Thursday, December 23, 2004

IT Outsourcing and other "social" countries
IT Outsourcing and other “social” countries

It was not a long time ago when Australia was complaining about the Indian outsourcing. Their reasons were not only based on economic subjects but also on social arguments. Above all Australia claimed that Indian companies were stealing IT jobs from other countries. But it’s not about stealing, it’s about to be better, faster, and to be cheaper.

However, for a certain time ago Australia itself started an IT Outsourcing strategy because they discovered their labor cost were less than in Europe.

It is really amazing to see how countries can change its mind after discovering the advantage of IT Outsourcing. The expression unsocial or social had always an ambiguous and not clear meaning. This applies in particular for the economy.

But what does it mean when Australia now begins an IT Outsourcing strategy? Compared to India their labor costs are still to high. Hence, it follows Australian outsourcing will only get the companies which Indian Outsourcing companies didn’t want to consult it or they will get those companies with special relationship to Australia.

However, Australia can’t complain anymore about unsocial methods because they themselves are driving this way now. The only chance for Australia to get more leads than Indian outsourcing companies is to convince with quality. And this is the second big problem of the Australian software economy. There are no doubts about the quality, scalability and reliability about Indian software. It’s about to be better, faster, and cheaper.

Posted to: Articles/Blogs by SEO team

Wednesday, December 22, 2004

A new market for Offshore Outsourcing??

According to a report by Forrester Research more than one million jobs in Europe will move offshore by 2015. The report mentions that as European firms - especially in the UK - ramp up their spending with offshore service providers in countries like India, they will increasingly displace substantial numbers of employees from their current roles. Following the UK will be Germany, France, the Netherlands and Italy. Countries such as Ireland, Greece and Portugal face far lower employment impacts from the trend since companies in these countries show a far lower tendency to adopt offshore outsourcing as a budget option. Also, in many respects such countries act as low-cost IT and service locations in their own right. he trend to migrate jobs to lower-cost locations such as India and Russia will be motivated by a number of factors, says Parker. First, there is a strong emerging skills base in low-wage countries. Russia, for example, has 40% more scientists per head than the UK, France or Germany. Offshoring is much cheaper. The annual salary of a systems architect in the UK currently stands at about ˆ130,000 per annum, while a comparable systems architect in India commands just ˆ40,000.


Monday, October 11, 2004

Five Ways To Offshore Proof Yourself

Offshore proofing yourself need not involve radical shifts in Careers away from IT. Those drastic steps may not be needed if you understand what works and what does not in IT Offshoring!
Notwithstanding all the insanity with offshoring that is going right now, If you are in IT, I would not move away from it. You may just need to make sure you are in environments where offshoring does not work! Here are five simple ways to do it:

1. Positions Dependent Upon Constant Communication - Offshoring is not suitable for IT positions that are dependent upon constant communication - Business Intelligence and Reporting is one such area. Constant communication and changes are the norm rather than exceptions. This may not be because the business users are fickle. It's just the nature of Business Intelligence and Reporting.

2. Positions That Involve Lots of Internal and External Touchpoints - A good example might be IT careers in Consulting Companies that require interactions with customers here. More touchpoints mean bodies that are in the same time zones as yourself. They may try offshoring those positions but they will not work in the longer run.

3. Positions where Requirements are Changing Fast all the time - Fast growing businesses do these to you. Requirements cannot be frozen long enough for them to follow any process. That may also mean you need to be nimble on your feet, be familiar with Rapid Prototyping and faster release cycles if you are in software development. Good examples might be fast growing online companies.

4. Positions where Technology is the Core Set of Products - For Intellectual Property reasons as well as speed with which you need to do things (not very mature companies but younger ones) IT positions within such companies cannot be outsourced easily without pain. If you join a Retailer in their IT department, IT is a support process. It is subject more to outsourcing as it is not a core competency.

5. IT Careers that involve fast changing technologies - RFID, Wireless are all examples of fast changing technologies that cannot step outside the U.S simply for availability reasons. Wireless standards (Wide-area, telecom not local area) vary from country to country and is resistant to outsourcing simply for the reason that it cannot be done elsewhere. Fast changing technologies like RFID may require resources - people, knowledge, access to information, capital, etc that are very localized. They cannot be simply outsourced.

That said, already Computer Science enrollments are shrinking in schools. This may drastically alter the demand-supply equation in local IT workers favor soon. Hang in there, hide out for a while and the sun will come out. Hype machines work both ways, very optimistic and very pessimistic. Currently it is painting an unwarranted pessimistic picture. I don't believe it at all, if not for any reason other than simply what experience teaches you.

Thursday, October 07, 2004

IT outsourcing to India saves 60% costs
Companies outsourcing back-office work to India save as much as 60 per cent of their cost every year, points out the National Association of Software and Service Companies.

"The differential in wages between the parent location in the US or UK and India is more that 70-80 per cent for offshorable processes.

"However, interaction costs increase by 10-20 per cent because India is a remote location, which result in net savings of 40-60 per cent for the offshored processes," a Nasscom report says.

What stands in India's advantage is the fact that this labor cost advantage, the main reason for the cost savings is likely to exist for the next 20 to 30 years.

Pointing out that the savings are directly related to the amount of work moved to India, the Nasscom points out that, insurance and banking generates the bulk of savings because of the high proportion of processes that can come offshore.

It estimates that the banking and financial services sector in the US has made savings to the tune of $ 8 billion in the last four years by outsourcing to India.

The Nasscom report also points out today the wage of an Indian call centre operators is about 15 per cent cheaper than a call centre agent in the US.

"Even in the extreme scenario, where wages grow at 9 per cent, India will still have an 70 per cent advantage in 2008. In a more realistic case, if wages increase at 3 per cent, Indian operators will be 80 per cent cheaper than their US counterparts in 2008," Nasscom report said.

Nasscom also points out that, Indian call centres attract people who are more skilled and talented that those who work in the US and UK.

Indian call centres have a higher productivity compared to the call centre operators in the US or UK.

For example, according to Nasscom, Indian call centre agent makes on an average 98 correct transactions compared to 95 by an agent in the UK.

Besides, Indian call centre agent make 120 transaction an hour, an agent in UK makes only 100 calls.Besides, the Nasscom report also points out that the average speed of answer by an Indian call centre agent is about 8 seconds, the average speed of answer by a call centre agent in the US is 20 seconds.

Monday, September 20, 2004

10 Steps to Successful Outsourcing

1. Train the outsourcing staff. The outsourcing staff needs to know how the product works, both from the internals and from the perspective of knowing the problems the customer wants to solve.

2.Qualify the vendor. Does the vendor have domain knowledge? Is it financially viable? Are there contractual safeguards in place to keep control over the intellectual property you give it?

3.Plan for your in-house staff to shift their work hours. If you don't shift enough people to work earlier or later in the day, then someone across the world who has a problem won't have someone to talk to. Too often, when an engineer at least eight time zones away needs information, no one is in the office and no one can be reached. Instead of round-the-clock work, the work is stopped until the engineer can determine the answer.

4. Document the requirements. If your native technical staff can't read your mind about what you want in the product, how can geographically distant, non-native English speakers understand your requirements?

5.Develop an appropriate change process. Especially if you have development occurring in multiple sites around the world, you need a clear change process to make sure only the changes you want are allowed.

6.Select outsource projects with nonvolatile requirements. If your requirements change frequently and you need to check out the evolving product with the user, development across the world makes it that much harder.

7.Plan for each project to take longer and cost more, especially at the beginning of an outsourcing relationship. My rule of thumb is to increase the estimated time by 30% for the first project. Then monitor the project to see if you need to increase that estimate.

8.Make sure you have the tools, information systems and processes in placeto support the outsourced teams. They'll need access to the source code, defect tracking system, database or other platform applications, builds, etc. -- the same project tools that the internal teams need.
Verify that the people who said they'd be working on the project are the ones actually working on the project. U.S. firms have been using the bait-and-switch approach to contracting for years. Senior staff sell the project and then proceed to the next potential sucker -- er, client -- while new college grads and other underexperienced staff work on your project. Well, guess what? The non-U.S. outsourcing firms have learned the same technique. If you don't verify who's working on your project, your project could be the learning ground for their staff to build their resumes.

9. Assign one of your best project managers as your internal project manager. Just because there's a project manager at the outsourcer doesn't mean you don't need someone in your office making sure all the appropriate handoffs are happening.

10 .Insist that the outsourcing company keep the same team for your project's duration. Otherwise, the time you spent training their people is wasted and you'll have to start the training process again.


