In simple language, outsourcing is the contracting out of a business
function to an external supplier, involving the transfer of people as
resources and capabilities, processes and assets. This contracting out
can be undertaken at either an on-shore or off-shore location, and to
one (single-sourced) or more (multi-sourced) outsourcing partners.
Outsourcing is most mature in the Information Technology sector although
it is increasingly developing to include a wide range of business
processes.
From the early 80’s last century IT Outsourcing has evolved into a sophisticated global market and most companies, no matter how traditional their business model is, have outsourced one or more layers of their IT function. Outsourcing IT has always been a complex programme, in part due to the requirement to bundle IT into ‘services’ combining hardware, software, people and processes. These services often contain data centre, end-user computing, service desk, application development and maintenance, and voice and data network packages.
For traditional IT outsourcing there are intricacies in transferring staff, novating contracts and assessing the financial impact of selling physical assets. These complications have been recently compounded by on-demand IT offerings, the evolution of offshore centres, and the advent of cloud-based offerings.
Outsourcing success is dependent upon how well the process will be managed before and after the outsourcing contract is signed. Many companies award the outsourcing contract to the lowest bidder without understanding the consequences and without performing a complete vendor selection process. Some companies blindly go for medium to higher outsourcing contract bidder relying on the assumption if it is more expensive it should be good enough. When things start to fall apart, like missed delivery targets, quality issues occur or inconsistent service, the blame-game starts and everyone runs for cover.
Fit for purpose
Outsourcing an IT process simply because it is not working well only makes the problem worse. Without a doubt, an outsourcing vendor should add value to customer business, but should not be relied upon to fix the problems inherent in the business itself. The best approach is to re-visit the process design by to applying Deming Cycle – Plan, Do, Check (Study), Apply or simply to hire external consultant organisation to do the job. Once the process is clarified and cleared from unnecessary workflows and elements all activities can be re-visited.Still not satisfied by the outcome? Look around for an outsourcing solution. Now it is clear what is required and you will compare apples with apples.
Unfortunately I have been approached many times in my professional career by business managers to “compare” their IT department outcome with outsourced IT service. The pity part is only numbers are usually compared without real understanding of the services, pros and cons of both models and pricing/chargeback models.
Why not to outsource the comparison to experienced organisation and enable an informed decision?
Thorough Vendor Selection
The vendor selection process can be a very complicated and emotional undertaking if you don't know how to approach it from the very start. First discover what is required. Before start to gather data or perform interviews, assemble a team of people who have a vested interest in this particular vendor selection process. The outcome of the team work is to define, in writing, the product, material or service that are in demand and to be transferred to a vendor. Next step should involve defining the technical, business and the vendor requirements. Finally, the document shall be visible and accessible to the areas relevant to this vendor selection process and seek their input.
Did you started with mentioned above? If not it is time to do it. Not sure how to follow properly the Bid Management process? You can outsource it also.
Make It Measurable
Is this measurable? If not, do not include it in the SLA(s). How good is good internet? Only measurable units should be used in conjunction with measurement systems. This will provide information about outsourced process or service performance. If you don't analyse and define quality measurements and/or service levels, how will you know if your outsourcing vendor is performing to your standards?
Risk Mitigation
The list below is not exhaustive but is good starting point to address some of the risks:
1. Company legacy/politics are jeopardizing the success of the project – Establish a dedicated team with strong organisational and board level support.
2. Poor Selection of Vendor - Consider a detailed Study about vendors including current processes, customer references etc., rather than blindly believing the track record.
3. Scope Creep - Scope of the project getting wider with new requirements to be addressed. Phased approach with milestones and trade-offs at various stages.
4. Process and Quality standards incompatible with vendor. - Agreed upon standards and processes must be part of the binding contract.
5. Security breach including Confidentiality, IP and trade secrets. - Require vendors to meet security standards and monitor with effective auditing.
6. Infrastructure breakdown, could be a software/hardware/network failure that may or may not be directly in vendor's control. - Review and approve Business Continuity and disaster recovery plans of the vendor. Audit data from simulated disaster drills.
7. Poorly designed disaster recovery systems/processes. - Review and approve Business Continuity and disaster recovery plans of the vendor. Audit data from simulated disaster drills.
