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The concept of IT outsourcing is familiar to IT directors but fewer will have encountered the growing phenomenon of outsourcing...

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.

Read more on IT outsourcing

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