing is set to shrink by 5 to 20 percent during 2009 to 2010, as traditional service providers compete with new players. All these opinions have become breeding bed for smart sourcing, collaborative sourcing, multi-sourcing, on-demand sourcing, co-sourcing and in-sourcing, nurturing SaaS and Cloud Computing models. This is the high time outsourcers and vendors embrace innovation, set higher standards and analyze new ITSM framework recommendations which is woven around Service and Outsourcing.

Today many organizations do not have the financial transparency to enable solid strategic business decisions thus pushing them to steer their strategy, service design and tactical operational decisions inappropriately or in wrong direction. So in an economic crisis like we are in today, they cut costs (as opposed to optimization), traditionally by employee lay-offs, decreasing workforce and cancelling discretionary projects or putting them on hold. In some cases, organizations have outsourced their ‘core processes’ under these pressures. In the short-run, budget targets are met while in the long-run a price must be paid....

The cost savings from outsourcing and off-shoring can be attractive but the associated risks and costs need to be clearly understood. ITIL V3 defines the structure and dependencies of sourcing relationships and creates a foundation for more customer-centric IT service management across the enterprise. ITILv3 provides guidance on sourcing options that support different situations. The ITIL Service Strategy and Service Design publications provide guidance on modelling services across the supply chain. By taking a structured approach, clearly defining scope of the services, responsibilities and accounting for all the service assets up front there is less risk of surprises and costly unexpected changes. The ITIL Service Transition publication provides guidance on the activities required to transfer a service between two service providers.

ITIL v3 outlines the accounting framework necessary to facilitate chargebacks and total cost of ownership (TCO) calculations with effective Governance of IT Planning, Accountability of IT Spending and Predictability of IT Budgets. This Financial Management process is a key input to Service Portfolio Management because by understanding cost structures applied in the provisioning of a service, a company can benchmark that service cost against other providers. In this way, companies can use IT financial information, together with service demand and internal capability information to make beneficial decisions regarding whether a certain service should be provisioned internally or outsourced.

In todays' macro environment, the need is to Re-Define Outsourcing Strategy. For eg: long

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