Saturday, September 11, 2004

Outsourcing: Should it Stay or Should it Go?

By Mark Hodges Outsourcing HR processes is a major decision. Incredible value can certainly be achieved, but determining which portions of HR can be outsourced is fraught with difficulties. Common questions that arise during the decision-making process include: "How much of HR can be outsourced?" "Which processes should be in-scope?" and "Which HR processes and elements should be retained?" The answers are neither obvious nor easy. Most HR professionals agree there are 20 to 25 different processes that constitute the HR function, including payroll, recruiting, succession planning and HRIS, to name only a few.

HR professionals should examine all these processes and break them up first into subprocesses, and then further into discrete work activities. For instance, the payroll process can be segmented into at least seven subprocesses: process design, employee setup, calculations, pay distribution, labor distribution, issue resolution and reconciliation. A subprocess such as pay distribution can be segmented further into multiple work activities such as payroll runs, confirmations, etc. This decomposition of a HR organization's processes allows the HR professional to apply a disciplined approach to what can and should be outsourced versus retainedOne technique that is helpful in determining what should stay and what should go is to take each HR process under consideration and classify it into one of four process layers: strategy and governance (typically retained), design and expertise (typically retained and including consulting activities that lend themselves to knowledge centers), administrative and operations (frequently outsourced) and the technology/systems category (frequently outsourced).

Remember, it is rare that a process in its entirety (i.e., all four process layers) is outsourced. The norm is for a combination - a set of subprocesses are retained and others are outsourced.
From a HR service delivery perspective, the 20-plus processes in the HR function can be grouped into five distinct clusters of similar work activity.

• The human capital cluster includes labor and employee relations, strategy, third-party vendor management and employee communications. Core activities such as HR strategy and labor and employee relations are often retained (but with heavy reliance on consultancies). Vendor management, through which all third-party HR service contracts (training, benefits, recruiting, etc.) are managed, is a prime candidate for outsourcing. Most HR outsourcing firms specialize in rationalizing multiple third-party contracts and helping to harmonize terms, pricing and service levels. Employee communications can certainly be facilitated by a HR outsourcer, in terms of technology and employee communication campaigns, but it is still largely a retained function.

• The workforce planning cluster includes staffing, recruiting, expatriate administration, domestic relocation and workforce deployment. Most of these processes can be, and have been, outsourced. When mapped into the four process layers mentioned above, it quickly becomes clear that most of this cluster's activity is grouped into the technology and administrative layers, which are highly transactional by nature. What is not obvious is that a center of expertise such as expatriate administration, domestic relocation or recruiting are scalable - and inherently lend themselves to serving multiple clients instead of one. Therefore, these economies of skill can be leveraged across wider volumes than a single corporation, which much more efficiently drives unit costs down. Furthermore, HR best practices from multiple clients can be implemented more easily into its constituent clients, introducing innovation not readily possible from within a single client.

• The HRMS and HRIS cluster includes technology activities related to employee data management. This cluster includes the HRMS system (payroll, HRIS and time and attendance), employee records management, employee manager and self-service, and workforce analytics. The vast majority of this cluster can be outsourced and is analogous to IT outsourcing or technology hosting. The technology and transactional elements of this cluster are largely generic and transactional in nature, and are ideal for a third party with superior economies of scale and location.

• The compensation and reward cluster includes payroll, compensation, stock options, service awards and, in some companies, travel and expense reimbursement. Most of the administrative, technology and transactional activities (e.g., salary surveys, benefits administration and stock-option portals) can be outsourced, which encompasses approximately 70 percent of the total work of this cluster.

• The organizational and employee development cluster includes staff development, training, organizational development and succession planning. Much of this cluster consists of strategic, core and consultative activities, usually hallmarks of retained work. However, training administration and scheduling, online performance management tracking and "what if" analyses for succession planning are frequently outsourced. Typically, 30 percent to 40 percent of this cluster can be outsourced to a qualified third party.

Understanding the scope of potential work - how many HR processes there are, which can be outsourced and which should be retained - is critical. In most HRO deals to date, approximately 50 percent of the work is ultimately outsourced. After one to two years of the relationship, additional scope is usually added to the contract. It's best to initially place approximately 75 percent of the total HR work "in-scope" in order to allow HR outsourcers to be as creative and effective as possible. If the final percentage ends up lower - say 50 percent - that is fine. It is always better to start with more scope initially than the reverse. This allows clients, in conjunction with the HR outsourcers, to jointly determine the final allocation that best fits their business objectives.

This article was published in the May 16, 2003 issue of Human Resource Executive.


Friday, September 03, 2004

Top 10 Tips For Outsourcing Success

By Keith R. Crosley Contributing WriterArticle Date: 2003-07-18
Entrepreneurs and small businesspeople are always looking for creative ways to accomplish more of their business goals for less money. One strategy that can help you save time, money and frustration as you start and build your business is to outsource as much work as possible to skilled, but cost-effective, external service providers.

When I talk to buyers who’ve mastered the art of effectively managing external service providers, the same themes emerge over and over. I’ve distilled their advice into the following “Top 10 Best Practices” for working with external service providers. Following this advice can help you get the most out of your relationships with external vendors or contractors -- whether you use the web to find service providers or are requesting and evaluating quotes from vendors the “old fashioned” way.

1. Clearly define the scope and schedule for your project
This might seem obvious, but any successful outsourced project always starts with a clear statement of what you are hoping to accomplish. Define your project requirements up front. Service providers need accurate, complete information to present you with realistic proposals and to quote you a reasonable price. Be specific about the deliverables you expect the vendor provide. Give vendors as much information as you can about what you need delivered and the way in which you need the work done. Also, be clear and realistic about your schedule requirements - project schedules can have a huge impact on project costs.

2. Evaluate a service provider like you’d hire a full-time employee
When you’re evaluating proposals from service providers, don’t be afraid to ask questions. Just like hiring a full-time employee, selecting a vendor is a very subjective experience. Check their references and ask for feedback from other clients who have used their services. Engage in a dialog – if you have any concerns about a vendor’s specific capabilities, voice your concerns. Don’t just stew about it and hope for the best.

3. Look for specific experience fit
Ideally, the service provider you select will have specific experience with the type of project that you’re undertaking. You don’t want to be somebody’s “guinea pig.” This is especially crucial when outsourcing complex technical projects such as software development. For example, if you’re looking for someone to develop an application for the Palm PDA, make sure they’ve actually completed commercial projects on that platform for other satisfied customers. This advice holds true for other types of projects as well. If you need a business plan for opening a retail store, you’ll get best results if the consultant you hire has verifiable experience in the retail sector.

4. Don’t choose a vendor based solely on price
Though it might be tempting, never select a vendor based solely on price. Experienced buyers who have outsourced many projects and evaluated hundreds of proposals almost always recommend discarding the highest-priced and lowest-priced bid. Buyers report that their most successful projects are the ones where they felt the vendor offered a balance of good value and quality results.

5. Review portfolios and samples
Examine the vendor’s previous work (their “portfolio”) and make sure that their previous work meets your expectations for quality and style. If you’ve evaluated a vendor’s portfolio, references and previous experience and are still unsure of their capabilities, consider asking them to do a quick mock-up or provide a basic outline of a work plan. A service provider who really wants to win your business might be able to give you a rough concept so you can better understand their approach to solving your problem. But never cross the line between asking for a mock-up and insisting that a vendor provide you with finished work “on spec.” No qualified professional expects to work for free.

6. Start small
When engaging with a service provider for the first time, start with a project that is relatively small and simple in scope. This will give you a better idea of the provider’s style and capabilities before you entrust a “mission critical” project to them.

7. Tie payment to clearly defined project milestones
Just as you should be clear about project scope, make sure that you define a work plan for your outsourced project with clearly defined milestones. Having scheduled checkpoints where you review the status of the project as it works toward completion—is an easy way to ensure that you meet your final deadline and that the final product meets your standards. Tie the vendor’s payment to these milestones. A good guideline for IT and software development projects is to pay no more than 20% to 30% of the total project price up front, with the rest of the payments awarded based on the completion of 3 or 4 milestones.

8. Negotiate ownership of work up front
For any type of outsourced project, make sure that you are clear about who owns the resulting work product and any important components of that product. Make sure the service provider understands how you intend to use the deliverables that they are agreeing to provide. For example, the development of a custom software application for your personal use would be substantially different from the development an application that you intend to package and re-sell.

