Friday, June 11, 2010

How to Maximize Outsourcers - Part 2 of 3 - Choosing the Outsourcer

This is the 2nd part of a 3-part article on how to get the most out of your outsourcing relationships.  
Part 2 - The Outsourcer.  Friend, Foe or Value Provider

Part 2 - Them

When making the decision to outsource, you are saying to yourself  "I want to achieve greater value for this particular service by leveraging the core disciplines of others".  What you then need to ask yourself is “what are those value drivers?”.  
There are basically 4 aspects of value you can expect to achieve from an outsourcer.
1) Quality - Since the service you are outsourcing should be core to the provider, you should be expecting an elevated level of quality.
2) Price - The outsourcer is leveraging a shared infrastructure across its customer base,  so you should expect affordability at a unit cost level.
3) Time - Focused operation should have allowed the outsourcer to become mature in their processes and architecture, enabling them to  facilitate new programs with greater efficiency.
4) Risk Mitigation – Lastly, you should expect that the resources required to plan, manage, control, and counteract risks are stronger in the outsourcer, since business tolerance for failure is far less for an outside party than for internal groups. (for the most part)
No doubt there are many other reasons to choose an outsourcing relationship, but these are the major contributors to deriving value from the relationship.  
Before you embark on the transition of the service, you must determine  whether this outsourcer has the "right stuff" to service ME.

Did you know that Outsourcing Fails?  Of course you do; a lot of outsourcing initiatives fail.  Usually this is because of Part 1 of this article "You".  (well, not you personally) 
 However, it also has to do with how the outsourcer was evaluated.
When it comes to evaluating an outsourcer it is important to recognize a few myths:
Myth 1) The outsourcer is in business for me.
Myth 2) Bigger is Better.
Myth 3) SLA's and Contracts protect me

Let's take a look at these myths to determine if our outsourcer is a "friend", "foe" or "Value Provider".

Myth 1) The Outsourcer is in business for me.
OK fine, the outsourcer has chosen to offer a capability you are looking for.   That doesn't mean that they are in business for you.  
That doesn’t mean that they are making decisions to provide capabilities for where your business is going.
In other words, you may mistakenly make the assumption that your anticipated needs are clearly understood by the outsourcer and that their investment strategy is targeted towards your business consumption.
This is a myth that many outsourcers will be glad to let you believe.  
The frank fact is that outsourcers are in business for themselves.  They want to deliver the service that you buy at a given time and maintain that service without change for as long as possible.  Thus, as a buyer, you are not going to get the value unless you clearly articulate your expectations up front and your outsourcer can clearly articulate the service portfolio of current and future offerings.
A 2004 survey from  stated that 23% of the outsourcing failures were because of "The buyer's unclear expectations up front as to its objectives".
Friend: "We have provided this service for lots of clients, we know what you need."
Foe: "Changes to services only introduce risks, we will accommodate enhanced services after we have stabilized you as a client."
Value Provider: "Here is our Service Catalog of current services.  We are predicting these areas of market demand and have these service in the pipeline to delivered by these dates"
Bottom line:  
If the services aren't in their plans, they won't be in your hands.

Myth 2) Bigger is better
There will be no argument here that for pure play utility services, selecting  a larger company will give you great value.  What I want to focus some light on here is the sometimes mistaken assumption that all services added to a larger firm’s portfolio will be as good and as valuable to us as the core services for which they are known and trusted. 
Another key factor to keep in mind is the life-cycle of an outsourced arrangement.
According to "IT Outsourcing Part 1: Contracting the Partner" there are 5 phases.
Phase 1: Decision Making - Should the organization outsource (see Part 1 of this article)
Phase 2: Supplier selection - what this article is helping cover.
Phase 3: Transition - Transfer services to provider, transformation of retained service ownership
Phase 4: Service Delivery - Maintaining performance and governance over provider.
Phase 5: Contract Completion - Handling renewals, changes or withdrawal.
When thinking about these phases, you need to ask yourself if the size of the outsourcer accommodates your goals.  Remember that outsourcers love to bring clients in and hate to see them go.   So while bigger shops can more readily support the first 3 phases of the life-cycle, what’s their reputation for supporting Phase 4  and 5?  How hard will it be to end the contract with a larger firm?
Larger firms have more resources, yes, in their legal teams.  
This brings us to our next myth.

Myth 3) SLA's and Contracts protect me
This has been, in my experience, one of the greatest mistakes made by either side of the outsourcing arrangement, trusting that an  SLA will provide you service.
The brutal truth is that the SLA is a contract that is in place to fall back on when either party so significantly fails that you have to litigate.  You can reinterpret the claimed breach to a court that will really have no clue what you both are talking about.
You need to think of your SLA like your life insurance policy; you want to have it, but never want to use it.  Understand the risks and conducts that could go against the contract, but otherwise do the right thing.
SLA's are important, don't get me wrong.  However, their greatest usable value is in determining the guidelines by which performance and capacity will be managed.  Outsourcers like any other company provide value for money.  Their value model will be based on the requirements and commitments that you as a client make with them.  The SLA documents these important requirements and commitments, so that resource planning, controls, and execution decisions can be made at multiple levels of the organization.

So if you really want to get the most out of your outsourcing contract, you have to create a Service Network Relationship.  In my next and final part of this article I will share with you the 4 different aspects of Service Perspective.  I promise this won't be your Mama's ITIL Pie and Service Cream.

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