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While virtually
every business now relies on information
technology (IT) to help provide services or
deliver products to the marketplace, things
have rarely been more precarious for in-house
IT professionals. This is so despite the
conventional wisdom that IT is acknowledged
to be more strategic than ever.
Increased market
competition, more demanding customers,
tighter margins and shorter product life
cycles have caused businesses to examine
where they may be able to focus better on
core competencies, reduce risk and costs,
and become more agile and competitive. For
many companies and small businesses in
across all industry segments, outsourcing IT
is one answer.
Outsourcing
lowers operating costs, eliminates backlogs,
improves data input quality, production and
document availability. And, in the end,
outsourcing adds profits to the bottom line.
But outsourcing
is far from a panacea. How an outsourcing
relationship is managed – internally and
externally – is as important to its ultimate
success as the execution of the outsourced
tasks themselves. Given that industry
analyst Gartner recently reported that
outsourcing can trigger an employee backlash,
what do organizations need to know to make
outsourcing a win-win for all concerned? How
can companies best manage the firm they have
just retained? What project management
issues does outsourcing solve, and what
challenges does it entail?
Outsourcing
on Paper: Cost-Effective, Valuable,
Efficient
Outsourcing IT
isn’t only (or even primarily) about costs.
In terms of hard dollars, outsourcing isn’t
always a decisive win over the in-house
approach, although it usually is. The real
advantages can be seen in the “soft gains”
that accrue — the opportunity costs of not
having to reinvent the wheel, and the
efficiencies that arise when enlisting a
company that specializes in doing the heavy
lifting of IT.
Quality is an
issue as well. In the hosting market, for
instance, a company could hire five system
administrators to run their network in-house,
and find the collective wisdom limited to
the specific experiences of that small team.
When a third party assumes control of
servers and infrastructure, that firm brings
real world experience, gleaned from facing
an array of problems across a diverse
customer base. Dynamic learning occurs more
rapidly because the outsourcing firm is
simply in a better position to benefit from
-– and propagate — “best of breed” practices.
Managing and
retaining IT staff is challenging enough in
prosperous times; in a down economy, the
challenges intensify – and the management
responsibilities in outsourcing likewise
increase. Keeping IT staff motivated,
focused and incentivized is perhaps the most
formidable challenge. If an organization’s
IT return on investment is on the order of
20-30 percent, reinvention and retraining
are apt to be continuous. Accordingly,
whether the market is up or down, the case
for outsourcing persists. By contrast, if
the organization has kept IT entirely in-house,
it becomes considerably harder to double,
triple or even cut staff, should the need
arise. An outsourcing relationship ensures a
constant pool of talent.
Outsourcers are
occasionally brought in to “clean up”
unfinished business left by in-house teams
that, for whatever reason, didn’t see a
project through to completion. It is always
difficult for organizations to have to cut
staff or downsize IT operations, especially
for professionals who are accustomed to
bigger budgets year after year. And when the
mandate comes down from the CEO or whomever
that IT budgets aren’t going up — and the
only way the company is going to make its
numbers is let to go of some of its people
–- doubt looms large. That is the
environment in which the quality of the
management of outsourced relationships makes
all the difference.
Outsourcing
tends to occur in waves. Even during those
periods when outsourcing is relatively less
in vogue, many organizations still elect to
outsource non-core functions. The hot topic
right now is offshore vs. onshore
outsourcing, but overall, the ebb and flow
is modest. Outsourcing isn’t trendy; indeed,
when factoring in the earnings of public
companies engaged in IT sourcing, outsourced
IT represents a highly stable segment of the
economy. Against this backdrop – and with an
eye toward making the relationship between
the outsourcing firm and its client
organization productive for all concerned –
it’s necessary to lay down a few rules.
Rule #1: Get
Internal Buy-In.
Let’s face facts: effective IT outsourcing
usually means layoffs –- and it can change
the jobs of some of those who remain. If an
outsourcing firm is brought in to displace
existing IT staff, internal buy-in must
occur well before the decision is made to
bring in that third party. Management must
know (and intelligently communicate) that
headcount will be reduced by so many, and
that a plan of action exists to ensure that
these cuts, however painful to those
involved, ultimately boost the organization.
The best route
to obtaining internal buy-in is to move
incrementally. Outsource those projects
linked to marginal products, rather than to
strategic ones. Create an environment where
the third party complements existing staff
rather than replacing them outright. Doing
so can help promote a sense, over time, that
internal staff can be deployed somewhere
else — or even let go. The more strategic
the project is, of course, the greater the
political heat; the less strategic, the
easier it is to get that buy-in for
outsourcing.
Rule #2: Go
Beyond Buy-in to General Consensus.“Buy-in”
suggests a passive kind of acceptance.
Effective management of outsourced
relationships strives to go a step or two
beyond. When the outsourcer arrives on the
scene, a residue of resentment or lack of
understanding frequently follows. The key to
defusing that resentment is transparency on
the outsourcer’s part, in terms of both its
operations and the organization’s goals.
When all parties can view how the outsourcer
works –- through a portal product or some
other mechanism — it immediately becomes
less likely that signals will get crossed
and consensus may be within reach.
While it’s
helpful for the outsourcer to embrace a new
assignment with enthusiasm, that energy isn’t
always enough to counter the feeling among
some that this new third party poses a
threat. If management is savvy enough to
know that some resentment is inevitable,
gentle prodding of recalcitrant IT staff
members toward a positive outcome can be
decisive.
Rule #3:
Counter Backlash With Education.