9. Don’t forget about support after the project is complete
For technology projects, it’s a good idea to specify a warranty or support clause so that you are assured of some amount of continuing support from the vendor after the project is complete. It’s much easer to negotiate a support clause before the service provider begins work, rather than after the completion of the project. Even creative or business services can benefit from a support clause. Suppose you need some changes to a business plan based on feedback that you get from potential investors. Or maybe you find that you need that snazzy new logo delivered in a new type of file format. Specifying some amount of free support or negotiating discounted prices for future modifications can save you time, money and headaches later on.

10. Get it in writing
During the course of a service engagement, the scope of the project, deliverables or even the agreed upon price may change. Make sure that you clearly communicate any schedule, scope or payment changes to your service provider and get confirmation from them - in writing - that they understand and agree to the changes. Similarly, keep a record of any agreement changes requested by the service provider and whether you accept or reject those modifications. Save copies of any email exchanges that you have.


Friday, August 27, 2004

Improving Outbound Sales Through Outsourcing

Just a few years ago, face-to-face selling was still the primary way to market any product or service. Rare were the companies or individuals who purchased an item over the phone from an unknown caller. The changing conduct of society, the falling cost of telecommunications and the revolution in technologies have transformed the way companies are selling their products and services today. More important, competition in the marketplace and the necessity to achieve greater efficiencies have driven companies to further reduce the cost of their business operations. More and more, the telephone is a primary media used in most selling processes.
Many corporations today engage in the high-margin business of telephone sales. Programs range from single-call sales for a product or service, to lead generation for a sales team (some involving appointment set up, seminar registration or follow-up calls on inquiries made on a customer service line). There are almost as many ways to implement an outbound campaign as there are products or services to market.

Strategically outsourcing outbound sales has increased greatly among Fortune 1000 corporations whose main objective is to increase sales while reducing their costs. Some reluctance still exists, however, due to issues historically related to the outsourcing decision: lack of data control, fear of over-dependency on a third-party vendor, internal resistance, management issues, etc.

Before presenting the benefits of outsourcing, it is important to bear in mind the critical success factors for an outbound campaign. Thereafter, improving outbound sales, whether through outsourcing or internally, lies in enhancing any or all of the key areas:
Pre-direct-mail campaigns,
TSR selection,
TSR training,
Technologies utilized,
Incentive programs,
Offers proposed to potential customers.

The Key Benefits Of Outsourcing
Understanding the key areas listed above is critical to ensuring the success of an outbound sales campaign. More and more corporations, in order to save the time and investment required to improve their outbound program, turn to outsourcing as a solution to enhance their sales while decreasing their cost of business acquisition.

Indeed, the potential benefits of teleservices outsourcing can be enormous for a company. Teleservices agencies are experienced in a wide range of business-to-business and business-to-consumer applications and enable a corporation not only to lower its costs and increase its net sales revenues, but to also free up capital investment for use in other key areas and generally refocus on its core competencies.

Reducing Your Costs
One primary benefit in relegating phone sales to a teleservices agency rather than handling them in-house is certainly the reduced cost of the operation. A teleservices agency benefits from significant economies of scale in spreading expenses among numerous clients and thereby amortizing many general operating expenses. As an example, outsourcers immediately have access to leading-edge technologies at the lowest possible cost per seat.

As technology is an area for outsource saving, so is human resources. Hiring and retaining TSRs for an outbound program requires specific expertise and systems, as well as ongoing focus and energy. By off-loading programs to a third-party vendor, this critical and tedious function can deliver tremendous time and money savings. Further, it prevents companies from bearing the cost of inefficiencies associated with potential downtime or scheduling conflicts. A teleservices agency shares resources among clients and if a campaign is interrupted for any reason, moving TSRs instantaneously to a different campaign provides a flexible and cost-saving solution for affected clients.

Another important advantage in the area of human resources for outsourcing companies is the elimination of the cost of employment taxes and fringe benefits. Companies can also negotiate the most mutually beneficial compensation plan with their teleservices agency and be charged on an hourly, minute or even sales basis. The pay-for-performance pricing plan completely absorbs the costs associated with inefficiencies, mediocre performance or test/program failure. Vendors then share in the risk and are rewarded for success when they deliver results.

Increasing Your Revenues
Reducing cost should not be the only factor in an outsourcing decision - cost-effectiveness should be thoroughly studied. In building the right partnership, outsourcing outbound sales usually can also improve productivity.

Indeed, many advantages offered by a third-party call center contribute to improving conversion ratios as well as increasing the average revenue per sale in a campaign.

Beyond accessing leading-edge technologies at a low cost, outsourcing companies benefit from performance improvements associated with the use of state-of-the-art equipment, superior campaign management tools and CTI expert solutions. The latest predictive dialers increase contacts per hour and maximize lead use, automatically reschedule any call that does not go through to a prospect and provide pertinent customer data to TSRs, thus enabling them to focus on prospective customers and consequently improve sales conversion ratios.

Another benefit provided by teleservices agencies is their in-depth scripting expertise. Vendors are experienced in testing, researching and continuously modifying scripts online to achieve the best results. They are able to develop constructive, unobtrusive scripts and ensure agents a more comfortable and successful approach.

Last but not least, teleservices agencies have a history of developing effective, sophisticated compensation plans for TSRs as well as advanced upselling and cross-selling technique training. This expertise applied to a campaign ultimately converts into more sales and higher revenues per sale.

Improving Your Overall Quality
Beyond the commonly observed benefits of reduced cost and increased sales revenue, teleservices agencies bring some additional critical benefits that further enhance the cost-effectiveness of an outbound sales program.

Accessing Call Center Expertise. Third-party call centers bring in-depth experience in handling a variety of complex and challenging campaigns. Since teleservices are their core competencies, they possess extensive cross-knowledge in all areas related to outbound sales and can impact the critical success factors of an outbound campaign. Call center specialists can pinpoint the key criteria in optimizing a lead list and identify best which caliber of TSR is needed for a specific campaign through the use of proven screening processes.

Based upon their broad experience, teleservices agencies know precisely what a direct mail piece should include or what the lag time between the receipt of a specific letter and the follow-up call should be. Equally important, part of their core business is the responsibility to concentrate on testing a program's multiple variables. Trying different scripts, offers and lists is key to enhancing outbound sales results. A teleservices agency not only uses its experience with diverse clients, but also focuses on testing to ensure the best possible program.

Taking Advantage Of State-of-the-Art Monitoring. Quality is best ensured through ongoing monitoring and the development of creative, state-of-the-art monitoring techniques. These time-consuming and complex functions stand among priorities for teleservices agencies that usually have a dedicated team in place implementing formal and customized quality assurance processes. Outsourcers selecting quality-focused teleservices agencies can expect between two percent and four percent of all their calls to be monitored, which leads to superior agent performance and productivity.

Focusing On Key Business Areas. A secondary benefit associated with the outsourcing decision is that while the teleservices agency concentrates on the outbound program and ensures that all aspects are managed to enable a successful campaign, the outsourcing company can concentrate on its core business. Entrusting the right partner to execute a sales program not only frees up time, but also assets and investment capital, which are then available to redeploy in other important areas.

Additional Value-Added Benefits You Should Expect
From start to finish, carefully selected teleservices agencies possess the tools and resources to enhance outbound sales programs. By providing services to many different clients, a teleservices agency gathers a unique knowledge of outbound campaigns and marketing tactics or geographic issues to consider. Departmental managers also act as consultants, offering ongoing, insightful advice.

Through outsourcing, your company can win access to unique outbound expertise as well as the possibility of additional integrated call center solutions. Some teleservices providers offer a wide range of services, for example, both inbound and outbound services, fulfillment, list modeling, database analysis, credit card processing, cashiering or Internet transaction services. Access to these capabilities is a convenient method to expand into new customer acquisition arenas.
Business value has become more important than cost reduction as a major reason to outsource. Outsourcing outbound sales is now a strategic tool for many corporations.

General Recommendations
Although a multitude of benefits associated with outsourcing outbound sales have been exposed in the above paragraphs, it is critical to remember that outsourcing does not always resemble perfection. In the outsourcing process, it is necessary to follow a few key steps in order to achieve the best results.

The main challenge with outsourcing lies in bringing two cultures together. It is therefore essential to carefully and thoroughly assess your future partner in all aspects of a business relationship. It is critical to select a service agency that understands your objectives and the vision for your business in order to build a mutually beneficial relationship. The major step to selecting the right partner for a company's unique needs is to identify your particular priorities for outsourcing, whether it is reduced cost, easier management, or any other objective. Vendors cannot meet objectives unless they clearly know them.

