10 Things to Consider when You’re Outsourcing IT
By Thomas Tøth, Consultant for Right People Group and expert in IT outsourcing
Outsourcing of IT services is by no means a trivial task. Far too often, companies don’t manage to reach the outsourcing goals they’ve set. In some cases, they don’t get the quality they had hoped for, and in others, the expected IT-related savings are nowhere to be seen. Far too many organisations are blinded by what looks like an obvious business case on the surface with large savings in the IT budget on, for example, solutions.
The IT outsourcing business case may be very good, but it requires maturity regarding planning and execution. Here are ten of the most important things to keep in mind, if you are considering outsourcing IT or IT-related activities.
1 – Choice of Outsourcing Destination, Partner, and Model
It is reasonable to say, that the choice of outsourcing partner and outsourcing model can on their own easily be broken down into a list of 10 relevant points to be considered. In fact, one could write an entire book about the topic. On a general scale, however, I will point out a few things: First of all, it is necessary for a company who wishes to outsource, to consider the destination carefully. This should be done with attention to e.g. political stability, English proficiency, and access to competent resources. Second, choice of partner is paramount. And while potential partners can be measured based on a long list of parameters, I would like to stress the importance of choosing an IT outsourcing partner who is compatible with the client’s company. Last, but not least, the choice of outsourcing model: Are you looking for a pure service sourcing, and if so, is your organisation sufficiently mature in terms of processes and governance to be able to handle this type of cooperation? Or are you thinking in the direction of body shopping, where your IT outsourcing partners provide hands and heads, whom you control through your existing organisational set up – and if so, are your project managers and team managers capable of leading a culturally heterogeneous and geographically diverse group of employees? Or do you wish to utilise an outsourcing model which incorporates elements from both of the above?
2 – Deconstruction of Activities to Outsource or Not
Which tasks may be outsourced? Whether a task is suitable for outsourcing depends on a variety of factors, including, but by no means exclusively, complexity (for example in terms of reliance on other systems, and the need for business-related knowledge), maturity, documentation, and tolerance for errors.
Selecting the tasks most fit for outsourcing requires you to take them apart and choose the most suitable tasks based on, among others, the factors mentioned above. And remember: If you outsource a current fiasco, you will likely end up with a disaster.
3 – The IT Outsourcing Partner’s Bottom Line and Motivation
When companies begin outsourcing IT, it is often a long-term investment. Just like more personal partnerships, it rings true that outsourcing partnerships will fail if you neglect how essential it is that the partner enjoys the cooperation. You will only succeed if the partnership is a win-win situation.
Hence, it is important to create a balance between your own business case and the IT outsourcing partner’s business case. Thus, the central consideration is as follows: How do we ensure that our IT outsourcing partner is motivated to help us reach the goals in our business case?
Avoid pushing the price and terms too much, and avoid exploiting that a lot of suppliers are willing to lower their prices significantly to win a contract, as doing so only provides short-term fulfilment.
4 – Transfer of Knowledge in Outsourcing Projects
The majority of the outsourcing projects I know of have a contractual 6-month transitional period. In this period, the client company’s employees are meant to communicate knowledge to the supplier’s consultants. When I talk to IT managers about the amount of time it takes for a new employee to get up to speed, most state that it takes up to two years. With that perspective in mind, it is hardly surprising that most companies who outsource IT complain because the supplier lacks knowledge about their business!
Effective communication of knowledge is best ensured by setting up a structured process, based on an analysis of the concrete needs of the supplier’s consultants. Subsequently, a plan should be devised which a) specifies the knowledge to be transferred, b) identifies people responsible for the transfer, c) finds the most suitable methods for the type of knowledge at hand, d) states how long the client must put aside for the transfer, and e) sets up the means for evaluating whether the goal has been met. [Continues after the video]
5 – Governance in Organisations Working with IT Outsourcing Partners
Working across organisational and geographical borders is significantly different from working with people who sit in the same place, and are all part of the same organisation as oneself.
Many companies “move jobs” to an outsourcing partner and forget that they must adapt their own organisation to this new way of working. This includes a “recipient organisation”, which is responsible for ensuring that the outsourced activities are conducted properly, and for maintaining the contract and the relations to the outsourcing partner. This also includes a transparent and efficient governance structure, which partners agree on, as well as detailed service level agreements (SLA) and key performance indicators (KPI). These elements allow proactive problem solving and improvement cooperation.