Employee backlash is often manifested in
passive-aggressive ways -– not sharing
immediate deadlines or the full scope of the
assignment with the outsourcer, for example,
thereby triggering talk that the outsourcer
isn’t delivering on the promise. Education
is an effective antidote to situations where
the ground hasn’t been cleared as well as it
should have been in advance, and can reverse
uncertainty, ambivalence and even downright
hostility.
Situations
occasionally occur when those new to
outsourcing approach the outsourcer with
assumptions that don’t turn out to be well-grounded.
This pattern was chronic during the dot.com
era, where companies were built overnight
and needed to tap a huge skill base at a
moment’s notice. In some cases, managers
themselves were new to the outsourcing
process. Demands for instant response were
complicated by requirements that armies of
internal IT staff also be involved the
process – hardly a recipe for mutual success.
Education should
begin during the sales cycle. Determine how
educated the organization is on the
outsourcing process and see if they’ve done
it before. It always helps make our lives a
bit easier in terms of fulfillment of the
service later on. The more knowledgeable
they are on how to manage this relationship
the more successful it is going to be.
Rule #4:
Communicate — To Avoid Asserting Control.
Companies win with complete communication.
In outsourcing, communication’s twin is
control – and the perception of control. It
is vital that the outsourcer never seize
control from the customer (or appear to do
so) because that is when complications arise.
Maintaining open lines of communication so
that the customer feels he or she is still
in control — and having a portal-type
product that provides a complete window into
the operation –- is vital to securing a
strong, stable relationship. At the end of
the day, a client who feels in the dark may
well assume the outsourcer isn’t fully on
the case.
Rules #5:
Clarify Roles, and Stick to Them. In
today’s market, most organizations have
tried various outsourcers, with varying
degrees of success. Because not every
encounter is a positive one, companies often
have their defenses up, and it’s not unusual
for hurdles to exist at the outset –- even
in a fresh relationship that isn’t
immediately leading to job loss. In that
environment, the very best way to overcome
these hurdles is to emphasize the (non-threatening)
partner role: that the outsourcer is more of
an offshoot of the IT department than an
adversary or replacement. The consistent
goal is to make it easier for IT managers
and IT staff to do what they must do to meet
the business’s needs. The outsourcer’s key
function is not just to affect head count;
it’s to help the organization improve upon
the services it could obtain internally at a
given budget level.
Rule #6:
Learn and Apply Patience.
It typically takes about three months before
both sides in a relationship are fully
comfortable with one another and truly
understand mutual expectations. Even for
outsourcers with well-defined processes,
writing that custom playbook takes a bit of
time. Patience invariably fosters teamwork,
and avoids common laments (e.g., “I’m
opening a trouble ticket with so and so, and
who knows when they’re going get to it?”)
that can afflict outsourcing relationships.
Once the mutual discovery phase is over, it’s
time to for everyone to get comfortable with
how things are going. At that point, however,
if the comfort level isn’t there, for any
reason, it’s an optimum time for management
on both sides to examine why.
Rule #7:
Impose and Enforce Structure.
In order to have a successful outsourcing
engagement, companies need clear, concrete
goals. A goal shouldn’t be something vague (like,
“we want to get our IT outsourced”), it
should be as concrete as, “we offered our
exchange server hosting to this company and
we will make sure that service availability
is 99.9 percent or greater.” To hit that
goal, organize formal, frequent meetings (even
twice a week) until everyone knows what the
milestones and the deadlines are. After the
first few months, once a decent product or
service is up and running, it’s less
important to adhere to a rigid structure
around deliverables. Weekly meetings, with
an overview of outstanding items, new items,
upcoming items, etc., should suffice.
Management has a
major role to play here. Prior to bringing
in an outsourcer, some organizations find
that IT staff has been sitting around doing
very little, if anything. That isn’t because
there is nothing to do -– it’s because
management hasn’t said, “here’s the IT
project, here are the goals we have, here’s
what we have to do, here’s what will help us
strategically.” Because these edicts are not
handed down, no one has been clear on the
mandate. In an outsourcing relationship, by
contrast, there tends to be a great deal
more specificity because hard dollars are
leaving the company. The best discovery
meetings address budget issues head on; the
charge then becomes to determine exactly
what the organization wants from its
investment. What is the goal? What is the
value to the organization? What’s to come
out of this? These are the kinds of
questions that make for smoother
relationships.
Rule#8: Keep
the Humanity in the Equation (then, re-read
Rules #1-#7).
In the end, outsourcing is a human business.
Emotions do come into play, since jobs are
ultimately at stake. Keeping that big
picture in mind, have a clear-cut goal for
what the relationship is going to be.
Identify and maintain a single, designated
point of contact who is tasked with managing
the outsourcer; don’t have six contact
people, and don’t let management
responsibilities stray from the IT realm to
other departments. Have weekly review
meetings with the outsourcer to make sure
that goals are being hit; don’t assume that
the outsourcer is doing its job.
Ask for feedback
from the outsourcer; use this seasoned third
party as a live, informal auditing arm. Ask
for ideas about recommended internal
improvements. (Side benefit: if the
outsourcer doesn’t offer input, that in
itself may be a red flag.) Good outsourcers
will always find issues, because the nature
of the business is to gain an intricate look
into internal operations. If the outsourcing
relationship is on a solid footing and the
outsourcer is on its game, the firm’s best
practices will come into play. That, in turn,
should provide ample comfort to everyone
involved — and retire the backlash in the
process. |
Outsourcing: The Ground Rules