Achieving success in IT outsourcing
increase their focus on creating and managing a successful mixture
of supplier relationships that work for them.
This was the message David Switzer, director of outsourcing services at CTG, an international IT solutions and staffing company, told delegates when describing his framework for successful IT outsourcing, at Interphex 2006.
When it works, outsourcing can help companies to effectively manage costs and labour and improve the overall IT service, however, many IT outsourcing relationships fail when companies take the wrong approach.
IT outsourcing can be cast into three loose categories, where the levels of expertise and leadership required will vary.
"Back office" IT support, including functions such as payroll, accounts receivable and payable, and "front office" IT support, including help desk and call centre functions, are groups where the degree of expertise and spending should be less than for the more highly-skilled "functional" IT support, involving testing, validation and compliance issues.
"When it comes to outsourcing, companies must align the type of services they are looking for, with the level of support they require for their desired outcome," said Switzer.
With this in mind, the next step is to think of the outsourcing process as a project and make a project plan, taking into account who will be involved, what the processes will be and the timelines involved.
As a precurser to this, Switzer advises firms to gain support of those affected within the company and key customers so as to avoid hitting a brick wall further down the line.
When drawing up a request for proposals (RFP), the key to obtaining the best response from vendors is to clearly define your current IT environment and your targets for IT, based upon realistic and meaningful service levels.
"Be careful about making an unrealistic "wish list" of service levels that would perhaps be nice but aren't really necessary, as this will drive up costs and waste time," said Switzer.
"What you are buying will drive the type of supplier relationship. If you are buying a commodity, you can be more prescriptive with what you want. But if you're buying a service or labour, you are looking for value so can afford to be less prescriptive and leave the details to the experts."
Finally Switzer advised on maintaining an open dialogue with vendors during the proposal submission period as this can increase the potential value they have to offer.
During the supplier selection process, keep an open mind and "don't base your decision solely on cost," was Switzer's advice.
"According to a recent survey in Information Week, the most important criteria when selecting a vendor was liability and trust - it is only after these criteria were assured that cost becomes an issue," said Switzer.
"Interestingly in one third of cases, the front runner after the initial proposal submission was not selected after the vetting and interviewing process," he said.
The vetting process is a crucial time for companies to decide not only whether potential vendors are capable of satisfactorily providing the desired service for the right cost, but also gain an understanding of the vendor's internal workings whether the two companies can work well together.
"If you do not make sure you can work together from the start, your relationship is doomed to failure," said Switzer.
When it comes to choosing service providers, Switzer also warned companies against putting all their eggs in one basket.
In a recent Deloitte and Touche survey, only 38 per cent of companies that outsourced all their IT to the one firm achieved a successful outsourcing relationship; while almost as many failed and 27 per cent reported mixed results.
On the other hand, 77 per cent of companies that selectively chose to outsource different IT functions to different providers achieved success, while only 20 per cent reported failing.
"It is clear that dealing with a number of providers who specialise in niche areas can dramatically increase the chances of IT outsourcing success," said Switzer.
Once a suitable vendor is chosen, it is important to develop a fluid communication plan so that both parties use the same tools and processes when working together.
"Also spell out your desired outcomes and define your measurable criteria for success, such as cost, quality, compliance, consistency, timelines etc. so that the vendor has clear goals to achieve."
"But don't get caught up in the finer details of how they will do their job - let the supplier focus on "the how" as its what they do best," he said.
Certain contractual considerations that companies and vendors should also discuss are service level agreements, such as incentives and credits; the delivery engagement model, e.g. onsite, off-site or even off-shore; and pricing (rate based or fee for services).
As far as the length of contract, "the trend is moving towards shorter contracts so that changes of pace can be dealt with," said Switzer.
In order to capture the true benefits of any outsourcing relationship, take a baseline snapshot of the workload, service levels, processes and costs before the contract begins and examine the changes over time.