8. Reduced Employee motivation as outsourcing is perceived as loss of job. - Establish Employee retention strategies such as retention bonus, performance map etc.
9. Political/Cultural unrest. - Be sensitive to cultural issues.
10. Process non-alignment and differing governance model. - Establish compatible and agreeable processes and include them as part of the contract.
11. Increased labour rate as the project progresses. Vendor might try to justify the increase with reasons such as Inflation, currency conversion fluctuations. - Binding document should contain appropriate forecasts and waivers wherever applicable.
12. Legal and Regulatory risks. - Increase awareness about region specific laws and regulations to better plan for incompatibilities and allowable trade-offs.
13. Non-alignment of Management and Reporting Structure with vendor. - Expect Governance model to be included in RFPs.
14. Lack of control or insight into vendor progress. - Well planned milestones, immediate deliverables along with appropriate documentation plan.
15. Country specific issues such as differing laws, educational systems. - Increase awareness of all stakeholders.
16. Higher Project Transition cost. - Factor in a detailed transition cost to overall project cost.
17. Response time not within the acceptable/required limits as the vendor is spread across time-zone. - Flexible shits to respect time-zones and increased frequency of meetings.
18. Project members of vendor lack project knowledge or technology know-how. - Review vendor team selection process.
19. Knowledge transfer issues such as inability to capture tacit knowledge. - Recorded videos, tutorials, web casts to transfer knowledge.
20. Dependence on a single vendor for all outsourcing needs. - Core processes, deliverables designed to be loosely coupled with vendor's technologies, processes.
21. Cultural differences. - Increased cultural awareness through specialized trainings.
Always is good idea to find an experienced advisor or consultant if your outsourcing project’s complexity exceeds your organisation resources and capabilities.
Control It
After the newness of the outsourcing relationship wears off, it is human nature to sit back and enjoy the ride for a while. Unfortunately, this leads to complacency and attention to performance can be forgotten. In order to avoid these symptoms, set a timetable to review your outsourcing vendor's performance. A manager should held the responsibility to follow up. If needed, send your staff to be trained in vendor management skills and techniques. This strategy will also yield the ability to deal with unforeseen circumstances on a timelier basis and mitigate the risk associated with outsourcing.
From the early 80’s last century IT Outsourcing has evolved into a sophisticated global market and most companies, no matter how traditional their business model is, have outsourced one or more layers of their IT function. Outsourcing IT has always been a complex programme, in part due to the requirement to bundle IT into ‘services’ combining hardware, software, people and processes. These services often contain data centre, end-user computing, service desk, application development and maintenance, and voice and data network packages.
For traditional IT outsourcing there are intricacies in transferring staff, novating contracts and assessing the financial impact of selling physical assets. These complications have been recently compounded by on-demand IT offerings, the evolution of offshore centres, and the advent of cloud-based offerings.
Outsourcing success is dependent upon how well the process will be managed before and after the outsourcing contract is signed. Many companies award the outsourcing contract to the lowest bidder without understanding the consequences and without performing a complete vendor selection process. Some companies blindly go for medium to higher outsourcing contract bidder relying on the assumption if it is more expensive it should be good enough. When things start to fall apart, like missed delivery targets, quality issues occur or inconsistent service, the blame-game starts and everyone runs for cover.
Fit for purpose
Outsourcing an IT process simply because it is not working well only makes the problem worse. Without a doubt, an outsourcing vendor should add value to customer business, but should not be relied upon to fix the problems inherent in the business itself. The best approach is to re-visit the process design by to applying Deming Cycle – Plan, Do, Check (Study), Apply or simply to hire external consultant organisation to do the job. Once the process is clarified and cleared from unnecessary workflows and elements all activities can be re-visited.Still not satisfied by the outcome? Look around for an outsourcing solution. Now it is clear what is required and you will compare apples with apples.
Unfortunately I have been approached many times in my professional career by business managers to “compare” their IT department outcome with outsourced IT service. The pity part is only numbers are usually compared without real understanding of the services, pros and cons of both models and pricing/chargeback models.
Why not to outsource the comparison to experienced organisation and enable an informed decision?