Additionally, once the right partner and the right application have been identified, other issues may occur over the phase of outsourcing, including data control, performance or management issues, etc. It is important for a company's senior management to be involved in the activities of the service agency in order to identify issues early in a program and resolve them through communication and clear goal setting.


Friday, August 20, 2004

Outsourcing: Gaining the competitive edge

In today's rapidly changing, highly competitive market, organizations are seeking new ways to cut costs, maximize use of resources and focus their energy on overall improvement. One way that many organizations have found to help achieve this is to take advantage of the wide variety of services available, by outsourcing many of the traditional internal service departments. This article takes a close look at the issues of outsourcing IT services, with a particular emphasis on the implications of using an external supplier for technical software development.

Why outsource at all?
In many large organizations IT is run as an operations utility several hundred IT staff. Their role is to run data centres, supply managers and scientists with the processing power required, develop bespoke applications, recommend and install "off the shelf" systems and provide help desk support. Outsourcing routine tasks to a partner allows staff to become involved in activities that create real value for the organization. The advantages in budgetary terms are the ability to turn "fixed" costs into variable costs, since staff are only on site when their services are required, combined with the ability to plan budgets more effectively as rates are fixed.

By negotiating a framework agreement with a supplier which defines the main issues of importance to the organization (e.g. performance issues, quality etc.) it is simply necessary to negotiate the scope and targets for each individual contract. The need to issue an invitation to tender for each project is removed. Thus, the need to spend time seeking suppliers with relevant skills, reading numerous proposals, meeting countless suppliers and evaluating benefits for each contract is removed.

In an ideal partnership both parties benefit from a well negotiated outsourcing arrangement. The purchaser receives a faster response to requests for support and gains access to new ideas, methods and technologies enabling the provision of an improved service to internal customers. The partnership promotes an understanding of company style and culture which means that the supplier is easier to manage than a group of ad hoc contractors. Long term, the supplier's recruitment policy can reflect the needs of the purchaser.

Why separate software development?
One of the main concerns expressed at organizations which have taken the step to outsource is that they will not be dealing with suppliers who fully understand their requirements. This is particularly true for technical software development. To ensure that the diverse projects run by scientists and engineers are carried out using the most appropriate technology and by people who can understand and work closely with technical staff it is imperative to keep this area of outsourcing separate from the provision of general IT services. No one supplier can possibly excel in all IT areas. Finding specialist companies for each business sector allows you to take advantage of their innovative approach and experience. The multi-supplier approach also ensures that you are not limited by the quality of a single supplier's skills and technologies. Scientists and engineers requiring software have more confidence in suppliers who can demonstrate a real understanding of their needs, and with a track record of similar projects.

Possible pitfalls
Signing long term contracts or tying in to one supplier can make an organization vulnerable to escalating fees, inflexible services and inappropriate skills. Alternatively, if outsourcing is carried out in an ad hoc fashion then the project managers simply move from doing the work to managing a group of uncoordinated suppliers. Any solution should ensure that suppliers have the incentive to work together to provide a seamless service, resolving inter-contract problems themselves.

If outsourcing is carried out in a rational way, using suppliers specializing in each of the services to be outsourced, if these selected suppliers provide a seamless service to the organization and if the organization reviews its needs on a regular basis, then you have a recipe for a partnership that will give you greater job satisfaction and help increase efficiency.


Wednesday, August 11, 2004

CRM Outsourcing
There are many factors to consider when outsourcing a project. Contrary to current popular belief, the decision is very rarely made due to cost. Actually, cost is usually about the same. In many circumstances, key customer information is an asset not considered acceptable for outsourcing. Many companies have complex integrations which are too difficult to manage between outsourced and internal projects. Business who's CRM implementation is tightly integrated into backend services find it almost impossible to outsource due to multiple integration points and methods. I have found that because of a continuous evolution of learning and changes as a CRM product is used, outsourcing is a bad idea. Much more can be accomplished with an internal staff able to quickly adapt and change as business needs dictate.
For some companies outsourcing is the only solution. Few companies actually have the expertise necessary to complete many of the complex tasks necessary in a CRM implementation. Staff size and their capabilities are high on the list of reasons to outsource. For some CRM is an add-on rather then an integral part of current internal systems.
As you can see there are good arguments on both sides why a company may or may not outsource part of, or an entire CRM project. I think these decisions will continue to be made on a case by case basis.

Sunday, August 08, 2004

The Roadmap to Outsourcing
Creating a Roadmap
Today outsourcing of some type of business element should be on the roadmap to mortgage lending success. For example, the goal of reducing the cost of doing business across the mortgage banking enterprise may bring in representatives from the finance department, human resources, secondary marketing, servicing, operations and sales. Choosing between centralized and outsource tasks is an alignment issue for the entire team and its culture. Without matching business requirements or direction between the teams, there is no way to reach the organization's preferred business destination. Is it loan quality, new loan market share, customer retention or the need to speed up loans to market that is the driving force on the roadmap to success? The pressure may be in any one or a combination of these areas. Once determined, finding ways to outsource for optimum efficient cost reduction becomes more effective and much more embraced by the organization as a whole.
The Art of Building Small
Outsourcing tasks or outsourcing entire departments is not just for the large, rich and famous anymore, but also the astute business owner who plans to upsize the organization. For example, mortgage brokers who are at the threshold of full blown mortgage banker status have two basic choices:
1) Build the infrastructure like our grandfather did with all the departments fully staffed, needed equipment purchased with the costs of floor space to hold it all, and lest we forget, hiring executive talent with the appropriate mortgage expertise to execute and manage the plan. All this effort while trying to keep the core business of quality loan origination vibrant and growing.

2) Outsource as many of the necessary functions to obtain optimum expertise, control physical costs, defray management salaries and the expense of hundreds of excess people on payroll, thus opening up huge chucks of time and money to devote to the core business of quality loan origination volume.
Trends in Outsourcing
Technological requirements can be outsourced from the very simple contracting with a technology firm for repair of hardware or network maintenance to the more complex agreement with an ASP (Application Service Provider) that manages software issues for multi-site users. In this case, the data resides outside of the boundaries of the mortgage enterprise thus eliminating branch office VPN connections, saving dollars in technology labor to maintain networks and infrastructure, and cutting related travel costs. Loan officers, processors, and managers use laptops and desk computers to access their live data from anywhere at any time. Scottie Sharpe, President of Rosenvick, Inc. that produce AspireGold—an ASP that brings connectivity of loan processing systems like Point together with Goldmine—says, "Using outsourced technology like ours, not only can you open up a branch office in hours, but you will probably enjoy huge cost savings and reduction of administrative headaches due to reduced distributed hardware and software." In this type of outsourcing, mortgage lenders must choose wisely since their business intelligence will be Web optimized for ease of delivery, and issues such as security and scalability become extremely important.
Human Capital Management
Employees are one of the most expensive items on the general ledger so out- tasking in the human resources area can save huge dollars without skimping on the required outcomes. Such things as background investigations, reference checking, or security badging can be outsourced on an as needed basis. 401k plans and the service providers are easily outsourced and are usually much better at handling complex investment questions from current and former employees. Outsourcing the entire 401k plan administration also keeps the ERISA guidelines met and the IRS 5500 filed on time. Human Resource outsourcing can be expanded to include functions of payroll, including tax deposits, quarterly reports, and benefits administration. A quality human resource provider offers employee orientation, training, and counseling.
Loan Quality Control
The GSE requirement to have audit teams separate from production employees makes the QC area prime for outsourcing of the complete department. The outsourcer does the entire job from file selection to re-underwriting, legal review, and fraud assessment. The mortgage banker can share the outsourcer's QC reports with its warehouse bankers, investors and employees to gain full advantage of the outsourcing cost. Outsourcing of the quality control department is not only used to defray costs but as stated above it is a way of buying the crucial knowledge so essential to becoming and staying a superior mortgage banker.
Servicing Area
Complete outsourcing of the entire servicing function is a tried and true method via subservicers that have the infrastructure to handle thousand and thousands of loans. Servicing in this manner not only keeps costs down but keeps the details of regulations, payoffs and lien releases in check. Out-tasking in the servicing area is more of a trend today as the need for assignment processing and payment collection saves time and money for the servicing organization.
Sales Area
Marketing newsletter creation and mailing is easily outsourced, taking a significant burden from the sales team, while keeping the momentum of referrals in balance. After the sale follow-up mailers are also easily outsourced with the simplicity of a choreographed calendar. Outsourcers provide many types of marketing styles from which to choose and in some cases will allow only one origination company to use a marketing idea per certain geographical locations. Outsourcing doesn't mean losing company identity or creativeness.