6 – Maturity of Processes – Listen to the Outsourcing Supplier
The processes of large international IT-suppliers are often at a high level of maturity. The same cannot be said about the majority of Danish IT organisations. Furthermore, large suppliers have a lot of experience with establishing outsourcing partnerships, so: Listen to them! When it comes down to it, standardisation is a significant part of the added value one may get from an outsourcing agreement with one of the large suppliers.
If you insist on doing everything “your way”, they are likely to accept it. However, that typically results in poor communication and coordination. Rather, use their standards, and see it as an opportunity to improve the maturity of your own processes.
7 – Language and Culture – Don’t Underestimate the Challenge
In a number of cases, I have observed announcements from Management teams in Danish organisations which sound something like: “The language of our business will henceforth be English.” However, the problem is, that the reality does not look like that.
There is a huge difference between being able to small talk in English, and being proficient enough to communicate about complex topics – and it is vital to consider this.
Likewise, it is in no way a trivial task to work with people form vastly different cultures, if you are not used to doing so. That is why culture training is almost always a good idea.
With the right facilitator, your employees will both learn a lot about the new and different culture they have to work with, as well as acquire a number of new perspectives on your own cultural background, and tools to help them handle the cultural gap.
8 – Virtual Communication
We all engage in virtual communication on a daily basis. We send emails, instant messages, we are on the phone, send text messages, and many of us spend a part of our work day on Skype, various video conference systems, e-meetings etc.
But regarding remote cooperation, many have difficulties with the virtual communication, even though we do it every single day. Why? In a vast number of cases, it is not because we master virtual communication, but rather because we know the people we interact with, and we tend to do alright.
The problem is, though, that when it comes to remote cooperation, we typically don’t know the people we communicate with very well. The result of this is, that we need to become better at virtual communication, if we want the remote partnership to succeed.
And let me say once and for all, that good virtual communication is not just about having the best available technology. Even though this is an appealing notion which many IT managers stubbornly hang onto, insisting that “we just need better technology, more bandwidth etc., then everything will be solved,” technology alone will not solve the challenges we face in virtual communication.
There is no doubt that good technology helps, but if we want to succeed in our virtual cooperation with people we only know peripherally, we need to learn how to communicate in a new and different way. And that takes knowledge about the quirks of virtual communication as well as practice.
9 – Keep up Motivation of Own Employees despite Outsourcing Initiatives
Many companies experience that their own employees’ motivation falls in relation to the commencement of a larger outsourcing initiative, and that is in itself not very surprising. The message received by the employees, that strangers on the other side of the planet are capable of performing their jobs, will inevitably affect their confidence and self-esteem. “How can some Indian guy who just graduated university do the job I spent 15 years learning how to do?” they ask.
Whether the supplier’s consultant can or cannot is, in this case, of less importance. The fact of the matter is that if your employees think in this way, your IT outsourcing exploits are headed towards disaster from the beginning.
Even the smallest mistakes made by offshore IT consultants will be interpreted as incompetence – and it is likely that your own employees will interact as little as possible with the new consultants, which inevitably results in the new people never being able to establish the necessary understanding and domain knowledge for your company.
As such, the big question is: How can you ensure that your own employees’ motivation stays high when you begin an outsourcing partnership?
In far too many organisations, the necessity for communicating honestly about the reasons behind entering an IT outsourcing partnership, as well as the necessity for supporting the employees in the adaptation to the new organisational set up, are underestimated.
Put simply: your own employees are the foundation of successful IT outsourcing, and the organisational changes which come with commencing an outsourcing partnership should have high priority. Very high!
10 – Get Professional Guidance in the entire Outsourcing Process
The value of professional guidance from experienced sourcing consultants is often a good investment. Many businesses accept this regarding the initial selection process due to the fact that setbacks in relation to choosing IT outsourcing destination, partner, and model is a costly affair.
But professional guidance regarding some of the other eight factors described in this blog may also in many cases be a good investment. This is because it can be difficult and expensive to improve the cooperation once the damage is done; when the employees have had bad experiences with the outsourcing partnership, and these have begun circulating throughout the organisation.
To sum up: Carefully consider the aforementioned nine topics. And seek out external guidance if areas exist which fall outside your own organisational competencies. Doing it right the first time is both better and cheaper than having to fix an initiative gone wrong at a later stage.
To read more about Right People Group’s services in IT outsourcing – click here.
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