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Can Lean Principles Be Applied To IT Outsourcing?

Two common avenues for tackling rising costs are to implement lean initiatives and outsource to companies that can do the tasks more effectively. "Lean", as defined by Wikipedia, "is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. In a more basic term, More value with less work...", "...For many, Lean is the set of "tools" that assist in the identification and steady elimination of waste. As waste is eliminated quality improves while production time and cost are reduced".

For decades, manufacturers have been applying Lean principles throughout their business processes, yet service-oriented companies may have never even considered following suit. On its own, and IT outsourcing program can dramatically reduce cost, but it can also increase the 'waste of time' and the 'waste of quality'. Cycle times increase as there are more participants delivering a process or service, and longer feedback loops can introduce quality issues. The goal, obviously, is to achieve cost savings without sacrificing cycle time or quality - which is the central tenet of any Lean strategy. This article will look at how and why Lean practices could be used in the outsourcing process.

Lean IT Processes are easier to outsource. Hire external teams or invest in your own people to help document and understand your current processes. Identify the inefficiencies in the process & eliminate them. With less non-value add activities and less defects, the outsourcer will adopt your IT processes faster and more efficiently. The knowledge gained during the as-is process mapping makes managing such outsourced IT Services easier. Another benefit comes from understanding value from the customer's perspective, helping to align the service provider and your organisation. The lean definition of value follows three rules:
1. The customer must value the activity (be willing to pay for it)
2. The activity must change the form, fit, or function of the product
3. The activity must be done right the first time

Measure the right metrics. Ensure that the outsourcer & the internal teams know what and how to measure improvements, value and waste. The big five lean measures still remain the same for lean IT outsourcing:
1. Is application delivered correct first-time
2. Is the cycle time for support processes delivered within the agreed SLA's
3. Is the application built-to-specifications
4. On-time delivery
5. Total cost.
Translate these measures to the IT Department in your business to drive and monitor continuous improvement.

Outsource to Service Providers with Process Improvement Experience. Lean can become ingrained in the common language and culture between companies. Do not underestimate how language and culture can be huge barriers when outsourcing IT services. Identify companies with Lean implementation programs that are mature and have been in place for minimum 3 years.

Look Beyond Price It is tempting in this economy to take the cheapest vendors when outsourcing IT services, often you get what you pay for. IT Outsourcers will place their key people on accounts with higher margins, so don't squeeze the supplier's margins to the extent where it impacts quality of resources.

Manage risk. Every IT Outsourcing project involves risk. Some of the common risks are vendors failure to deliver service, loss of business knowledge, data protection & security, scope creep, loss of control & cost reduction expectations. Expect to pay a premium to suppliers who manage risk well. The mistake made by many companies when outsourcing IT is to not to have realistic strategies in place to counter each risk. Companies that have implemented Lean programs identify risk in all forms and work to reduce it.

IT Departments should implement lean principles before considering outsourcing any work. It is possible that IT outsourcing can reduce IT expenditures by 30% within the first 12 months if handled correctly. Service providers can often implement process improvements that have huge impact on both cost savings and the quality of IT services delivered. As IT departments consider implementing Lean programs, they must balance the risks and uncertainties to find a partner who shares the same values before outsourcing any IT work. 

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