Avoid outsourcing storms by giving clear directions, says Phillip Everson
When a company is struggling to transform its IT in-house, its executives often look outside for salvation. During the sales process, outsourcing suppliers parade IT experts and the phrase "you steer and we row" echoes around the executive suite. But once the boat is launched, how should companies steer through what can quickly become stormy weather?
First, answer honestly the question of why you are outsourcing.
This is the key question. Fudge the answer and your relationship with your supplier is doomed to misunderstanding, as it means the supplier can change your IT capability to what it thinks you want, which is almost certainly not what you want.
So, if cost is the primary driver and you say so, you have a good chance of achieving it. However, if at the same time executives want to reinvigorate your customer experience through improving IT service quality and are not focused on cost considerations, then confusion will reign.
Of course, it is possible to achieve both of these goals, but only if there is a single, collective executive view rather than a collection of separate views.
Once you know what you really want, you have to select the right supplier and build a contract that clearly sets out expectations.
Not all the same
Different suppliers have different strengths and weaknesses. Some are masters of cost crunching and infrastructure provision. Others bring access to the latest technology, have application architects with great insight into the issues that are driving your industry, or access to large numbers of cheap professional offshore resources to meet short-term needs.
Few suppliers can do all of these things really well. Pick one that has proven experience of delivering what you want, and ensure that the contract is shaped so that the supplier receives an equitable balance of the benefit of the transaction as profit.
You then need to build a team to manage the contract and supplier. Your current IT managers will be experts in managing resources, people, applications and servers. Going forward, different skills and probably external support will be needed to manage the outsourced services and the commercial relationship. Staff this group with people who have commercial, service and negotiation skills in an IT context, rather than using the retained IT organisation as an opportunity to cherry-pick people away from the scope of the outsourcing.
If you have multiple providers, make sure that everyone knows who does what. Picking a collection of best-of-breed suppliers is a common approach, which requires the retained organisation to become the service integrator.
Spell it out
Ensure you have a clear, consistent and complete service model setting out responsibilities. Spend time agreeing it with all suppliers and communicating it widely in the business to make sure users are not confused. Techniques such as scenario planning can be a great help here. The retained IT organisation will also need to at least co-ordinate the service management and project governance activities of suppliers, if not run it completely to ensure that the IT capability is not fragmented.
Once a contract has been agreed, it will probably be placed in a drawer until a dispute sends everyone scurrying to re-read it. Avoid this fate by creating a set of simple principles that offer guidance for future decisions without forcing all managers to carry a copy of the contract.
Communicating these principles throughout the organisation will let people understand what they need to do on a day-to-day basis, and avoid activity paralysis as the organisation comes to terms with the outsource.
Finally, maintain an insight into how the supplier is using resources to deliver service. The retained organisation is now managing service rather than resource, but it is important to monitor the supplier's activities.
Whether you do this through auditing, benchmarking or more informal means, ongoing detailed reporting of activities and costs within the outsourced organisation will allow monitoring of risk, and ensure that an equitable balance is maintained between benefit for the company and a viable return on investment for the supplier. Any imbalance here is a strong sign of stormy weather ahead for the relationship.
Phillip Everson is a partner in consulting at Deloitte