CXO

Ten keys to successful outsourcing

Trends point to a very strong outsourcing market over the next few years. If your company is going to outsource, read these tips for developing the best possible outsource partnership.


By Anthony Tardugno

When an organization is struggling with IT services or support of a specific system or application, there's a propensity to say, "We don't have the skills or understanding to do it right. Let's outsource it to someone who does." But the mindset should be, "We don't have the skills or understanding to do it right. Let's develop our requirements, service-level expectations, and associated metrics. Then, let's entertain options for how best to source them."

I know this sounds ridiculously basic, but if you look at the reasons surrounding any outsource failure, at the top of the list will be not defining requirements, expectations, and metrics sufficiently. Waiting until the period of due diligence is too late; you need to complete this process before going into the partner selection process. If your company is contemplating or pursuing outsourcing, these 10 keys can help you develop a successful outsource partnership.

The decision to outsource is not purely an economic consideration. The ability to react to changes in the business with timely delivery of quality services (the D and Q of the quality, cost, delivery, and value [QCDV] equation) plays a big role. QCDV also plays a very large part in customer satisfaction, your most important factor. To determine whether it makes sense to outsource, you must understand what makes for a successful outsourcing partnership.

1. Customer satisfaction
The most important factor to consider is customer satisfaction. How many times have you been willing to pay more for a good or service because your level of satisfaction was so high? 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. Definability and measurability
Successful outsourcing is dependent on not only how well you define your customer requirements but how well you can measure how they're being met. This may sound basic and obvious; however, the fact remains that if you can’t clearly define what you need and are unable to put the appropriate measurements in place, how can you expect your outsourcing partner to meet, let alone exceed, customer expectation? You must be able to put the appropriate metrics in place.

3. 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.

Changing the mindset of the outsource provider to go into year over year cost-cutting mode after they’ve enjoyed a year or two of flat or increasing revenues is very painful. The initial reaction is to rotate the most marketable and experienced staff off the assignment and either backfill with junior or lower cost resources or spread the work to the rest of the less-experienced team.

Like every other company, their goals are to grow revenues with existing clients and increase profitability. You can see how things will begin to degrade if you don’t define this up front; if you don't, the end user is the one who suffers.

4. Share the risk
Share risk with your outsource provider, both from a reward and recognition perspective and from a remuneration perspective. If you’re meeting or exceeding your goals and expectations, make sure that accolades are shared appropriately. On the flip side, you need an "or else.” The failure of your outsource partner to meet any of the established service levels or metrics must result in a predefined penalty (dollars or services).

5. 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. For example, 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 eight hours.

To truly make this a "robust" requirement, add a metric that tracks the number of requests for service that are reopened with the same problem. This adds the quality aspect to delivery. This all needs to be bounded in the overall level of service agreement. Don't just be hung up on delivery.

6. 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.

It’s very unlikely they’ll have a "bench" filled with resources ready on demand. If they do, I can assure you that you’re paying for it somehow. Partnering with your outsource provider means sharing your strategy and goals (without compromising your corporate mission) as much as possible.

7. Stability and variability
Some of the most successful outsourcing ventures are with components of IT or applications that are very stable, mature, definable, and measurable. This is why legacy operations (which have very little variability associated with them) are a perfect example of how you can be very successful with outsourcing.

When I say variability, I refer to changing requirements, changing functionality, and a dynamic customer base. As stated before, variability drives change, change drives instability, and instability drives breakage, which drives cost and downtime—all resulting in customer dissatisfaction. Think about the different pieces of your operation; those with the least amount of variability are the ones that are most manageable from both a delivery and a financial perspective.

8. Predictability
How many times have you gone to your favorite fast food franchise expecting to get predictable quality, service, and price, regardless of the town you’re in? It’s the same with any good or service: Customers expect predictability. Establish metrics around what you define to be “predictable” and measure your outsource provider against them.

9. Competency and staffing
Competency and staffing are strategic business issues. Decide whether the environment, set of services, or application that you will outsource is deemed "business critical" and whether the intellectual property surrounding it must remain in-house. Once you've decided that, it is equally important to assess your ability to adequately staff according to the business needs.

10. Velocity (reaction to change)
Outsourcing has associated with it an increase in “formality,” which manifests itself in the form of “red tape.” Therefore, if your business requirements change frequently, the ability for your outsource partner to respond with the same velocity may be hindered. Clearly document your rate of change and expectations of delivery and quality. This will also allow your outsource partner the ability to staff appropriately. Addressing these factors early on will ensure your greatest chances of success.

For more information on the Harris Kern Enterprise Computing Institute, visit http://www.harriskern.com/.

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