Today is and you are here: Outsourcing
 

Outsourcing?

If your company is contemplating or pursuing outsourcing, consider the following before you commit – the results may surprise you.

 

Want just the good stuff?

  • Don't outsource for purely financial reasons - it will likely end up being more costly than your current "in-house" IT support.

  • There are many situations where outsourcing makes both financial and strategic sense - but make your selections carefully.

  • Be sure you understand exactly what your "per transaction" costs are now - so you can prove that your goals are being met later.

  • Get everyone involved in the process who will be affected by the decision - not just IT and procurement.

  • Develop your requirements, service-level expectations, and associated metrics before interviewing vendors.

  • Communication is key - contracts are important, but a good working relationship will take you a lot further over the long haul.

 

The decision to outsource should not be purely an economic consideration. However, most enterprise IT outsourcing initiatives are based purely on reducing costs. Typically, an organization will be motivated by an outsourcer’s sales pitch promising “better services at a lower cost”. The decision to outsource should not be based on financial goals (e.g., perceived cost-per-call savings), but on broader strategic considerations such as improving IT support and business performance.

Research has shown that inaccurate data on Tier 1 (Help desk) and Tier 2 (Field troubleshooting) insourced support costs results in a limited understanding of the true IT support costs. Most enterprises do not have any idea of their total costs for the defined service or cost per call handled. Without this data, it is difficult to compare the enterprise’s IT support to the common services offered by outsourcers. Subsequently, this lack of established information about service requirements appears as higher outsourcing costs.

IS organizations fall into the trap of believing that outsourcing a task is less expensive than performing that task in-house. While IT service desk outsourcers can achieve economies of scale for certain tasks (e.g., phone-based support and hardware maintenance), other tasks will be more expensive (e.g., supporting in-house applications and providing on-site software support) because the labor requirements remain the same—with higher labor costs due to the profit margin. On an apples-to-apples, service-level-to-service-level basis for typical IT services, an efficient IS organization will generally cost less than that of an outsourced price by 20 percent or more (see Figure A).


Figure A

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We believe enterprises should still consider outsourcing—even in situations where it is more expensive—if it enables the IS organization to reallocate IT resources to critical or high-priority business initiatives. Candidate tasks for outsourcing include the following:

Specialized Requirements: Platforms and applications that represent a small part of the installed base are good candidates for outsourcing. The IS organization often have difficulty supporting these specialized assets because of its inability to develop sufficient expertise. An example is an organization with 1,000 Windows PCs but only four Macintoshes in the graphics design department. In this case, the IS organization could outsource all of the work associated with the Macintosh asset base.

Expertise transfer: Working with outsourcers during the implementation of new technology can be useful for moving the internal IS staff up the learning curve more quickly and providing additional labor resources. This will be especially useful for wide-scale migrations (e.g., Windows XP) that will require changes to all aspects of the installed base, including hardware, operating systems, and applications.

Repetitive Support Tasks: Tasks that are well understood, repetitive, stable, or slowly evolving and non-strategic are excellent candidates for outsourcing. Examples include hardware installation and maintenance, support for legacy, desktop shrink-wrapped applications (e.g., DOS word processors or spreadsheets), asset management, and software upgrades.

After-hours and geographic coverage expansion: Outsourcers can be used to extend coverage when the help desk is closed. This would be especially useful for mobile computer users and location-independent workers. Outsourcers also can be used to cover satellite locations (e.g., field offices), which could be scattered across a wide geographic area.

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Requirements for successful outsourcing: The entire organization must participate in the outsourcing plan, not just IT. The outsourcing project must be carefully planned by an enterprise-wide team and checked against the enterprise’s strategic business plan.  Current costs for the outsourced activities must be measured prior to entering into an outsourcing engagement. The outsourcer selection, through a detailed and rigorous process, requires binding terms that have been carefully negotiated. Transition and implementation plans must be meticulously developed and followed.  Lastly, the relationship needs to be managed by the enterprise through a specific plan based upon metrics that align with the enterprise’s business objectives.

Conclusion: Outsourcing IT functions correctly can be a powerful tool for achieving a competitive advantage. Incorrect outsourcing can be a quagmire of poor performance, debilitating morale, and, worst of all, lost business opportunities. To ensure success, outsourcing must be a strategic enterprise decision based upon specific business requirements and a detailed plan to measure and evaluate the service providers’ performance — both from a financial and customer satisfaction perspective.

Peter Drucker once said: “If you can’t measure it, you can’t manage it”. It is absolutely essential to establish the cost-per-support transaction of your in-house IT support before you can determine if the outsourcer has met the established financial performance goals. Require your outsource provider to perform regular customer satisfaction surveys to insure that service quality metrics are being met. Above all, be sure that you establish and maintain an excellent communication path between the outsource provider’s management — both on-site and corporate. Managing the relationship is key to successfully achieving your goals.

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