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Do's and Don'ts of IT Outsourcing (Part 2)

This is the second 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 Consider Multiple Suppliers Researching & investigating multiple suppliers may seem like unnecessary work - especially if you already have relationships with one or more outsourcers. While there are certainly benefits to working with an existing supplier, you need to at least seriously consider alternatives. Your incumbent providers need to know that your company is not a well from they can continually draw water. By introducing a credible threat, you can at least ensure that your existing supplier will provide a competitive bid for the work. Additionally, no one supplier excels, or has sufficient capacity, in every discipline. Be cognizant of services that may be rendered by a very new or inexperienced team that was put together merely to maintain a monopoly of your business.

Don't Obsess Over Location. As cost pressures mount, its easy to make snap judgements around where you need to source services. While we can make fairly accurate sweeping statements about the prices and competencies a particularly country or region, we do not execute outsourcing contracts with the government of that country. In a price-neutral comparison, a highly-suitable supplier from a less desirable location is probably a better fit than a marginal supplier from your ideal location. With most outsourcing arrangements, the majority of your services will be provide from a supplier's location, rather than your offices. While language, culture and time-zone can play a role, physical distance should not. A remote team will be managed in much the same way, regardless of where they are located.

Do Consider The Integration When Structuring The Deal. One of the biggest costs to outsourcing is the integration. Not only are there costs to your organisation (e.g. personnel redundancies, process changes, legal fees), but there are costs to the outsourcer as well (e.g. ramping up new employees, oversight personnel, telecommunications costs, software licensing fees). If these costs are often explicitly laid out in the contract, they can provide a nasty shock in the form of 'additional fees' later on.

Don't Forget The Future. As times change, your needs will change, and your engagement will need to move along with it. Your contracts need to address the reality that you may need fewer or more resources supporting certain services, and that certain services may become obsolete. It is fair to have a reasonable transition cost for any such changes, but there should also be limits to the amount of time those changes take. Additionally, be very careful around the termination of your contract - who owns the IP, what documents are owed to whom, what transition work will the supplier be obligated to provide. Good relationships can solve many such problems - but with leaner times ahead, you want to be prepared.

Do Create Win/Win Scenarios. As an add on to the previous "Do Not", seek ways to create win-win scenarios. The most common ways to create such scenarios are through 'innovation' and 'efficiencies'. Efficiencies are found when a supplier gets better at providing the same service over time. For example, server support that initially took 10 people, may now take 6. If both parties are trying to refine a process, the results will be significantly better, and both should reap the reward. Innovation is, very roughly speaking, the flip side of the coin. As a supplier gets to know your business, they may be able to offer higher-value services to help improve your company. Granted, these will almost certainly come at an extra cost, but you can make that value-determination when such services are offered. Laying the groundwork for these types of advances can provide a great deal of benefit down the road.

Don't Select A Supplier Until The Deal Has Been Structured & Negotiations Are Complete. A supplier should never know that they are the chosen provider until all of the details (e.g. integration, termination, service levels, change request clauses) have been hammered down. Ideally, these should be established with each of your short-listed suppliers, so that you have a relatively balanced comparison on which to negotiate price. Such deal aspects can lead to a huge difference in price, and its impossible to make a valid price/value comparison unless all of your prospective service providers have taken them into consideration.

The goal is to give yourself every advantage during the sourcing process, and to ensure that those gains stand the test of time. A sourcing strategy centred on hard-nosed negotiation tactics often provide the greatest short-term wins, but those benefits will erode over time if the engagement doesn't have the requisite flexibility on your part and incentives for the supplier. 

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