Posts Tagged ‘IT Outsourcing’

OUTSOURCING 101

October 28, 2009

Outsourcing should never be considered if economic factors are the only thing that you are considering.

The ability to react to changes in the business with timely delivery of quality services and value plays a big role. Customer satisfaction, should be the IT group’s mantra and it should be instilled in everyone of the groups members.

To determine whether it makes sense to outsource, you must understand what makes for a successful outsourcing partnership.

1. Customer Satisfaction
If the customer isn’t satisfied with the goods or services you provide, you can be sure they’ll either be looking elsewhere or escalating their concerns. You must take a customer approach and insist that your outsource provider have the same commitment.

2. Align all sourcing actions to your business strategy:
A sourcing strategy must be defined in business terms.” You’ve got to get business executives on the same page.” Define ROI and critical success factor together and make sure that everyone is on the same page as to the reason for outsourcing.

3. Select the delivery model that best suits business and financial goals:
The only way to get sustainable business benefits and performance improvements is to leverage and adapt to the service provider’s operating environment. Making the right delivery model choice means you must understand the different types of delivery options (offshore, nearshore, utility and so on) and align your preferred options to the business goals.

4. Measuring Metrics
Too many organizations undertake outsourcing arrangements and attempt to focus their attention on two or three critical success factors. Intangible metrics such as Customer Satisfaction, employee retention, and application quality need to be included in any metrics management initiative. As well as the obvious metrics such as ROI, budget and impact on the enterprise.

5. Financial savings
Outsourcing in many cases provides a financially compelling alternative to providing the services in-house. However, if reducing cost year over year is a key measure, it’s essential that you craft the partnership so that the provider has the incentive to help you meet your goals.

Like every other company, the Outsourcers goals are to grow revenues with existing clients and increase profitability. There needs to be a measured balance as to how both companies are going to achieve their goals. If this is not accomplished then end user customer is the one who suffers.

6. Weigh the value of customized versus standardized services:
Customization can deliver specialization and differentiation whereas standardization can deliver agility and speed. Which one is right for you? You must evaluate the risk/benefit of each solution and determine the strategic importance of the expected outcome to determine the right fit for your firm.

7. Delivery and quality
Delivery and quality aren’t always used in the same sentence, but they should be. Be very specific and deliberate when documenting your expectations on delivery and quality. It’s not enough to say that all requests for service will be responded to within 15 minutes from time of call and closed within six hours. It is more important to articulate that if a problem occurs it will not occur repeatedly over the length of the contract.

8. Scalability
Your outsource partner needs to be positioned to meet your growth requirements, so don’t just look at their current capability—look at their ability to scale. Just as you need time to ramp up skills and staff, your outsource provider needs time to react to your needs.

9. Define the relationship model and incentives for mutual benefit:
A true partnership means accepting risk and sharing rewards on both sides and is appropriate only in strategic business-critical outsourcing relationships. Mapping outcome to payment and incentive structure, determining the mutual investments and benefits and defining “success” will help outline the relationship

10. Negotiate and renegotiate a win-win deal:
No deal stays the same. It is best to negotiate up front that certain modifications can be made to the agreement at the end of each year as the corporate environment changes. Two to three years into any deal, business drivers can and will change for both parties. It’s best to realign expectations and benefits on an annual basis.

Offshore Outsourcing Facts:

September 17, 2009
  • India is the global leader in IT outsourcing, but more companies are outsourcing to China to reduce overall IT spend. Inflationary pressures and the increase in wages have caused companies to look at other places for cost effective alternatives.
  • Most Global IT Outsourcers (e.g. IBM , Infosys, HP, Cognizant) are recognizing the importance of creating a development centers in China which will service non-Chinese companies. Roughly 30% of the capacities of these companies are dedicated to internal Chinese companies, the remaining 70% is dedicated to US and European companies.
  • It is becoming more common to see development work spread across geographic areas (i.e. China and India) as a way to increase productivity within the development groups.
  • India is about 10 years ahead of China in terms of cultural awareness as it pertains to IT Outsourcing, but China is closing the gap a pace that is far faster than the time frame that India took to reach the same place.
  • There are still some obstacles associated with the infrastructure within china but “technology zones”  and government sponsorship appear to be breaking down these barriers.
  • India still dominates in the area of Call Center outsourcing and has invested a significant amount of GDP on linguistic training for its population.

Keys to Outsourcing Success are Communication, Communication, and Communication! This is especially relevant in the areas of offshore outsourcing.