Outsourcing's five cast-iron rules: Break them at your peril

How do you get the best from outsourcing contracts without them getting the better of you? One CIO who has worked on both sides of the outsourcing divide offers his key tips.

Saving money should not be your only motivation, just as the outsourcer should not see your business as a potential cash cow. Photo: Shutterstock

CIOs face an expanding list of business objectives, which they have to meet by implementing a cost-effective and efficient tech strategy. Some IT leaders concentrate on inhouse development, but a lot of technology money is still spent outside the organisation.

With the pressure still on costs, analyst firm Gartner expects worldwide spending on IT outsourcing services to reach $251.7bn in 2012, a 2.1 per cent year-on-year increase from 2011.

The fastest-growing area is cloud computing, which the analyst expects to grow by 48.7 per cent in 2012 to $5bn. It's a sign that CIOs are continuing to draw on external services and see going beyond the corporate boundary for IT as essential for ensuring value for the business.

Ian Gausden, chief operating officer at VocaLink, has overall responsibility for technology at the payments specialist. Here he provides his five top tips for CIOs looking to make the most from outsourcing contracts.

1. Work out why you want to go outside

This may sound obvious but each CIO has specific business objectives and, when it comes to outsourcing, precise aims really matter. Gausden's advice to CIOs is clear: ensure you know what you expect to get from the outsourced deal and have clear success criteria.

"You need to be specific so your external partner knows what success looks like," he says. "Make sure your focus is on your business objectives."

CIOs looking to make sure their outsourcer sticks to their objectives should consider shorter contracts. "Your aims might evolve and it becomes harder to monitor your success at meeting objectives over long-term contracts," Gausden says.

Whatever the length of the deal, he believes building change into the contract in some way is absolutely crucial.

"You can agree to vary the thresholds and the parameters on desktop support, such as pricing the deal according to the number of transactions that take place," he says.

"But you must future-proof the contract with the supplier and you must have some idea of your requirement for flexibility."

2. Engage the right partner to help with the process

Aiming for long-term benefits from an external partner is one thing - getting the right kind of deal in the first place is another issue altogether. Outsourcing is a potential minefield, with fine print and small details that confuse even the most switched-on CIO.

"You need an adviser who has your interests at heart," says Gausden, adding that such expertise can come from a number of sources. CIOs who work for a big company might be able to draw on an internal and full-time legal team.

An IT leader without such luxuries will have to look outside the enterprise, says Gausden. "Outsourcing is your external provider's specialist day job, so making sure you have the right contract is crucial because it provides a form of protection," he says.

Gausden advises CIOs without internal legal advice to work alongside specialist advisory firms that look to help businesses trawl through the wrinkles and padding of an outsourcing deal. "You need someone to help you with the finer points of the contract," he says. "Contracts can get very deep."

3. Plan for the preparation

"There is a lot of work involved in planning a decent outsource," says Gausden. From requests for proposals through to contract signing, CIOs must make sure they are fully prepared.

"Get your selection criteria right, it's not just about price," says Gausden, who says CIOs should speak to the senior team to get pointers about their business drivers for external provision.

Saving money should not be your only motivation, just as the outsourcer should not see your business as a potential cash cow.

"Understand the provider's business case. If you know how they're going to make money from the deal, that can help you make sure your objectives and those of the outsourcer are aligned," says Gausden.

"Don't pretend your external partner doesn't want to make money through the deal. Understand the returns and make sure your business is getting value, too."

4. Engage your people

Going to an external provider is not just about technology. People will almost always be affected - and if your firm is outsourcing staff as well as IT, Gausden says your organisation must be understanding, evolving and engaging.

"It's not an easy process for most people to involuntarily change employer," he says. "Give employees time and communicate the amount of change involved in the new way of working. You can't engage your staff too early in the process, but you must be careful not to scare people."

Gausden says it makes sense to work with key people, to create internal communicators and to help show the potential benefits of outsourcing.

One advantage for staff, he says, is that they receive a new skillset and have the opportunity to see how IT is provisioned at a company whose business involves managing technology for other organisations.

Gausden made a similar transition himself earlier in his career, when he moved from Barclaycard to external provider Xansa.

"It can help you develop a knowledge of risk management and contracting, and can provide a sharp focus on the customer. These disciplines are really helpful if you move back inhouse," he says.

5. Invest to manage the partner and the contract

Signing the deal is just the end of the beginning. Successful outsourcing demands continuous attention, and Gausden says your initial business case for external provision must include money for contract concerns.

"Management won't happen by itself," he says. "Proactively manage your outsourcer. How closely you will have to work with your provider is variable. But taking a proactive stance tends to encourage the outsourcer to work towards producing the best possible value for your business."

Being in contact does not have to be a negative process. Engagement, often through the form of positive criticism, is critical to long-term success. "Make the provider challenge themselves," says Gausden.

"Your outsourcer won't give best value unless you get in their face a little bit. Nothing is finished once the contract is signed. True value comes from constructive engagement. Even if your service-level agreements are met, always look to get more from your provider."


Mark Samuels is a business journalist and editor at IT leadership organisation CIO Connect. He has written for various organisations, including the Economist Intelligence Unit, Guardian Government Computing and Times Higher Education.

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