Once upon a time, an idea was born. The idea was that companies should focus on their core business and let other manage what others could manage both cheaper and better. The idea was appealing and came with great promises of added value and win-win. And thus, a great migration of various services started. Customer Service, facilities management, HR and IT were only some of the functions that were outsourced locally, regionally or globally.

Today, many enterprises as well as public services, after several years of experiences, are becoming aware of the long-term consequences of extensive outsourcing without enough insight, thorough preparations and planning. We will here take a look at some considerations regarding IT outsourcing – what risks there are, and how it could be done well. But the first question any company should consider is: Which sourcing strategy overall would work for us?

 

Why outsourcing can seem attractive

In the bigger perspective, an organization must always ask itself how to ensure that it has the resources available to run the business – whether it be a reliable online sales webpage, office heating or human competencies of various sorts. Many of these resources make sense to buy from external sources that provide them far cheaper and more reliable than oneself could (think of electricity, or coffee beans), often due to sheer scale. Applied to IT, highly standardized and mass-marketed solutions such as much application software is often purchased without even thinking about building it in-house, and for good reasons. However, the more business-specific, the more complex and the more integrated an IT area is in a company, the smaller the advantages of buying instead of building becomes. When adding variables such as future availability of competence, the need for precise definitions of what one as a buyer expects, flexibility requirements and security concerns, it is clear that outsourcing of large parts of IT that are tightly woven into the fabric of the own organization is a very complex matter.

Nevertheless, a successful outsourcing, especially to low-cost countries (known as offshoring) with many skilled IT professionals, can sometimes provide a reliable and cost-efficient delivery of IT services. It can push an organization to better define and document the own processes and systems, which is otherwise so often overlooked. It can provide 24/7 support at a fraction of the cost of having it locally. How come then, that most outsourcing initiatives fail to meet the expectations?

 

Know yourself and your outsourcing partner, and you shall win a hundred battles

As in so many cases, knowing oneself is key to success. Questions that should be asked when considering different sourcing options are, among many others:

  • Are there, or is it possible to create, well-defined and concrete requirements that can be packaged to form the basis for a delivery?
  • Is there, or will it likely be, a lack of skills or other resources internally for the area in question?
  • Am I looking for new technology or external expertise?
  • Is the IT system or function relatively separated from or closely integrated in my current system landscape?
  • What is the expected lifespan of the IT delivery?
  • Are there hidden organizational problems that make the internal IT deliver below average, and is outsourcing in that case a good or bad way to deal with these problems?

 

Considerations

Whenever a decision to outsource is made – be it offshore, nearshore or locally – it is important to remember that careful planning and a good starting approach will prevent many future mistakes:

  • The contracts need to be very clear on vital points regarding service levels, penalties and other consequences. Also important to discuss in advance is the „collaboration climate“. The service provider should behave and be seen as an integrated part of the enterprise rather than an external service provider.
  • Services need to be clearly described but also the resource structure behind the services. That is one point where many IT Outsourcing initiatives fail from start. If the service provider has resource problems, this will almost immediately cause problems for the customer.
  • Mutual trust is very important. If an enterprise looks upon a service provider as somebody that the own environment need to be protected from, a false start is obvious.
  • Service provider employees need to be very well aware of the consequences of mistakes and incidents for the customer. This is an area which needs improvement in many cases. A statement too often heard when incidents occur is „We followed our processes“.
  • It is often underestimated how much skills and system knowledge one needs to maintain in-house in order to act as a qualified purchaser and integrator of the services that are to be outsourced. In fact, in complex IT outsourcing deals, there often has to be one or two extra layers of people involved than it had been managed internally.

Keeping track on all the aspects concerning sourcing management is a challenging task for any organization. As a business transformation partner, we would be happy to support you in establishing an enterprise sourcing strategy. Let us know if you would like to hear more of what we can do – we are just a phone call away!

Magnus Isetoft

Magnus Isetoft

Senior Technical Consultant

 magnus.isetoft@valion.ch

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