Keys for Successful IT Outsourcing

With technology fully integrated into the business now days, IT outsourcing is no longer the CIO’s challenge alone. He or she may get the boot for making a bad situation worse, but everyone in the company suffers when the outsourcing relationship goes wrong. That’s why CFOs need to become more involved, earlier on. Unfortunately, when CFOs think about outsourcing, they tend to focus on the contract: SLAs, cost models, additional resource charges, reduced resource charges, gain sharing (in which a formula is devised for dividing up revenue from future improvements or innovations), and the like. All this is important, but there’s a much wider array of issues to consider when working with an outsourcer, and CFOs need to keep them in mind.

1. Out of sight is not out of mind: Some companies believe that in outsourcing, they can hand over the IT reins to their new business partner. But before you know it, the outsourcer is running the show and making decisions about service levels, purchasing, and staffing that are aligned beautifully with the outsourcer’s business, but not yours. In order to keep your businesses needs primary; you have to retain control over major IT decisions.
2. One cannot outsource a mess: If a CIO does not have a handle on the priorities, costs, structure, strategy, and competencies of the organization, then a company is not ready to outsource. What is available in this situation is a hot mess. Some companies make the mistake of handing that mess to the outsourcer in the hope that it will figure it out. It won’t. The outsourcer is not present at the strategy meetings; the outsourcer does not know a company’s culture or the skill sets of the employees. So it’s pretty important to sort out the mess first, and then hand over the right pieces to someone else.
3. Consider culture when selecting an outsourcing partner: It’s pretty good to know that the outsourcer has a good track record on security, so that an outsourcer can flex on staff when necessary, and gives in a good deal. But is it an effective communicator? Does it get along with the people?  When an outsourcing relationship is going well, the outsourcer’s staff is integrated with the company’s staff. Accordingly, its people have to be compatible with people in the organization.
4. Build up your vendor-management chops: When CFOs think of vendor management, they focus on contract negotiation and ensuring that the right service-level agreements are in place. Those are critical elements in the discipline of vendor management, but they’re only the beginning. One needs a team of IT managers who have been elbow-deep delivering IT so that they know what service levels are required. But these hands-on professionals must now be comfortable with not touching the technology themselves. IT managers can be awfully controlling; for them, putting delivery in an outsourcer’s hands can be difficult. Companies often assume that outsourcing means reducing IT head count. That may be true, but the heads that remain need different skill sets than the traditional internal IT staff.
5. Resist the master-slave model:  Some organizations are so focused on reducing costs that they try to squeeze their outsourcer for every penny, then they feel good about all the pennies they’ve squeezed. But that good feeling vanishes when the outsourcer no longer values the relationship and delivers shoddy service at a bargain-basement price. So it becomes important to move and push for competitive price points, but the point needs to be remembered that for an outsourcing partner to be invested in a company’s success, for it to staff the work with its best people, it needs to know that it is getting a fair deal.
6. Don’t make assumptions about core versus commodity. Any good executive knows that the company’s commodity services should be handed over to an outsourcer: why to run the company’s own help desk or payroll systems or e-mail? There are plenty of outsourcers that can do these things better than it can be done in-house. But it’s important to be sure to hold on to the organization’s core processes, things that your company does better than anyone else.  At some companies, for example, supporting remote workers makes them happy, but it is not a competitive differentiators. At other companies, providing a seamless way to work at home can be exactly that in terms of productivity as well as employee recruitment and retention.
7. Get the buy-in. Finally, it is very important to be sure that all of the company’s leaders have bought into the decision to outsource. When someone else begins to manage the work that used to be done in-house, the change can be dramatic on many levels. The company’s leaders have to own the decision to outsource, and they have to sell that decision to the organization throughout the length of the relationship.

About Author

Prabhakar Ranjan works with Systems Plus Pvt. Ltd.  He is part of the consulting team that delivers Vendor Management Office projects. He can be contacted at prabhakar.r@spluspl.com