Tuesday, August 03, 2004

When should an organization consider outsourcing a system selection project?

It makes sense to seek help with system selection when:

1. The organization lacks the time and/or technical expertise to evaluate vendors.
2. The organization wants to draw on the experience of someone who has matched similar organizations with systems in the past and already knows what's available.
3. The organization needs help choosing between competing options.
4. The organization needs impartial help in evaluating and prioritizing its needs.
5. The organization lacks experience with other systems or ways of working.
6. The organization wants guidance that is free from office politics.

What should be included in an outsourcing project?

A system selection project can include any or all of the following:

1. interviewing key staff, board members, and volunteers to understand long-term goals and daily operating needs

2. identifying and prioritizing mandatory and optional features

3.creating a qualified vendor list

4. assembling a request for proposals (RFP) and evaluating responses

5. identifying technical infrastructure requirements

6. specifying integration requirements

7. developing scripted scenarios so all vendors show comparable features; for instance, when comparing fundraising databases, each vendor might be required to create two donor records, merge them and add some joint gifts, then separate them and show the effect on the gift records
8. identifying required resources, including budgets, staffing, policies, procedures, and training

Who from your organization should be involved in the project?

Begin by appointing a respected, neutral staff member to oversee the project and serve as liaison to the consultant. The liaison could be a knowledgeable staff member who does not have a vested interest in any particular outcome. The liaison should have sufficient stature to make recommendations to senior management. The liaison does not need to have a technical background. However, it's critical that this person be given the time to oversee the project (which may require shifting duties temporarily), and have a personal interest in seeing the project through.

Next, convene a selection committee representing each of the major groups that would enter data or receive reports from the system, such as fundraising, membership, marketing, finance, client intake, and information technology. When you hold software demonstrations, invite all interested staff and volunteers. They should be given an opportunity to provide comments to the selection committee, preferably in writing. The selection committee's job will be to evaluate the demos, check references, compare costs, and make a recommendation to management. The internal liaison should oversee the decision-making process, though the consultant may facilitate the process. Under no circumstances should the consultant make the final decision -- the organization must control this.

Expertise required from a outsourcing partner:
1.experience helping comparable organizations solve similar problems

2.objectivity and communication skills

3. experience assessing business processes, database requirements, and organizational effectiveness
4. experience turning business needs into scenarios for software demos

5. experience working with committees and facilitating group decision-making
experience with a variety of database solutions

Benefits of outsourcing a system selection project:

1. getting it done: organizations are frequently not able to allocate the necessary time, or they lack the skills to manage the project and compare options

2. creating a sense of urgency: paying a consultant tends to make the project a priority for everyone, particularly senior management

3. getting access to expertise that the organization lacks

4. having an objective facilitator run the project

5. getting an unbiased assessment of the strengths and weaknesses of the systems under consideration and how well they'll meet the organization's needs .

When should an organization consider outsourcing a system selection project?

It makes sense to seek help with system selection when:

1. The organization lacks the time and/or technical expertise to evaluate vendors.
2. The organization wants to draw on the experience of someone who has matched similar organizations with systems in the past and already knows what's available.
3. The organization needs help choosing between competing options.
4. The organization needs impartial help in evaluating and prioritizing its needs.
5. The organization lacks experience with other systems or ways of working.
6. The organization wants guidance that is free from office politics.

What should be included in an outsourcing project?

A system selection project can include any or all of the following:

1. interviewing key staff, board members, and volunteers to understand long-term goals and daily operating needs

2. identifying and prioritizing mandatory and optional features

3.creating a qualified vendor list

4. assembling a request for proposals (RFP) and evaluating responses

5. identifying technical infrastructure requirements

6. specifying integration requirements

7. developing scripted scenarios so all vendors show comparable features; for instance, when comparing fundraising databases, each vendor might be required to create two donor records, merge them and add some joint gifts, then separate them and show the effect on the gift records
8. identifying required resources, including budgets, staffing, policies, procedures, and training

Who from your organization should be involved in the project?

Begin by appointing a respected, neutral staff member to oversee the project and serve as liaison to the consultant. The liaison could be a knowledgeable staff member who does not have a vested interest in any particular outcome. The liaison should have sufficient stature to make recommendations to senior management. The liaison does not need to have a technical background. However, it's critical that this person be given the time to oversee the project (which may require shifting duties temporarily), and have a personal interest in seeing the project through.

Next, convene a selection committee representing each of the major groups that would enter data or receive reports from the system, such as fundraising, membership, marketing, finance, client intake, and information technology. When you hold software demonstrations, invite all interested staff and volunteers. They should be given an opportunity to provide comments to the selection committee, preferably in writing. The selection committee's job will be to evaluate the demos, check references, compare costs, and make a recommendation to management. The internal liaison should oversee the decision-making process, though the consultant may facilitate the process. Under no circumstances should the consultant make the final decision -- the organization must control this.

Expertise required from a outsourcing partner:
1.experience helping comparable organizations solve similar problems

2.objectivity and communication skills

3. experience assessing business processes, database requirements, and organizational effectiveness
4. experience turning business needs into scenarios for software demos

5. experience working with committees and facilitating group decision-making
experience with a variety of database solutions

Benefits of outsourcing a system selection project:

1. getting it done: organizations are frequently not able to allocate the necessary time, or they lack the skills to manage the project and compare options

2. creating a sense of urgency: paying a consultant tends to make the project a priority for everyone, particularly senior management

3. getting access to expertise that the organization lacks

4. having an objective facilitator run the project

5. getting an unbiased assessment of the strengths and weaknesses of the systems under consideration and how well they'll meet the organization's needs .


Sunday, August 01, 2004

Offshore outsourcing : a situation analysis.

It is extremely difficult to argue against cost reduction, especially in the face of shrinking budgets and increasing work. Managers have been told to go out and “learn” more about Offshore Outsourcing. But before you embark on this “journey” it is important to sit back and consider:

* How will Offshore Outsourcing fit with your business strategy?
* How will Offshore Outsourcing fit with your organizational strategy?

In essence a situation analysis is important to address these questions.

Step back and look at where you are today. What is working for you, and if it is working how well is it working? What is it that is not working? Most important, how do you work? Who defines work, who sanctions it, who “consumes” it? What are the internal and external interfaces? How do you respond to User requests? How do you prioritize work? Do you follow any standards? Do you have any formal processes in place?

Next, look at the business imperatives for change. Look at all your short term and long term goals that need to be achieved. What is it that you can meet with your budgets, what is it that cannot be met? What skills are lacking?

What are the business objectives?

* Cost reduction – if so what are the goals?
* Staff Reduction – If so which functions and how would this be staged?
* Growth – If so what skills would be needed?
* Customer Satisfaction – If so do you have any established measures for this?
* Time to market – What are the ramp-up requirements and what are the skills needed? What training is essentially required?

Full or partial outsourcing may be an answer to meet these business objectives. If so, identify what functions or development needs to be outsourced. How would this affect any ongoing development or new developments? How do you currently work these tasks that are proposed to be outsourced? How would your work change once you outsource? How would this adapt to any changes in business or user needs? How quickly would you like the change to take place in the service offering?

Do you have any processes that would get affected (very likely) with the decision to outsource? How would they look like when you outsource? How would the interfaces change? How valuable is the work that is being outsourced for the organization and the function? Does the work require extensive user interaction or is it self manageable? Can you support a remote team even if internal skills may be found wanting? Would it be appropriate to relinquish control? If so how much control can be relinquished?

Finally, what are the long term objectives of this decision? How long would you consider outsourcing? Would you, at some stage, like to own a low cost remote development center? How would this fit into your business or organizational strategy?

Such an analysis could change your approach to Outsourcing and you may create an entirely new “Outsourcing and Governance” organization that works to meet both short term and long term objectives for the company. In our experience the “Outsourcing Office” and the “Chief Outsourcing Officer” are critical to success in any Offshore Outsourcing initiative.
A long term strategy will determine an appropriate business model. The next section explains some approaches to Offshore Outsourcing.


Friday, July 30, 2004

Are You an Ideal Candidate for Outsourcing?

