Outsourcing - A How to Guide

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Outsourcing, and in particular IT outsourcing, is a topic that is getting a lot of attention today even though IT outsourcing has been around for decades.
Many large corporations have outsourced all or parts of their IT services.
Several global service providers exist to serve this market.
Medium size businesses have also begun to look into outsourcing and a growing number of providers are focusing on this market.
First, to ensure clarity, when we refer to IT outsourcing we are referring to the hiring of an external provider to perform some or all of the IT services currently performed by internal company staff.
Where those services are provided from, in the U.
S.
, offshore or nearshore, is only one component of the service and the decision.
The reasons to outsource vary but often include; cost reduction, technology improvement, service level improvement, reliability, flexibility, predictability, staffing, or a desire to focus on core competencies.
Whatever the reason, the process of determining if/how to outsource, the selection of a provider, and the ongoing management of the relationship need to be carefully planned and managed.
Outsourcing also takes many shapes regardless of in what country the service delivery resources are located.
Variations include; a) selective outsourcing of IT processes - help desk, network management for example, b) remote management vs.
hosted - technology physically located at the company and managed by remote resources vs.
technology physically located and managed at the providers site(s), c) asset ownership - company or provider, d) FTE or service based pricing, e) shared vs.
dedicated resources, f) single provider vs.
best of breed , g) and any combination of all these variations.
Before moving forward on an outsourcing initiative, a company must first determine the goal(s) it hopes to achieve.
This fundamental question must be identified and agreed to by all stakeholders to ensure the eventual success of the outsource program.
A disconnect at this point can lead to poor decisions and a failed program that can be both costly in dollars and business impact.
Once the fundamental reason(s) for outsourcing are determined, the company is then positioned to evaluate what aspects of IT would be best suited to deliver the goals if outsourced and what delivery variations are preferred.
With these basic parameters in mind, a company is then prepared to embark on the process of selecting a provider(s).
When selecting a provider it is important to be a communicative as possible while still maintaining ones negotiating leverage.
A clear statement of services required and levels of performance is essential to obtaining quality responses and good decision making.
Do not leave the definition of the services and performance metrics up to the providers, this is a sure recipe for misunderstanding and conflict later.
A good definition of the services and performance metrics at this point will have the added benefit of simplifying the eventual contracting phase.
An important side note is that in addition to providing general information on the current environment landscape, you should disclose any known issues or problems.
Providers can only present a fair proposal if they know the truth about the situation.
Hiding issues or playing a game where the provider has to find them will again result in problems down the road.
Once the proposal process and selection are completed, the contracting needs to be completed.
At this stage, a good lawyer with experience in IT contracting will help with the standard business liability and indemnity issues and the general language of the contract.
But, business managers should not step aside.
It is critical that the statements of work, performance levels, financial terms, and other business terms are accurately and completely stated in the final contract.
Verbal agreements, notes, and 'proposal talk' won't cut it.
In crafting the statement of work be specific.
For example, don't just specify that backups will be done, specify what and how often.
Similarly if the statement of work calls for technology refreshes and or developing IT plans, specify how often or how many in a given period.
Being specific at this point will help both you and the provider ensure a smooth relationship going forward.
Service level metrics and performance credits are a standard part of IT outsourcing and a leading cause of angst in deals gone bad.
During the proposal process, careful thought should have been given to their definition.
During contracting, you should be sure to clearly define the exact definition of each metric, the specifics of the calculations including sources of data, frequency of reporting, audit rights, and any penalties (including their calculation) for failure to meet the metrics.
Some of these measurements can be complicated, continue to work on this area until both you and the provider understand and agree to the terms.
Once all terms are agreed to and the contract is signed, put it away.
Work with your provider as a valued business partner.
A relationship that needs to constantly refer to the contract is one that is not working.
Seek help.
As a final note, the process described above can be time consuming and lengthy.
To be done right, it will require active involvement by key executives within the business and the dedication of a very trusted executive to drive it to a successful conclusion.
However, business conditions can often dictate a more abbreviated schedule.
In those cases, a focus on structuring an agreement with flexibility in contract terms and services provided - often at a price - is the best approach.
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