Thorough Vendor Selection
The vendor selection process can be a very complicated and emotional undertaking if you don't know how to approach it from the very start. First discover what is required. Before start to gather data or perform interviews, assemble a team of people who have a vested interest in this particular vendor selection process. The outcome of the team work is to define, in writing, the product, material or service that are in demand and to be transferred to a vendor. Next step should involve defining the technical, business and the vendor requirements. Finally, the document shall be visible and accessible to the areas relevant to this vendor selection process and seek their input.
Did you started with mentioned above? If not it is time to do it. Not sure how to follow properly the Bid Management process? You can outsource it also.
Make It Measurable
Is this measurable? If not, do not include it in the SLA(s). How good is good internet? Only measurable units should be used in conjunction with measurement systems. This will provide information about outsourced process or service performance. If you don't analyse and define quality measurements and/or service levels, how will you know if your outsourcing vendor is performing to your standards?
Risk Mitigation
The list below is not exhaustive but is good starting point to address some of the risks:
1. Company legacy/politics are jeopardizing the success of the project – Establish a dedicated team with strong organisational and board level support.
2. Poor Selection of Vendor - Consider a detailed Study about vendors including current processes, customer references etc., rather than blindly believing the track record.
3. Scope Creep - Scope of the project getting wider with new requirements to be addressed. Phased approach with milestones and trade-offs at various stages.
4. Process and Quality standards incompatible with vendor. - Agreed upon standards and processes must be part of the binding contract.
5. Security breach including Confidentiality, IP and trade secrets. - Require vendors to meet security standards and monitor with effective auditing.
6. Infrastructure breakdown, could be a software/hardware/network failure that may or may not be directly in vendor's control. - Review and approve Business Continuity and disaster recovery plans of the vendor. Audit data from simulated disaster drills.
7. Poorly designed disaster recovery systems/processes. - Review and approve Business Continuity and disaster recovery plans of the vendor. Audit data from simulated disaster drills.
8. Reduced Employee motivation as outsourcing is perceived as loss of job. - Establish Employee retention strategies such as retention bonus, performance map etc.
9. Political/Cultural unrest. - Be sensitive to cultural issues.
10. Process non-alignment and differing governance model. - Establish compatible and agreeable processes and include them as part of the contract.
11. Increased labour rate as the project progresses. Vendor might try to justify the increase with reasons such as Inflation, currency conversion fluctuations. - Binding document should contain appropriate forecasts and waivers wherever applicable.
12. Legal and Regulatory risks. - Increase awareness about region specific laws and regulations to better plan for incompatibilities and allowable trade-offs.
13. Non-alignment of Management and Reporting Structure with vendor. - Expect Governance model to be included in RFPs.
14. Lack of control or insight into vendor progress. - Well planned milestones, immediate deliverables along with appropriate documentation plan.
15. Country specific issues such as differing laws, educational systems. - Increase awareness of all stakeholders.
16. Higher Project Transition cost. - Factor in a detailed transition cost to overall project cost.
17. Response time not within the acceptable/required limits as the vendor is spread across time-zone. - Flexible shits to respect time-zones and increased frequency of meetings.
18. Project members of vendor lack project knowledge or technology know-how. - Review vendor team selection process.
19. Knowledge transfer issues such as inability to capture tacit knowledge. - Recorded videos, tutorials, web casts to transfer knowledge.
20. Dependence on a single vendor for all outsourcing needs. - Core processes, deliverables designed to be loosely coupled with vendor's technologies, processes.
21. Cultural differences. - Increased cultural awareness through specialized trainings.
Always is good idea to find an experienced advisor or consultant if your outsourcing project’s complexity exceeds your organisation resources and capabilities.
Control It
After the newness of the outsourcing relationship wears off, it is human nature to sit back and enjoy the ride for a while. Unfortunately, this leads to complacency and attention to performance can be forgotten. In order to avoid these symptoms, set a timetable to review your outsourcing vendor's performance. A manager should held the responsibility to follow up. If needed, send your staff to be trained in vendor management skills and techniques. This strategy will also yield the ability to deal with unforeseen circumstances on a timelier basis and mitigate the risk associated with outsourcing.
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