Creating and maintaining the right relationship with suppliers is instrumental in realising the benefits of IT outsourcing. Fujitsu believes that IT outsourcing has matured greatly since the first big contracts were awarded a decade ago. The first and second generation of contracts tended to concentrate on offloading costs, but made little provision for innovation and change.

Based on new research by Fujitsu, a new, third generation of outsourcing is being proposed; whereby outsourcing is an ongoing and integrated part of an organisation's business strategy.
The new approach was derived from the experience of Fujitsu's people engaged in outsourcing agreements. Using surveys and focus groups, Fujitsu was able to bring together the collective experience of their staff and develop key recommendations and structure for the next generation of outsourcing.

Benefits to be realised from this new model include improved operational performance; higher service levels; reduction in time to market; increased IT staff retention and risk reduction.
Third generation outsourcing is relevant to all retailers, whether they are currently engaged in IT outsourcing or are outsourcing for the first time.

To help organisations better plan their investment in IT outsourcing, Fujitsu has developed a five-point plan that summarises the new collaborative approach. (see below)

This approach transforms the outsourcing deal from the traditional buyer-seller arrangement to one of co-operation and a shared vision of what can be achieved.

It also plans for constant improvement, with the focus on those parts of the business that will yield the biggest benefits.

The approach also assumes a strong level of co-operation and engagement at all levels between the two sides of the arrangement. In that way, technology ceases to be a brake on progress and becomes a true enabler for progress.

Fujitsu's five-point plan to successful IT outsourcing:

1. Ensure cultural alignment
Successful IT outsourcing depends on a shared vision and approach to working together, with like minded people working on common goals.

2. Set clear, measurable objectives
Align the IT objectives and the business goals with a common focus on meaningful business and operational objectives. Avoid the pitfall of micro level objectives and do not expect results overnight.

3. Keep sponsors engaged
Have appropriate relationships at all levels of the client and supplier organisation, including the key sponsors from both parties to keep the agreement on track.

4. Expect change
Things will not stay the same for long. Expect and accommodate business change, operational improvement, and technology enhancement.

5. Win win
Acknowledge and welcome the mutual dependency an outsourcing arrangement creates. Ensure that your objectives are aligned and that a win for one party is also a win for the other.


Sunday, July 25, 2004


Sunday, June 06, 2004

Models for Business Process Outsourcing

Onsite Model of Business Process Outsourcing

The success of any business process outsourcing contract lies in the appropriate and precise gathering of information about the project. According to the onsite business process outsourcing model, the whole set of processes starting from information gathering to implementation is done at the client's premises. This model ensures that the result is correct at the first instance. Based on the needs and requirements of the client, the design, development and test teams are deployed for a short time frame at the client's location. The business process outsourcing service provider utilizes its workforce for service of its clients at their premises. This business process outsourcing model becomes essential and suitable if the project needs a specific resource type of post-deployment, maintenance, support and follow-up activities. This model is helpful for those projects that are mission-critical, require proper and constant attention and also need everything to be done in the client's location. Thus, the onsite business process outsourcing approach is ideal for:

1.Requirements not being defined at length
2.Dynamic changes in deliverables or requirements
3.Tough and Rigid deadlines
4.Constant need of support
5.Direct interaction with client
6.Scalable staff augmentation
7.Moving across time lines
8.Mission Critical Projects
9.Product engineering-related services
10.Open-ended and iterative nature of project scope
11.Projects that are highly secured and confidential

In this approach, all the activities mentioned below are executed onsite:

1.Initial Study/Understanding the client's requirements
3.Technology Assessment
8.Maintenance and Support
9.Offsite Model of Business Process Outsourcing

According to this model of business process outsourcing, the service provider will have its office near the client location. Not only does the business process outsourcing offsite center have the benefit of being close to the client, but it also gives support to the onsite team and the offshore development activities at the offshore center. Thus the experts at the business process outsourcing offsite center in tandem with the corresponding offshore center team ensure on time, quality service through collaborative skills across different time zones. This business process outsourcing model is appropriate:

1.For short-term business process outsourcing projects
2.When requirements are defined beforehand
3.When there are no frequent changes in the business process outsourcing project
4.When the client's location may not have extra capacity

Offshore Model of Business Process Outsourcing
This model of business process outsourcing entails that the project-related activity; right from initial study to testing is done at the service provider's premises. The business process outsourcing service provider will not have any presence at the client's location but the client will interact directly with the offshore team. This model is best suited when the project plan is well defined and the development team has a clear understanding of client requirements. The team members at the business process outsourcing offshore location interact with the client through various communications means such as telephone, fax, email etc.

This business process outsourcing model has been proved to be effective in terms of:
1.High quality service with low labor cost
2.Effective utilization of time zone (24x7 service)
3.Availability of multi-technology skills
4.30 to 50% reduction in project cost

But the high level of risks associated with this business process outsourcing delivery model becomes a critical success factor for some clients. Some analysts are of the opinion that a 100% business process outsourcing offshore model is not workable. The risks, which are associated with this model:

1.Risk of communication gap between the vendor and client
2.Client requirements may not be captured in real terms

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Thursday, June 03, 2004

The banking industry is ripe for business process outsourcing

For more than 30 years, the banking industry has used outsourcing as a means to reduce costs. Until recently, IT processes accounted for the majority of large-scale bank outsourcing.

In the past two or three years, however, more and more banks are dipping their toes into the fresher waters of business process outsourcing (BPO). A recent example is Bank of America’s deal with Exult to run its human resources department.

BPO entails outsourcing an entire business function—not just certain aspects of the function, such as IT systems. Good BPO candidates are key back-office processes, such as items processing, call centers, and even entire HR departments.

The impetus behind this more extensive kind of outsourcing is certainly cost savings. In addition, the flexibility with which banks must respond to industry challenges presented by straight-through processing (STP), electronic bill presentment and payment (EBPP), and truncation is increasingly important.

Outsourcing bank back-office processes also helps mitigate risk. And many banks choose BPO to gain access to intellectual capital and skill sets.

Issues to consider before making the move to BPO
Banking is ripe for BPO. For example, of the top 20 banks in North America, more than half have outsourced their items processing, are actively searching for providers, or are reviewing the business case for such a move. So, what should banks consider before making the BPO decision?

Pricing needs to be at the top of the list. However, it's also one of the hardest things to get right. BPO is immature, and drawing up the right cost structures and identifying good deals is often something of a guessing game. So the financial side of any contract, let alone any other clauses, requires appropriate expertise to judge correctly.

Two additional factors compound the problem. First, BPO typically incorporates a desire to improve best practices or deliver operational transformation. It can be difficult to discern where the danger points lie in the relationships governing these crucial but intangible qualities.

Second, the very nature of BPO requires companies to negotiate functions that they have little knowledge about, which is one of the reasons they want to outsource in the first place. But this can pose a serious risk. Unscrupulous outsourcing partners may use this lack of expertise to pull the wool over a company’s eyes. Therefore, banks should begin by outsourcing what they thoroughly understand before moving to more innovative projects.

How soon will BPO benefits be quantifiable?
How soon a bank will realize the benefits of BPO depends on the situation, according to "BPO in Banking: Outsourcing the Back Office," a Giga Information Group report by analyst Julie Giera. If the scale of outsourcing is one small area of back-office operations, then banks will potentially realize benefits sooner because conversion to the outsourcer’s area of responsibility will occur sooner.

However, if a multibillion-dollar bank decides to outsource its entire items processing facility and consolidates, say, 15 different capture facilities into five, while converting to image and truncation at the same time, it could be at least a year before the bank will realize any substantial benefits.

In addition, banks are often ill-equipped to assess the benefits that BPO can bring, let alone when it might bring them. The focus of most traditional outsourcing relationships is solely on reducing the cost of current services, which has resulted in an important missed opportunity for increasing the business impact of outsourced IT as well as BPO.

Successful outsourcing contracts involve relationships between parties, not transactions. As such, the value an outsourcing partner can and should deliver goes well beyond cost savings. But most CIOs and IT managers have little experience in measuring that type of value, and they're often unprepared to apply such concepts to BPO.

BPO should be an offer that many banks simply cannot refuse. Whether it's an offer they can understand is another question entirely.

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Wednesday, June 02, 2004

Revisiting Key Provisions in Software and Outsourcing Agreements

Key provisions in software license and outsourcing agreements should be revisited and updated in light of the events of 9/11 and changes in privacy laws, intellectual property practices, and the business purposes of information technology projects. Central to this is the use of technology to implement business transformation, that is, the use of software and outsourcing to improve, or transform, a company's business operations.

