Ten frequently asked questions about
outsourcing
1 Why
should I outsource?
2 What IT
can I outsource and where?
3 What are
my options if I do decide to outsource IT?
4 How do I
find good outsourcing partners?
5 How do I
pay outsourcers?
6 What
about ensuring outsourcers do what I want and more?
7 How do I
motivate outsourcers who are not part of my team?
8 How do I
renegotiate an outsourcing contract?
9 Does the
traditional IT department have to change to get the best out of
outsourcers?
10 Has the
ecomomic downturn increased the take-up of outsourcing?
1 Why should I
outsource?
Outsourcing IT can
save money and reduce the risks associated with buying and
supporting IT in-house. It is also a way of
accessing the technology skills and experience that can drive
business change without having to train staff and take the risks of
doing something for the first time.
During the 1990s, outsourcing IT was seen as a way for businesses
to remove the fixed costs associated with the day-to-day
running of IT business processes. It also became an efficient way
for businesses to take up the latest technologies without having to
invest up-front in products and training for staff.
2 What IT can I outsource and
where?
Any IT can be outsourced in any part of the business if there
are third-party suppliers offering services of a high enough
standard. Large corporates, mid-sized enterprises and
small companies can all outsource if they find the right supplier
and service. SME businesses can use managed services to have a
system hosted and managed by a supplier, and large companies can
hand the management of a business processes (BPO) to a third
party.
Businesses outsource their IT processes as well as more complex
functions such as
software development and integration services.
But businesses today are outsourcing business critical IT and
strategic IT projects. Following the maturity of BPO, businesses
have started outsourcing high value-add functions, such as research
and development, in what is known as
knowledge process outsourcing (KPO).
3 What are my options if I do
decide to outsource IT?
There are specialist suppliers of outsourcing services within
the UK and abroad which
all have certain advantages. Businesses can
onshore services and take advantage of outsourcing in the UK and
benfit from their proximity. Or
they can nearshore to take advantage of high-growth centres of
outsourcing that offer lower-cost venues relatively close to
home.
Then there is
offshore outsourcing, an option which has grown significantly
over the last few years because it offers
highly skilled workers at lower cost.
4 How do I find good outsourcing
partners?
Choosing the
right outsourcing partners can be a challenge because it
requires in-depth knowledge to pick the right partners and to
ensure contracts are written in a way that meets your needs.
It is important that businesses ensure that
outsourcing is about business enablement and not merely cost
cutting. They also need to know exactly what it is that the
business needs to succeed they then need to analyse which suppliers
match this challenge and find suppliers that really want the
business.
5 How do I pay
outsourcers?
It depends on the business case. There is usually a fixed cost
for certain services any services not defined in the contract cost
extra. There could be extra costs, for example, if the outsourcer
is taking risks or funding capital items or refreshes. Many changes
from the original service level agreement (SLA) also cost
extra.
Businessess can also get involved with
gain sharing and pass on extra money when the services enables
them to profit.
6 What about ensuring outsourcers
do what I want and more?
Businesses using outsourcers need to ensure that the supplier
delivers what is expected as well as more, if required. The first
step in achieving this is to ensure you have a good contract which
stipulates the service requirements. Once the contract is
negotiated, businesses must have a governance structure to make
sure both parties carry out their respective duties and help
adapt the contract if required. There need to be sufficient
in-house people to interface with the outsourcer.
Getting more out of outsourcers is the Holy Grail. If services
are measured or there are incentives linked to jobs, they will be
supplied properly. Businesses often
believe that innovation is standard in outsourcing deals, but it is
not. The supplier loses revenue through innovations that reduce
costs, so, understandably, they are less eager to commit to
business innovation if it means less revenue.
Businessess must offer outsourcers bonuses for success and
ensure new revenue is added to
encourage outsourcers to continuously innovate.
7 How do I motivate outsourcers
who are not part of my team?
One of the challenges facing IT directors is being able to
motivate workers who are managed and paid by the outsourcer.
Outsourcer staff will be more effective if they feel part of a team
and are rewarded as such. There are ways to motivate staff employed
by the outsourcer, such as influencing the supplier when it is
deciding its bonuses. Outsourcers can also become
more effective if they have competition
through what is known as multi-sourcing.
Outsourcing firms can also be motivated through gain sharing
where both
companies invest and both share the rewards.
8 How do I renegotiate an
outsourcing contract?
Outsourcing agreements will have to be renegotiated at some
point. This can be in reaction to changes in the economic
environment, mergers and acquisitions, changes in direction for the
business or merely because an existing deal has reached its end.
Because of the expenses associated with looking for new outsourcing
partners, such as retendering and evaluating, many companies prefer
to
renegotiate with existing outsourcers.
9 Does the traditional IT
department have to change to get the best out of
outsourcers?
IT departments must change if they are to get the best out of
outsourcing contracts. They need a
new balance of skills with business engagement experts and
contract negotiators essential as well as traditional
technology skills to make strategic decisions. It is also improtant
to have staff who can monitor outsourcers through analytics to
ensure they are paid appropriately.
10 Has the ecomomic downturn
increased the take-up of outsourcing?
Outsourcing has not substantially increased yet
but will as the economic slowdown continues. But the suppliers
have to change their offerings to appeal to businesses with
different cionditions in a
changed economic climate. This includes suppliers showing
commercial transparency, offering early and easy innovation,
absorbing risk and displaying their commitment to the deal's
success.