Are you Prepared for an Outsourcing Code Red? - Page 1

Aug 14, 2009

Steve Martin

The Satyam scandal earlier this year put a spotlight on the outsourcing marketplace and gave many CIOs pause with regard to their own outsourced operations. At the time, Satyam, an Indian-based outsourcing provider of application development and maintenance (ADM), infrastructure management, and business process outsourcing (BPO), was serving corporate customers in more than 60 countries and over a third of the Fortune 500. The event had all the trappings and urgency of a major catastrophe for Satyam’s customers.

Even though it was an isolated incident, it illustrated the vital importance of preparing for potential crises―whether it be a financial fallout or a natural disaster. When it comes to outsourcing, there are a number of lessons learned for CIOs as a result of the Satyam incident. CIOs can and should protect their organizations from future outsourcing calamities by implementing various contingency plans, contractual protections and other overall operational best practices.

So, just what was the reaction of Satyam’s customers? It ranged from the systematic triggering and execution of well-planned disaster and recovery processes to sheer panic. What did those companies that had a handle on the situation possess that the other companies did not? Simply put, the IT organizations that weathered the scandal without a hiccup had a number of practices in common. In general, they implemented some or all of the following “Five Basic Rules of Engagement” for outsourcer disaster preparedness:

Rule # 1 – Know your supplier inside and out through due diligence and research.

Become familiar with the supplier’s owners, investors and its leadership team before executing an agreement with them. Learn as much as possible about situations that raise a red flag, ranging from questionable or unusual business transactions to past fraudulent or criminal behavior. Understand the supplier’s “deals gone bad” and go beyond the references offered by the supplier. Talk with other customers (both satisfied and dissatisfied).

As a further step, kick the tires by making site visits to the outsourcer’s facilities, talking with the management team who will be directly leading your outsourced services, checking for standards compliance, and validating the use of other best practices relating to software development and disaster preparedness.

Rule # 2 – Document everything!

Whether outsourcing infrastructure or ADM, whether in a staff augmentation or managed services environment, or whether on-shore or offshore, documentation is an essential pillar of IT operations. In fact, documentation should be given the same high level of priority for both outsourcing and insourcing. While the cost of creating, maintaining version control, and managing documentation is not trivial, the consequences of foregoing these practices can be financially catastrophic.

Documentation includes cataloging hardware and software agreements, requirements, application and infrastructure designs, implementation (plans and outcomes), test scripts and results, and change control logs. Moreover, in an outsourcing agreement, your supplier should be held to the highest standard with respect to the completeness and integrity of their documentation on your systems and operations from the day they commence providing your services. Best practices in this area include SLAs to measure document currency and accuracy, implementation of formal document management systems (with clear and traceable history and application-to-application as well as application-to-infrastructure relationship management maps), and dedicated program management.

Rule # 3 - Design your supplier agreements with a clear exit strategy from the start.

A solid exit strategy needs to contemplate a wide range of triggers, ranging from termination of the agreement under the normal course, to natural disasters, to terrorism, to fraud. This practice is imperative for outsourcing in India as well as other countries. By being prepared at all times to quickly transition to another provider (which can include transitioning services back in house), companies have a naturally higher degree of leverage over the incumbent providers and are prepared for a wide range of scenarios that could necessitate an unexpected and immediate transition.

The exit strategy starts in the procurement and contracting process, where key terms must be negotiated with your supplier. These include the ability to terminate without penalty under a broad range of conditions, the right to retain key and specified non-key personnel that are serving your account (either through direct hire or the ability to have transferred to another outsourcer), and an obligation for the supplier to provide transition assistance, secured through fees held in escrow.

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Tags: Outsourcing Best practices, Satyam, Pace Harmon, Outsourcing India, DR plans,

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