An example of business transformation could be taken from the use of a manual system to order custom products in the retail industry. Let us assume that the use of manual orders causes in salesmen to miscode forms and that the volume of handwritten paperwork causes manufacturing mistakes at the factory. If the manual system were replaced by software and the software prevented miscoding and its automated order placement prevented factory mistakes, then the number of products that would have to be discarded or returned would be greatly reduced. In this case, the improvement in business operations, at both the retail store and the factory, is included in the software. The business transformation is embodied in the adoption of the new technology.

The topics covered by this article are also important even if business transformation is not the primary purpose of the IT transaction. For such cases, this article provides updated licensing techniques. Among other topics, this article covers: (1) the changes required in confidentiality agreements to accommodate the privacy of personal information; (2) rethinking the purpose of force majeure provisions in light of 9/11; (3) the potential problems of using joint ownership as a solution for intellectual property rights; (4) the impact of statements of work on litigated disputes; (5) having master agreements control over subsequent transactions documents; (6) the advantages of placing confidentiality obligations in a separate agreement; (7) framing a motion for an injunction to require the vendor to provide maintenance during a dispute as a motion to maintain the status quo rather than as a request for an extraordinary affirmative remedy; (8) converting source code escrow to technology escrow (including placing the names of the programmers in escrow); and (9) requiring employee background checks as protection against software sabotage. The article concludes with a discussion of the core factors necessary for successful outsourcing or software licensing agreement.


New privacy law regimes and the business need for a software or outsourcing customer to protect the personally identifiable information (PII) in its possession require changes in standard confidentiality agreements. The PII can belong to the customer's customers, its employees, business partners, and others. In the United States, the new privacy laws include Graham-Leach-Bliley for financial information, the Children's Online Privacy Protection Act for online sales to children, and the Health Insurance Portability Protection Act for personal health information. Elsewhere, new privacy legislation includes the European Directive on the Protection of Individuals with regard to the Processing of Personal Data and on the Free Movement of such Data in EU member states, the Canadian Personal Information Protection and Electronic Documents Act, and Australian Federal Privacy Act.

Standard confidentiality agreements were generally written to protect trade secrets and other proprietary business information and to exclude publicly available information from nondisclosure obligations. These confidentiality agreements need to be revisited because they were not written to cover PII entrusted to a party. A company that is a customer in a software license or outsourcing transaction will want the vendor to keep PII confidential. It will argue that, because it has an obligation to do so, so does the vendor that acts as its agent. The vendor, however, may argue that it has no confidentiality obligation because the PII fits within the exception for public information. This is because personal information such as home addresses is technically available to the public in the county clerk's office and other similar sources. To protect its business interests and to avoid possible liability under privacy regulations, the customer will insist on an exception to the exception to prevent the disclosure of PII.

In some cases, a vendor may have already received the same PII in its possession, and it may have received the consent of the owner, as is available under privacy laws, to disclose that information. This can occur, for example, when the vendor is a large institution that licenses software to this particular customer but provides data processing or outsourcing services to other customers and has the right to disclose the PII for those purposes. As a result, the vendor will require the right to disclose PII that it has independently received, even if the same PII is the incidental possession of the customer, in order to preserve the rights it previously obtained for that information.


An issue highlighted by 9/11 is the need to rethink the purpose of force majeure provisions. I suggest that force majeure provisions be combined and coordinated with disaster recovery and business continuation provisions. Disaster recovery and business continuation plans are meant to operate when certain force majeure events occur. The force majeure provision should not operate to relieve the vendor of the obligation to perform. While force majeure events might reduce the obligations of the vendor, they should not eliminate them. Instead, the contract should identify certain foreseeable events and delineate what the vendor's obligations should be (even if reduced) when those events occur. Put another way, the contact should require the vendor do be part of the disaster recovery and business continuation process. In essence, the contract should specify the acts the vendor is to take in the event of particular force majeure events instead of simply excusing vendor performance.


One difficult intellectual property issue that arises in software development and outsourcing agreements concerns the ownership of improvements and new inventions, especially those created as a result of joint or collaborative effort of the vendor and customer. A common contractual provision provides that the parties will jointly own the patents that result from jointly developed inventions. The practicalities of patent prosecution can confound the parties' expectations, however. By way of background, recall that a patent has several sections, including the claims. When a patent is enforced or infringed, it is the claims that are enforced or infringed. Utility patent applications are filed with an initial set of claims (as distinguished from provisional applications, which need not include claims), but the claims can be completely changed during the course of the prosecution (provided that the new claims are supported by the specification section of the patent application). In fact, during prosecution, the Patent and Trademark Office (PTO) generally will reject or require changes to the claims as originally filed in order to allow the application to mature to an issued patent. In addition, the party prosecuting the application may introduce new subsets of claims during the two or three years that it typically takes a software or business process patent to issue.

If one party (either the vendor or the customer) controls the prosecution, it is possible for that party, intentionally or not, to over time change the claims in a way that favors it and disfavors the other party. In addition, it is conceivable that the party controlling prosecution could draft the claims more narrowly in a jointly owned application than it would if it were to be the sole owner of the patent precisely because the patent will be jointly owned with another party.

Accordingly, a party interested in preserving benefits of joint patent ownership must take the long view and stay involved during the full period of patent prosecution. This is often a challenge as the two-year, or three-year, or even longer prosecution process may outlast the software development project. This party and its own patent counsel will need to have the right to approve claim changes and other filings with the PTO. Obtaining mutual agreement on all prosecution filings can prove difficult, especially as each party pursues its own agenda. An agreement to joint decision making during the course of prosecution does not mean that the resulting patent will be equally beneficial to each party. Therefore, once a decision to jointly own the patent is made, the parties need to carefully manage the patent process. It needs to be made an important part of long-term contract administration handled by qualified lawyers who must monitor prosecution developments.


A related issue concerns the parties' respective rights to license a jointly owned patent. A party that is the sole owner of a patent probably would not license it to its competitor. However, if the same patent is jointly owned, the other owner might license it to the first party's competitor. This is because the scope of license rights was not addressed when the parties agreed to joint ownership in the contract and because the licensing could not occur until the patent issued several years after the contract was signed, and this is probably several years after the software development project ended. Thus, in addition to ownership, each party needs to focus on, and perhaps limit, the scope of license rights that the other party will have. These license restrictions need to be determined at the beginning of the development agreement even though such license rights will not be exercised until years later.

Joint owners of a copyright also have the right to independently grant non-exclusive licenses. Jointly owned copyright in important software presents the same licensing issues and also should be addressed when the contract is being drafted. It is important to note that copyright authorship is different from patent inventorship; it is possible that an invention relating to the software can be jointly owned, while the copyright in the software will not, or vice versa. As a result, the agreement must treat patents and copyrights separately.


In complex software licensing and software development projects, as well as outsourcing arrangements, the transaction documents initially will consist of a master agreement and a series of schedules, project plans, and other documents. Later, the parties will enter into various statements of works and amendments to govern new work. Litigations arising from these agreements are often factintensive and involve the definition of the parties' obligations, software functionality, the exact scope of outsource services, and whether performance justified payment and at what price. These issues are governed in many cases by service level schedules, statements of works, and other technical documents. Because of the litigation impact of these documents, there is a danger in having them drafted solely by technical personnel. For this reason, it is important that lawyers draft these documents even though they cover technical subject matter and that the lawyers understand this subject matter or work closely with experts who do.

The transaction documents for complex software and outsourcing agreements typically consist of a master agreement; a set of specialized schedules or sub-agreements, such as service level agreements; price documents; maintenance and support agreements; security schedules; and so forth. Later on, the parties will enter into various statements of work and project plans to implement the next phases of the project. The lawyers for the vendor and customer will have carefully negotiated the master agreement. The real-world danger is that the subsequent documents will undue the balance of rights that were so carefully negotiated there.

This often happens because the vendor tenders its standard form statement of work forms to the customer's technical (as opposed to legal) staff, the technical staff signs the form because it focuses on technical matters, and ignores the legal provisions. The result is that the new form undoes the concessions that the customer's lawyer was able to skillfully negotiate in the master agreement. (Note that it is not always the vendor's form that causes this. Large users also have their own standard forms, and use of these can cause the same result in reverse.)

The way to protect against this is somewhat counterintuitive: The first document, not the last document, should govern. Thus, the master agreement should provide that, in the event of a conflict with subsequent transaction document, the master agreement should control. This is especially important with respect to "master" provisions, such as representations and warranties, indemnities, intellectual property ownership, limitation of liability, and the like. Exceptions may be appropriate for changes in price or adjustments in service levels, but the basic principle is to protect the careful balance of negotiated rights from being undone when lawyers are not involved.


