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 1 - You (or your company).  Can you handle the truth?

Part 2 - The Outsourcer.  Friend, Foe or Value Provider

Part 3 - The Relationship.  Customer, Consumer or Partner 

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 OutsourcingBestPractices.com  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.

 Part 3 - The Relationship.  Customer, Consumer or Partner 

Real cost savings in IT spending

IT savings is all the rage here in the States. With budgets tightening and falling stock prices everyone, and I mean everyone is looking for ways to cut costs and yet still somehow maintain the same level of business operation and quality.

Well here are my 5 fitness tips for trimming the fat in IT spending, where you could create significant value while reducing costs.

1) Stop doing things twice, and use automation. Quality assurance has long been viewed as a necessary evil. The reality however is that it is business critical if you want to avoid major customer satisfaction issues and maintain security and compliance coverage. Human capital is always the largest expense in issuing quality checks. However, most systems could be designed and built with error checking and quality validation as part of the build and design. If your development organization is writing code, and your QA team is checking code, you are wasting money. Get these teams to an agile development workshop so that they can start to think about optimization techniques that could eliminate teams of business analysts manually testing or having to write ineffective regression automation scripts.

2) "Do it yourself" only where it makes sense. Too many organizations have leveraged internal staff in a figure it out mode. While this build longer-term internal knowledge capital and can work towards job satisfaction and retention, it ultimately is more expensive. Where the function is core to your business model then it makes sense. Otherwise look to an Software as a service, or Manages Service Provider who can give you economies of scale with point expertise.
Most providers have demonstrated ROI in a 2 year period in both CapEx and OpEx.

3) Tune business processes not just systems. In the past 9 years of managing performance engineering teams, I have learned one thing. It is always faster to fix how people use a system, then to tweak an poorly designed system. So before embarking on expensive load testing and system tuning efforts, evaluate the end-users usage of the system through operational profiling. Monitor and shadow users for a week. It will be enlightening how many time saving tips you can bring to the business community without spending any additional cash.

4) Monitor the end user's experience not just the infrastructure. OK, you'll have to spend some money up-front. However, the pay back can be significant if transactions are properly captured and labeled. By monitoring the performance and availability of critical transactions, this allows you to focus and "break-fix" dollars on key business driving processes. Many organizations have embarked on fixing system issues that really aided very little in the operational aspect of a business. By knowing where you can create gains in the environment to affect the business, you can plan and spend with significantly greater value.

5) Integrate request management and time tracking. Last but certainly not least, is optimizing the people. Project management tools, time tracking tools and defect tracking tools and service desk tools continue to be disjointed in many organizations. This lack of clarity to issuing and fulfilling requests leaves many, many loops holes in personnel accountability and management. In this down economy, plus during this holiday season, it is a fact that people loose focus more easily, they get distracted, and they loose ambition to take full responsibility. Providing a consolidated view of "work orders" and "work plans" will help keep your most expensive asset working optimally.

While there are many more areas within IT to cut, I believe these are the key ways in which you can reduce costs while still maintaining the highest level of quality.

Next months blog: Is now the time to start an IT Service Management initiative? I'll discuss the pro's and con's of taking on a project like this in this economy.