IT outsourcing has become an attractive option for modern businesses. By turning over some portion of a data center infrastructure to a third-party provider, your business can potentially save capital expenditures, ease the burden on IT staff and focus on the products and services that your business was meant to offer in the first place. But outsourcing isn’t just a matter of signing a contract and flipping a switch. IT outsourcing providers are critical strategic vendors for a business; cultivating, assessing and refining that outsourcing relationship can make the difference between outsourcing success or failure. This tip offers some guidelines to help you review and maintain an outsourcing deal.
How do you like your IT outsourcing deal?
If you think about this simple question, you’ll realize that it’s not so simple after all. In reality, many businesses are unhappy with at least some elements or attributes of their existing outsourcing deal. After all, deals can be expensive, and the business benefits of that service may not be what you’d expected. Even at best, a
The goal is satisfaction. In the end, achieving satisfaction in IT outsourcing requires that both parties–the business and the provider–work together and benefit productively from their mutual relationship. Let’s look at some principle places where deals go bad and consider ways to address them.
Aligning IT outsourcing and business needs
Nothing is more detrimental to business than an ill-conceived plan, and outsourcing initiatives are often ill-conceived. In far too many cases, the decision to outsource is made as a knee-jerk reaction to some other event, such as unexpected budget concerns or undertaking a merger that the IT department isn’t prepared to handle. When outsourcing occurs without a solid business plan, there is no practical way for the outsourcing strategy to align with business needs–and it’s impossible for the provider to meet those needs. The net result is usually dissatisfaction with the provider and their services.
When you’re not satisfied with an IT outsourcing deal, don’t simply cancel the contract, assuming that the provider is falling short or failing to deliver on their service-level agreement (SLA). The first area to consider is your own outsourcing strategy. If you don’t have a clear plan that addresses long-term business interests, it is absolutely worth the effort to craft that strategy before making complaints to the provider or in-house IT staff. Business leaders and IT staff must start by assessing the capabilities of in-house IT services and think about the goals for IT in terms of services provided to the business. Based on any gap between that IT supply and demand, decide what you need from outsourcing providers.
Also take the time to consider risk in your strategy. Outsourcing IT services always carries an element of risk for the business–the more that is outsourced, the less direct control that the business has. Remember that outsourcing providers are in business too, and they will eventually merge, move, and make other changes to their organization that can potentially affect their service to you. As services are outsourced, a business must monitor the provider and maintain lines of communication that can help both sides understand growth and changing needs for both parties.
IT outsourcing cost and service levels
Services delivered through IT outsourcing can potentially cost more than providing the same IT services in-house, so it’s important to achieve the required level of service for the lowest possible price. When you’re not satisfied with an outsourcing deal, it’s worth considering both the service levels being provided, along with the pricing model currently in force.
An assessment of the provider’s service levels will depend on your outsourcing strategy (what the business needs) as well as some objective metrics of the services delivered. Linda Cohen, vice president and chief of research at Gartner Inc., said that traditional service contracts based solely on IT metrics are problematic, and end-to-end service levels simply don’t exist yet. Consequently, the measures that IT uses to determine “acceptable service” are not tied to business measures.
This disconnect makes it extremely difficult for a business to show the value in their outsourcing deals–traditional IT-based SLAs are a small start, but are largely ineffective for business planning. Instead, Cohen advises the use of broader operating-level agreements (OLAs) that tie IT metrics to key performance business indicators. When working with IT outsourcing providers, discuss how to measure their performance based on the broader effect on your business. In the end, such broader assessment of service can help a business refine the use of outsourcing and tailor the amount and type of outsourcing service accordingly.
This brings up the discussion of price. After assessing the service level, the business may discover that indeed they need a higher level of service from IT outsourcing providers. But the business may also discover that it has overinvested and is spending too much money on services that are not being fully utilized. It’s reasonably easy to make these types of adjustments with a provider on the fly to ensure that the business is receiving the right services. It is also important to consider the pricing models available from a provider. There are seven pricing models in the industry, according to Cohen. If the provider is only offering one or two options, it’s time to revisit the pricing structure with the provider.
IT outsourcing contracts and relationships
And then there are the mechanical and human aspects of the IT outsourcing relationship. The mechanical element is the contract itself–the binding legal agreement that ties a business and provider together. Contracts demand close attention from the business, which should involve review and input from senior IT staff up to the executive level (not to mention the requisite legal oversight). Ultimately, contract management is often considered to be a specialized skill, and a knowledgeable contract manager should be a resource for regular contract negotiations and discussions.
There is also a very human aspect to business relationships, especially when dealing with mission-critical business allies, such as IT outsourcing providers. A relationship manager (perhaps the same individual that is managing contracts) should make it their mission to keep the lines of communication open, foster and incent collaboration, and deal promptly with any areas of concern from either party. For example, if both parties know what to expect and where each other is headed, the chances for a mutually supportive and beneficial relationship are vastly improved.
Satisfaction with IT outsourcing providers
Successfully managing your outsourcing providers is a bit like gardening–it requires regular attention and cultivation, so it’s not a one-time effort. For example, the outsourcing deal that you make today may not make sense tomorrow. Your business is constantly changing, and its needs are changing as well. Competition for your outsourcing dollar may drive down prices, and creative new pricing models may prove more appealing for your business. New technologies may provide more delivery options. Cohen suggests an annual re-evaluation and update of your business’ outsourcing strategy. Similarly, keep your outsourcing deals short term. This combination of tactics will allow the business to remain agile and respond promptly to new outsourcing opportunities.
This was first published in October 2011