Entering into a separate confidentiality agreement instead of including confidentiality and non-disclosure provisions in a master agreement can provide several advantages. First, it can make it easier for the aggrieved party to obtain a judicial remedy for a breach of a confidentiality obligation. A separate agreement can put a simple, focused dispute before the court and reduce the opportunity for the defendant to cloud the wrongful-disclosure issues by introducing potentially irrelevant counterclaims going to an alleged breach of the main agreement that would be more readily introduced if the confidentiality provisions were part of a single contract.

Second, it can take a long time for parties to negotiate the master agreements. In the mean time, they will be exchanging confidential information (as part of the RFP process, for example). The vendor will disclose proprietary technology and the customer will disclose its business plans, including possible deficiencies in its current operations. In many cases, the customer will be negotiating with several potential vendors, in which case it will be necessary to protect the confidentiality of the information disclosed to the semifinalists who are not ultimately selected. Thus, a comprehensive confidentiality agreement entered into before the master agreement is executed can protect the pre-contract disclosures, the disclosures made during the initial phase of the contract beginning after execution, and disclosures made under agreements other than the master agreement, such as project plans and statements of work entered into in future phases of the project. As with the master agreement, the confidentiality agreement should be drafted to prevail over any inconsistent provisions in future statements of work and so forth to preserve the careful balance of rights negotiated by the attorneys at the beginning of the relationship. (This should include the proper treatment of personally identifiable information).

Third, in the RFP process when multiple vendors are bidding for the contract, each vendor runs the risk that the proprietary information disclosed to the customer will be disclosed to its competitors during the selection process. Having this information covered by the confidentiality agreement can protect the vendor. Confidentiality agreements with potential or actual subcontractors also may be needed.

Finally, the customer should have the confidentiality agreement cover evaluations and reports made by the vendor of the customer's operations. As noted, the customer may be entering into the agreement to transform its business operations. It will not want its customers and competitors to know of any weaknesses in its technology or business practices. A customer also may want to keep improvements confidential because the new technology offers a competitive advantage. Improvements in intellectual property should be protected for the same reason. Similarly, a vendor may wish to have reports kept confidential that indicate deficiencies in its technology or outsourcing operations.


A related issue regarding confidentiality concerns published intellectual property. Commonly used confidentiality agreements generally cover intellectual property. However, the recipient of another party's intellectual property may take the position that issued patents and other publicly available IP of the disclosing party are either subject to the standard confidentiality exceptions or should be excluded by contract from confidentiality obligations. Foreign patent applications (including foreign counterparts of US applications), and under a relatively recent change to US patent laws, US patent applications (subject to certain exceptions) will be published 18 months after the first filing date. Even though the applications are published in official government patent publications, it can be argued that they are not readily available to the public. Because of this, the party owning the application may wish to require by contract that the recipient not disclose the application or the subject matter thereof. Moreover, in a multiyear contract, both parties may wish to maintain the confidentiality of applications published during the term, especially if the patent rights are jointly owned.


A risk that a customer runs is that the vendor will cut off maintenance and support during the pendency of a payment or other dispute. This can place undue leverage in the hands of the vendor when the payment was withheld because of its failure to meet required performance levels. Courts are often reluctant to grant injunctions when affirmative relief is sought. A solution to this is to have the customer frame the relief sought not as a request for an extraordinary affirmative remedy but as a request that the status quo be maintained while the dispute is being resolved. The customer should anticipate this eventuality and draft the contract, including the maintenance and support obligations, to support this position. The customer can further support this by showing that members of the public at large, who happen to be its customers, will be the ones injured if maintenance is allowed to be suspended. For example, a bank could argue that the public interest would be harmed if ATMs were temporarily withdrawn from service when service withdrawal avoidable. Courts are also reluctant to order parties to work together when human anguish will result. A sizable vendor will be providing support and maintenance services to a number of customers on a one-to-many basis. The customer can argue that no human anguish will result if the vendor is required to provide it with support because little additional work is required to provide remote services to the customer as well as to the vendor's other licensees.


Traditional source code escrow arrangements should be converted to full-bodied technology escrow arrangements. The party seeking the protection of the escrow should take the long view and carefully consider what materials it will need to support the technology that it is acquiring. In addition to placing source code (in fully commented form, or course) in escrow, the escrow should include design documents, protocols, test programs, certain software tools, diagnostics, maintenance and support tools, and similar materials. The customer also may want to use any knowledge base developed to maintain the software placed in escrow. This knowledge base (as well as other deliverables) should be in a technology-neutral format so that it can be used without the vendor's proprietary software.

A problem with source code released from escrow is that it often consists of hundreds of feet of magnetic tape or hundreds of pages of program listings. This can make the protection afforded by escrow somewhat illusory (even assuming that the escrow has been updated with new versions of the code as they are released). As a practical matter, it will be difficult for a party who obtains the source code from escrow to locate the actual lines of code that contain the programming problem that the escrow is meant to address.

A solution to this problem is to go one step beyond the source code and place the names and addresses of the programmers themselves in escrow. The programmers who are best able to fix the code are the ones who wrote it, and they can be made available. Any restriction in the agreement against hiring the programmers must be modified to permit such hiring by the customer in a bankruptcy or similar situation that triggers the release of the source code from escrow. The party obtaining the release from escrow also will need an intellectual property license to make derivative works of the code.


The events of 9/11 also highlight the risk that programmers can sabotage code and introduce errors into the customer's system that cause potentially significant malfunctions. This risk may be increased in outsource agreements when software is written in foreign countries. Similarly, code can be written that allows unauthorized access to a customer's confidential information, and this can include the credit card numbers and other sensitive data belonging to the customer's customers. One way to address this risk is to conduct background checks on the programmers before they are hired or assigned to the customer's project. In addition, the software can be verified by a third party or checked by the customer before it is implemented in a live environment.

In addition to the updating the contractual provisions discussed above, the following core factors are necessary for successful information technology agreements in today's business environments.

Clear Description of Software's Functionality. A customer needs the scope and description of the functionality of the software and services to be clear, complete, and unambiguous.

Meaningful Acceptance Criteria. Acceptance criteria should be objective, rigorous, and tailored to the needs of the customer. It should be possible to fail the test, quantify the failure, and determine what changes are required to pass the retest.

Meaningful Service Levels. A service level is the level of service that the software will provide. Service levels are often expressed in percentage terms. For example, a contract may require a service level of 100 transactions per second 95 percent of the time. A common mistake is to ignore the other 5 percent of the time. The contract should impose a service level on that remaining percentage; otherwise, the exception could provide a large whole for in performance obligations.

Accurate Metrics. Metrics are the standards and other criteria used to measure the performance of the software and related services. Continuing with the example in number three, the metric would be the criteria used to determine whether the software processes 100 transactions 95 percent of the time.

Meaningful Service-Level Credits. These credits are payments, offsets, or other forms of compensation that a vendor is obligated to pay the customer when it the software fails to meet service levels. These payments are what put teeth in service-level obligations.

Maintenance and Support Levels and Response Times. The safest assumption for the customer to make is that software or outsource services will not work completely. To compensate, the customer must receive complete and timely maintenance and support services with proper escalation provisions to be sure that the appropriately skilled vendor employees resolve the problems.

Avoid Too Much Shared Responsibility
. To the extent possible, functions should be the responsibility of either one party or the other. If functions must be shared (for example, first-level support provided by the customer and higher levels of support provided by the vendor), then the demarcation lines should be drawn cleanly. When no one party is responsible, the task often will not get done properly.

Avoid Uncoordinated Amendments. A danger in complex information technology licensing transactions is that, over time, the collection of statements of work, work orders, amendments, and the like introduce inconsistent provisions with the result in extreme cases that it is not clear what the contract requires.

Avoid Paying Too Much Money Upfront. Paying most of the fees at the beginning of the contract reduces the customer's leverage, and in some cases, the key vendor employees will be assigned to other customers.

Termination Rights and Transition Services. A customer will want the right to terminate the agreement both for cause and for convenience. Termination for convenience is an important remedy when the customer downsizes or reduces the scope of the project. A customer will want the right to transition the software or services in house or to another vendor. The vendor will want to be paid for these services. The customer may consider paying a premium for transition services in order to obtain the benefit of an orderly transition.

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