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Do's and Don'ts of IT Outsourcing (Part 1)

This is the first part of a three-part series of articles that discuss some general rules around how to outsource successfully, broken down into the following areas:
Part 1 - Strategy - Deciding What, When and How to Outsource
Part 2 - Sourcing - Executing The Sourcing Strategy
Part 3 - Governance - Service Integration, Performance Management and Supplier Relationships

Do think holistically about your entire IT organisation. Why do a large number of IT directors and CIO's wonder about how so many different contracts crept their way into their technology operations? The obvious answer is that many IT service arrangements were written to solve one-off needs or address 11th hour issues, and with little regards to a unified sourcing strategy. While there is no "correct" or even "ideal" number of service providers, deals should always support the overall IT organisation's strategy, but...

Don't outsource holistically. Thinking big does not necessitate acting big. Many companies see mass-tendering IT services as a way to reduce management overhead, capture economies of scale and make a meaningful impact on financials. It takes time and discipline to achieve an envisioned sourcing landscape, and there are compelling reasons to take a pragmatic approach. First, you minimise (if not eliminate) the impact on internal employees and the chance of service disruption. Second, you can adjust and refine your outsourcing strategy and process if your initial deals do not yield the desired results. Third, you retain a competitive edge... despite supplier promises of 'economies of scale' and 'efficiencies', nothing elicits strong pricing and performance like the prospect of additional future work.

Do maintain in-house expertise. In-house professionals with extensive company knowledge are a valuable asset to any organisation - they're often difficult to retain and nearly impossible to recruit. In terms of IT sourcing, these individuals represent and independence. In-house experts allow companies to have vision into the depths of their outsourcing contracts, enabling better relationship management and governance. Lower-level problems (e.g. poor coding standards or inadequate documentation) will be caught much earlier, and with time to correct. Oversight and guidance can help service providers work more efficiently - which is particularly important in time and materials contracts. In house experts also provide companies with a measure of independence. If key process and technical knowledge is retained, it is feasible to either remove or replace a supplier with relative ease. Which leads to this "don't" corollary...

Don't underestimate the need and value of supplier management. There is often a tendency to take a hands-off approach to managing outsourcing relationships. To be fair, this is a natural attitude to take. Both senior leadership and the day-to-day project managers of outsourced services feel that they are customers - and in most cases, customers are meant to sit back and enjoy the products and services they have purchased. The reality is, suppliers must be supported and managed effectively if they are to deliver a satisfactory service. Despite what we like to believe, even the most rigorous specification or requirements document is not enough for suppliers to succeed without client involvement. As your company and needs change over time, strong relationships will encourage suppliers to move with you, rather than against. Remember - cost, capability, capacity, flexibility are all good reasons to outsour... 'making life easier' should only be an incidental benefit.

Do involve non-IT leadership. It probably goes without saying, but the IT sourcing/outsourcing strategy needs to align with your company's financial, operational and sourcing goals. Sometimes the most important sourcing and outsourcing decisions are influenced by arbitrary policies - such as a moratorium on new suppliers or a mandated minimum number of outsourced personnel. If these kinds of constraints are non-negotiable, they must be worked into the overall IT sourcing strategy - not used as reasons to drive any one particular decision. Furthermore, if you are considering outsourcing any area of IT that may be even remotely customer-facing (technical support, ecommerce, etc), you must have stakeholder buy-in from all relevant functions.

Don't look solely at "the numbers". Consider all of the non-financial implications to outsourcing certain sets of IT services. Look at how those service areas affect internal and external customers. Try to predict how each area will change over time (or at least estimate the variability of each). In determining whether or not to outsource, transitional and ongoing operational risk needs to be weighed against the potential cost savings. I tend to say this ad nauseum, but most unsuccessful outsourcing contracts begin to break down long before service levels or financial targets are missed. Year-one savings can easily equate to year three losses if you are scrambling to improve a long-eroding service.

There's little argument that outsourcing is an essential tool in enabling IT organisations to focus on what they do best, but as an industry it is both dynamic and complex. The expectations of technology change at a rapid pace, which greatly challenge the industry's efforts to standardise and commoditise IT services. Therefore, the most successful organisations will be those that take the strategic view, but retain the capability to execute a pragmatic and hands-on approach.

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