The concept of IT outsourcing is familiar to IT directors but fewer
will have encountered the growing phenomenon of outsourcing an
entire business function, such as human resources or financial
administration, writes Julia Vowler.
Business process outsourcing offers the opportunity for firms to
get rid of costly back-office functions and free up corporate
energy to focus on the real concerns of business - generating
revenue and shareholder value.
For the IT director, however, it presents a challenge somewhat
different from when his own IT organisation is outsourced. IT
directors need to be inextricably involved in the decision and the
subsequent management of any business process outsourcing contract
- whichever function is outsourced, it will have an IT
component.
What happens to that IT component when the business function it
serves is severed from the main body of the organisation?
"There are a number of different scenarios, depending on the IT
environment at the client," says Steve Bowen, chief architect at
business process outsourcing service supplier, Xchanging.
When it is outsourced the function will still require IT to
automate it - but not necessarily the system that automated it when
it was part of the client company. The outsourcing supplier could
just take the data from the client's IT system, and feed it into
its own IT systems, or acquire the client's relevant IT systems for
that function as part of the contract.
A key consideration, says Bowen, is to assess how integrated the IT
architecture is. "Does he have an environment where the back-office
administration systems are inextricably linked to the core
corporate systems?" In an era of post-enterprise resource planning
implementations, the answer could well be yes.
"The business process outsourcing deal does not necessarily mean
you have to transfer your IT - it depends how tightly coupled your
systems are," says Bowen.
But if it is decided not to transfer the existing system the IT
director needs to think about migratability - and that will
inevitably raise the problem of data quality. One firm, for
example, offers a Web-based portal so the client can check the
accuracy of their personnel files and correct them or sign them off
for the new system.
Whether or not the original system is transferred or replaced by
the outsourcer's, you will need to sort out how much communication
there needs to be between the client's systems and what is now the
outsourcer's.
If the function-supporting IT systems are transferred with the
business process outsourcing contract, or disposing of them is made
part of the contract, software licenses will have to be considered.
Software licences can become a contentious or even intractable
issue. Software companies would be much happier if they could
require the outsourcer to re-acquire the licence for the
transferred software, rather than simply reassign it from the user
to the outsourcer.
Checking that software licences will not snarl the handover is part
of the business process outsourcing company's pre-contract due
diligence, he says.
Because one of the key attractions is to take cost out of the
process an IT director will need to have a good idea of the total
cost of ownership of the systems to be outsourced. Support and
maintenance will need to be entered into the equation.
The likely term of a business process outsourcing contract will be
about 10 years, says Bowen. That will have to be taken into account
for its impact on the overall corporate IT strategy.
IT is a fundamental part of any business process, and no business
process outsourcing contract should proceed without the input of
the IT director from the outset.
Tips on business process outsourcing
- Be closely involved in negotiations at every stage. IT systems
are too crucial to business functions for the IT director not to be
closely involved at every stage
- Assess whether the IT system supporting the function being
outsourced is too closely integrated with core systems to be easily
transferred, or whether the application should migrate to the
business process outsourcing systems
- Check out the terms and conditions for the novation and
termination of software licences of systems being transferred or
migrated off
- Understand clearly the cost of the systems associated with the
outsourced function and input these into the business process
outsourcing value for money calculations
- Decide whether any IT support staff will transfer with the
outsourcing contract
- Appreciate that outsourcing contracts last about 10 years, and
build that into the IT strategy
- Set aside sufficient resources to manage the IT elements of the
business process outsourcing contract after signing
- Be prepared to contribute experiences of IT outsourcing to
minimise any potential problems.