Wednesday, August 27, 2008

13 best practices for IT outsourcing

While reading outsourcing horror stories may be somewhat entertaining, especially if it hasn't happened to you, it's even better to learn from the mistakes of others.

That's why InfoWorld talked to industry experts to summarize their best advice, based on their own experience and their clients' experiences. Those industry experts are Larry Harding, founder and president of High Street Partners, a global consultancy that advises company on how to expand overseas; Steve Martin, a consultant and partner at Pace Harmon, half of whose business is focused on helping companies repair the damage from an outsourcing deal gone bad; Peter Geisheker, CEO of the Geisheker Group marketing firm; and Patrick Dolan, CEO of BPO Management Services.

1. Establish clear objectives. It's not that the best-laid plans oft times go astray; it's that they often aren't the best-laid plans in the first place.

There is a lack of experience in what outsourcing entails. Going global with a sales and marketing initiative, for example, has implications in finance as well as most of the company's other departments.

2. Get a compatible provider. Make sure your service provider understands more than just how to code or implement. An outsourcer needs to be compatible with your company's culture and business objectives, with the right experience, communications skills, and working style. Remember, they will become part of your organization and need to fit in as well as actual employees would.

3. Don't go in shortsighted. Stakeholders often get lost in the deal itself. In the attempt to save the company lots of money, the emphasis shifts to documenting the benefits of the deal and locking prices down, savings, terms, and conditions. Often missing is a focus on the long-term result desired to justify such a fundamental switch in business operations.

4. Never confuse sales and delivery. Focus on getting a good delivery it's the ultimate point of the deal, but it's frequently overlooked once the papers are signed. It is those delivery details that get lost in transition from the deal guys to the execution team.

5. Change your attitude toward IT. Don't think of IT as a cost center; instead, consider it a value center. Such a switch clarifies what is key to the business and what is in fact generic, and thus what should be a candidate for outsourcing in the first place.

6. Get the communications right. Make sure the service provider understands the project specifications. Be as detailed and precise as possible. When you distribute IT functions outside your organization, you need a great deal of coordination and back-and-forth communications even more than when you distribute across your internal organization.

7. Expect to get what you pay for. If you put the outsourcer under too much cost pressure, it will cut corners too, such as using junior resources.

8. Stay on-site. If possible, budget to keep on-site presence at the service provider. You need to see what is actually happening, and have your ambassador there so that the outsourcer can stay connected with you as well.

9. Retain responsibility. Outsourcing shouldn't mean that you are abdicating responsibility. You still own the overall results, so you need to be actively involved in working with and managing the outsourcer.

10. Get C-level sign-offs. Make sure you have senior-level stakeholders such as the CIO on the client side and CEO on the vendor side. Don't delegate everything to middle management.

11. Pick the right projects to outsource. In many cases, the outsourcing decision is made for the wrong reasons. IT tends to unload the stuff it doesn't want, as opposed to figuring out what makes sense to outsource. What to outsource depends on the company's objectives. If the primary goal is to save money, then start with the applications that cost you the most money.

12. Clean up before you outsource. Companies tend to dump their problems on outsourcers, then are surprised a bad result ensues. If the company couldn't get the systems right, how it can it expect the outsourcer to do it? It's actually harder for the outsourcer because they don't have your history, culture, and business context when trying to decide what is "right." Likewise, deploy new systems yourself, then outsource to someone else to operate and maintain.

13. Get the SLA metrics right. Because IT organizations are not typically good about collecting metrics, they make several mistakes, the biggest of which may be to accept the outsourcers' SLAs (service-level agreements). If the vendor sets the baselines, you can be sure it was done in such a way to minimize risk and penalties and maximize incentives.

And always pair SLA performance metrics with customer satisfaction survey. This will tell you whether you have the right SLA. Otherwise, the vendor may be hitting all of the SLA levels yet have unhappy customers. That should tell you that you're measuring the wrong thing.

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