Uncertainty and risk weigh in the decision to outsource, or not to outsource. In this article, Jay Boyle provides useful information and tips for knowing when to outsource and making the right decision when selecting an outsource vendor.
The decision to put part of a business into someone else's hands is often not an easy one. Despite the advantages that lead a business to seek to outsource in the first place-including cost savings, specialist skills, and rapid turnaround-fears and unknowns about the risks take time to settle. It can be like handing the kids over to a babysitter for the first time. Even with references checked, cell phone in hand, and a happy child when you walk out the door, you worry.
Today, more and more companies are turning to outsourced information technology services as they look for ways to lower costs and remain competitive. IDC (www.idc.com) says spending on information systems outsourcing will almost double in the next five years, growing from $56 billion in 2000 to more than $100 billion by 2005. U.S. companies are expected to be the biggest outsourcing spenders, accounting for 44 percent of that investment in 2005.
An increasing number of outsourced service providers are pursuing this rapidly growing market. Overall, these providers have matured considerably over the past decade. Ten years ago, outsourcing vendors focused mainly on data centers and legacy applications. Now the services market encompasses segments for business process outsourcing, application service providers, and the traditional information technology services. Yet it is in many ways still young, crowded, and undifferentiated. Organizations considering outsourcing face a sometimes bewildering array of choices and often lack any framework or guidelines for evaluating them.
Whatever type of outsourced service an organization is seeking, there are a few critical imperatives to consider in assessing a supplier and its service offerings.
- Does the supplier have relevant domain expertise? Domain-specific expertise-a proven track record in a specific industry vertical, business process, or technology area-is the number one criterion that organizations cite in evaluating providers. This type of expertise can help reduce ramp-up time and can also give you the benefit of knowledge you may not have within your organization, such as industry-wide best practice measures. Does the provider offer well-defined service offerings relevant to your needs, whether in Customer Relationship Management application maintenance, Human esources processes, the health care provider industry, or XML technology? Does it support this focus with investments in training and infrastructure?
- Does the provider follow well-documented quality management processes? You should be able to easily understand the processes a provider follows in order to ensure quality at each stage of an engagement. How well versed in quality management are the various team members that will be involved in managing your project-from the account manager to the software engineers? Whether a provider has sought ISO 9001 certification and a Capability Maturity Model rating is one indicator of its quality commitment. Many providers that are adept in quality management bring a greater quality discipline to their clients than the client organizations themselves apply. If you fear difficulty in meshing your organization's existing methodology with that of your provider, discuss this issue with prospective vendors candidly. You will likely find that many outsourcing firms' methodologies today are less rigid then they were in the past, having evolved to accommodate iterative development processes and the needs of specific clients.
- Is knowledge management a priority? Many organizations, while recognizing that knowledge is a primary asset, have difficulty in defining processes for sharing knowledge and creating the systems to facilitate this sharing. Leveraging a provider's knowledge management system can provide a great benefit, making development and maintenance processes more visible, and helping your organization to maintain access to domain knowledge. The sophistication of the provider's system is also an indicator of its commitment to knowledge management and its experience in specific types of outsourcing projects. What systems does the provider have in place for its own use, and for your use as a client?
- How will the provider manage ongoing communications? Keeping expectations realistic on both sides is an ongoing process. Strong account management is critical to ensuring clear communication, controlling scope, staying focused on objectives, and monitoring quality. Who will be the primary ongoing contact for your project, and what are their qualifications? How often will you receive informal and formal updates, and what format will they take? Will the provider proactively solicit your feedback? Will you have the opportunity to provide periodic "report cards," perhaps one of the simplest and most under-utilized practices for staying on track? This may take the form of an informal conversation, or a checklist against which a provider can be rated at specific project milestones.
- How does the provider plan for the unexpected? In the process of turning over a critical business process or application to an outsourcing vendor, you are likely to encounter a few surprises. You want a vendor who, in the process of developing a statement of work and service level agreement, is proactive in understanding your priorities and in creating guidelines for a working relationship that is flexible in meeting those needs, which will undoubtedly change over time. In the course of your discussions, does the provider walk you through a well-structured set of questions to better understand your needs? A well-qualified vendor will often ask questions your organization has not considered, but should. Are the results of these discussions expressed well in a resulting proposal?
Ultimately, despite diligence in selecting an outsourcing partner, clients and providers alike understand that the proof is in the pudding. If your organization has little experience with outsourcing information technology services, you may want to test the waters with a pilot project that is of small scope, short duration, or within a low-risk focus area. A provider with a genuine interest in evolving a long-term business relationship with your organization should be willing and able to structure such an engagement for you.
