Every large enterprise these days does some form of IT outsourcing (in the generic sense) – Business process optimization (BPO), ASP, offshoring, and cloud computing to name some flavors. But just as there are varying models of outsourcing, there are also varying degrees of satisfaction with the end results.
This leads to an important question: Why do some outsourcing efforts result in a quagmire while others succeed? First, consider the underlying assumptions inherent in outsourcing:
- The vendor will perform the work/service as well as you can or better
- You expect to pay the vendor less (or at least no more) than it would cost you to do the same work
- The vendor expects to make a profit
I think you can see that the math is against you, and yet many organizations make it work in their favor. The companies where I have seen outsourcing work well seem to have figured out three common success factors:
1. Have a plan
The company outsourcing needs to have a clear reason for doing so, and it usually isn’t purely financial. They outsource something because it isn’t their core competency, or perhaps they need the flexibility that a vendor offers. In short – they know what they want. Lower cost alone is not a plan. If you keep beating up the vendor on price, which part of the equation do you think will be compromised — your quality or their profit?
2. Vendor management is hard work
Managing the relationship with your outsourcing or services vendor is in many ways more difficult than managing your internal IT shop. You have to manage contracts, metrics, SLAs, performance, and integration with your internal processes and other vendors. You have to have people assigned to the task and they have to know what they are doing. Enable a single owner and manage performance through meaningful metrics. Hold the vendor accountable to meeting performance targets.
3. Purchase a service
Simply handing over your IT function, including some of your staff, to a vendor doesn’t exactly give you a head-start on the outsourcing value proposition. But purchasing a defined service is a different story. If the vendor is offering something repeatable to multiple customers then it becomes possible for them to make the quality/cost/profit equation work. The more something you are purchasing is customized, the more you have to worry about the equation.
The companies I’ve come across who are disappointed and frustrated with outsourcing seem to have something in common. Instead of taking control, they have punted. Either because they had struggled for so long managing something that was languishing, or because they were in a hurry, they threw up their hands and just hired a vendor.
If you don’t know what you want, you will never get it. If you do know what you want and have a plan, you start with a fighting chance.