How to Get Outsourcing Right

Apr 17, 2006

Lionel Carrasco

Outsourcing is one of those terms inherently tied to globalization. Essentially, companies go the outsourcing route as a way to reduce costs, but often they spend too little time considering its strategic value, often over stated by many outsourcing providers.

The truth is one of outsourcing’s main values is to relieve IT staff of time-intensive duties, and create opportunities for them to take on truly strategic initiatives.

It’s widely known that companies pursue outsourcing with the cost reduction factor in mind. Some also look for outsourcing to improve service levels or to create budget flexibility.

To fulfill the cost reduction promise that most businesses expect from outsourcing, many outsourcing firms have responded by becoming more efficient and seeking out cost-effective resources in the global marketplace.

Navigating the Maze

The question is, despite the cost advantages of outsourcing IT, do so many companies tell tales of partial or complete failure in successfully managing this process? Why is it so complex?

Many companies will find that IT outsourcing is complex because it can turn into an “operational labyrinth” simply given the nature of the required services to support complex business processes, as well as the maturity of the IT processes.

There is a significant difference between outsourcing low-value services such as help desk, which are highly stable and standardized, and outsourcing software development or even the whole IT operation; keeping hold only of high value-added or strategic value projects.

Of course, there isn’t a universal recipe that applies to all companies developing an outsourcing strategy, but a consistent and moderate-risk strategy can get you much closer to “Right Sourcing.”

Consider the following 10 factors to improve the odds of success when planning your outsourcing strategy:

Identify your team’s ability to do the same job today in a different way. Get to know the tasks your operation is truly effective and efficient in performing, including operational support.

Tasks should be segmented into different categories, such as client-facing vs. internal activities; sales-related vs. business-speed related activities; and centralized vs. geographically dispersed activities

Define your processes clearly. Start by describing the way the tasks are accomplished today, and review the performance indicators and the policies for each process.

With geographically dispersed processes, it‘s important to clearly establish the borders between activities developed in a different part of the business, or in other countries.

Identify your true IT costs. You will have to get into the weeds to calculate the price you are paying on each maintenance ticket and development project but it will be worth it because it’s vital to compare your current operation with the expected financial benefits of outsourcing.

Take a guess about which processes you may outsource, and picture an outsourcing partner managing them. This exercise, which you can do with an outside consultant or take on internally, requires time to evaluate “What if part of X of process Y is done differently than it is today?”

Think about the dispersed activities your team carries out today, and if they were handled in a building across town. Will it work? Look for the most painful processes—the real IT bottlenecks—and the most costly problems.

Finally, imagine these processes upgraded through outsourcing, freeing up time for the IT staff to devote to other more strategic tasks.

Think globally. Outsourcing has really grown up and the market is ripe with competent companies—large and small, near and far.

Keep in mind there are a number of markets with competitive and skilled labor around the world, including often-overlooked places like Eastern Europe and Latin America. Most outsourcing firms can service you from multiple locations, which helps reduce the need to work with more than one provider.

Analyze your business. Only then pre-select the possible geographic locations that it would make sense to outsource to, based on the unique criteria of your business.

It is very important that you move tasks to locations or markets in which your company already does business. By doing so, you have the opportunity to create welfare to foster your own operations in those countries, while also ensuring that your outsourcing partner is aware of your business and concerned about providing good service.

Make the business case for outsourcing. Don’t short-change yourself in this process: Include both quantitative and qualitative elements in your strategy.

It’s important to quantify the real benefit of going into outsourcing and to know where the estimated savings come from. For instance, if you discover that an activity will represent less than 30% in savings, it is advisable to postpone it for a later stage of the outsourcing cycle.

Make sure to interview your possible outsourcing providers in their own facilities, no matter where they are located. This is not a time to cut corners! Go beyond the marketing hype, trade-show buzz and third-party opinions. Develop your own short list by analyzing each company’s capabilities. You will be amazed at what you find.

Be up-front about your expectations. Think about your definition of a successful relationship and be open about the critical elements for success that both parties will need to keep in mind.

Communication is the key. Be sure your potential partner clearly understands the way you want to design the operation and particularly the benefits you seek in moving to an outsourcing model.

Take the time to develop a transition plan, assigning the tasks to be performed in each geographical location by each company, the times of interaction, and the means of control.

Consider the benefits of a short-term contract to start your outsourcing project. You can always renew it for a longer-term commitment. Though the legal conversations can be uncomfortable, contracts are integral to ensuring an effective transition and partnership.

Talk about outsourcing usually starts with cost reduction, which often is the driving force par excellence , but it is very important for you to know that cost reduction has a price in terms of money and time. The true benefits of outsourcing will come to fruition only after you and the outsourcing provider figure out how to work together in the best possible way.

Lionel Carrasco is CTO of Neoris, a global IT consultancy, systems integrator, custom application developer and leader in emergent technologies. Carrasco has more than 20 years experience in IT consulting in the banking, insurance, transportation, retail, manufacturing and oil industries.

Carlos Aguilar, director of Outsourcing for Neoris, also contributed to this article.


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