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Simplified Governance Guide For Effective Outsourcing

Most IT outsourcing news focuses on the size and duration of the deal, how many jobs are moving, and which suppliers were bidding for the work. Very little attention is given to what happens after the deal is won. Leading up to the deal, the client organisation and the vendors are busy defining scope, service levels, geographical locations, prices and resource plan ...but this is the easy part. The real challenge is in successfully integrate the new service model and building a partnership that can grow. This is where many deals go sour, and it can often be avoided by having effective governance in place.

First, it is important to understand the meaning of IT Governance. Simonsson and Johnson (2005) provide an IT governance definition based on a consolidation of literature. Their definition, based on an analysis of sixty different articles on IT governance, is:

IT governance is about IT decision-making: The preparation for, making of and implementation of decisions regarding goals, processes, people and technology on a tactical and strategic level (Simonsson & Johnson, 2005).

There are more than 25 best practices for how to implement successful IT governance when you search on Google and when you speak to consultancies, but this article will review 5 critical factors that are essential for a solid operating framework to make outsourcing work.

1. Retain top talent & invest in new skills:
It is essential to have the right people in place in the client organisation who have the relevant experience of problem resolution, issue escalation and vendor relationship management. Too many times we see client organisations throwing the ball over the fence to the vendor and expecting them to solve all their problems. In reality, your internal team will play a very important role in executing the outsourcing deal, if you do not have people in-house with the relevant skill set hire a contractor, consultant or a new full time employee who can bring the relevant battle scars to the table to ensure past failures will not be repeated.

2. Measure the right metrics:
IT Outsourcing is not like buying a house. With a house, you can speak to estate agents, or search on websites to get a good idea about the going rate for a house in a particular area. The outsourcing market is not nearly as transparent; therefore, the going rate is uncertain. We often see too many procurement departments just focusing on price as a key metric. Price is only one variable that is important when selecting an outsourcer. Industry experience, technology expertise and the size of projects they have delivered in the past should also match your requirement. If you push too hard on price the quality of the resources and service delivery may well be impacted. If the vendor feels you are undervaluing/underpaying their services, it will not be as supportive at resolving issues. Remember that no matter how you structure your outsourcing contract, you are ultimately paying for the professional services of people. If you were an outsourcer - would you put your best people on a project with little margin, or one that is more profitable? Learn how to track the value of your outsourcing deal, too many organisations focus on metrics that deliver little value like price. Instead focus on uptime, availability, on time delivery, and measure internal client satisfaction.

3. Change management:
As you are about to create a lot of change within your organisation, ensure that you have an effective change management strategy in place. One of the most effective tools for managing change is to complete a stakeholder matrix for every outsourced project or service, whereby you clearly identify all the important contributors to the project and draw up a plan for how to ensure they support the project. Start by envisioning a plan that has better stakeholder alignment, and overall clarity of the business problem or goal addressed. Keep stakeholders aware of the decisions being made and their responsibilities in delivering the programme. Try to hold meetings face to face as you may be able to catch important non-verbal signs indicating the true disposition of a stakeholder.

4. Vendor management:
There is more to IT Outsourcing than timelines, costs and benefits. It is about building a personal connection with your primary contacts within the vendor to create a strong sense of loyalty and commitment. It's easy to find creative ways that go beyond the negotiation process. Break down barriers and inject some fun in your discussions, try to understand their culture, and take an interest in the things that matter to them. You want to work with a partner who will go the extra mile, not just think about the individual project tasks. Ideally, you want to develop a partner who is willing & able to take on additional responsibilities without always referring back to the contract. Make sure you understand the value on the other side of the table. Sometimes points which are irrelevant to your organisation can play a significant role for the vendors, and vice versa. Prepare "easy" concessions to broker a win-win contract. If both partners cannot get value from the investment stay clear of it.

5. Lack of Strong IT Project Management:
In our own ITO deals within the UK market over the past 36 months, it is evident that the single biggest challenge facing SME's is a lack of strong IT Project Management capability. The project manager, particularly in mid-market businesses, has a much greater responsibility than in a large corporation where they have plenty of support staff and specific functions to help them succeed. In a SME environment, the project manager needs to ensure strong stakeholder management, take on some of the business analysis responsibility, build vendor relationships, recruit top talent from within the vendor, negotiate pricing, execute development and UAT efforts, communicate changes to IT and the end-user, and complete various administrative tasks. In essence - they must do a little bit of just about everything! If you do not have the skills in house, and you do not want to hire a full time person for the role, consider a contractor or consultant from a third party - at least until the programme has reached a clear "steady state".

It is at the ground level that IT outsourcing succeeds or fails; most arrangements stumble during operational execution, and not at the strategic level. Our advice is to hire top talent with a proven track record, or prepare/train internal teams to ensure success in delivery. The above list is not intended to over simplify a potentially complex issue, but rather provide some guidance on how to successfully deliver the transformation using effective IT governance. 

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