By Jo Best, 21 November 2003 16:55
NEWS Outsourcing has become a buzzword for some CIOs – but with half of all outsourcing deals not living up to expectations, according to Gartner, how can CIOs make sure they're not left with egg on their faces?
Often companies enter into outsourcing deals that they are later forced to renegotiate substantially a year or 18 months later when they find out that the agreement isn't in line with their expectations.
So what's going wrong? Economic pressure on firms – and pressure on their CIOs from above – often leads to them rushing into outsourcing before they’ve really thought it through.
Gianluca Tramacere, Gartner analyst specialising in outsourcing in Europe, said that getting the most from any deal requires a lot of preparation on the end user's side. "Companies aren't doing enough homework," he said.
Tramacere told silicon.com that companies should ask themselves some hard questions before embarking on any outsourcing deal: "Why are they outsourcing? What are they outsourcing? They might want to consider doing some benchmarking. How will you define its success? Companies might want to work on governance – identifying roles and responsibilities. It may take time, but if you start outsourcing without outlining your strategy, you're looking for trouble."
Businesses often focus on the short-term cost-cutting benefits of opting for outsourcing, without realising the process may actually mean having to take on extra people in order to ensure there are staff with the right skills on hand to make the deal a success.
The tendency for outsourcing agreements to go pear-shaped could also be purely a matter of time, as the market starts to stabilise. As outsourcing becomes more commonplace, and companies have tried and tested strategies in place, the industry could well see such teething problems resolved.
"Outsourcing is an 'immature giant'," said Tramacere. "It's a huge market but it's still maturing."
Comments
There are 3 comments. Join the discussion
1. Harry Dhillon
Outsourcing is simply 'Contractual I.T. Supply'.
Do we really need this here and now?
No Way!!!
Why spend all that extra money on lawyers and the like?
Why not invest efforts in better procedures, development AND TESTING to ensure failure does not occur - before it gets legal, before it gets dirty?
It's I.T. failures that created the outsourcing market, it's I.T. failure that will destroy the outsourcing market.
Outsourcing contracts help point the finger, but would it be more prudent to TEST more and PREVENT failure in the first instance!
Alas, http://www.worldtestlabs.com has many years of outsourcing failure prevention.
2. Liz Martin
Ensuring the success of an outsourcing contract depends on the planning of senior management. Before any contract is signed, both parties need to ensure that they plan for every situation, and follow a number of critical steps:
Open communications - regular meetings should be held prior to the outsource taking place, and then on an ongoing basis after the contract has been signed.
Set clear objectives - make sure they are realistic, strategically aligned to business and achievable.
Costs - these should be agreed up front and if business requirements change, should be honestly communicated to both parties.
Contracts - must be properly drawn up, allowing for flexibility. Having a service level agreement (SLA) in place is also vital to protect all parties involved in the deal.
Ownership of processes - both parties must agree who is responsible for the data, hardware and software involved in an IT outsourcing agreement.
Management - it is possible that staff may be seconded to the organisation that is handling the outsourcing. This will need to be managed carefully to protect against internal staff issues.
Security - a huge element of trust is required in this area if outsourcing data. In many cases, organisations may prefer to keep this function in house
3. Roger H. Geyer
Outsources do have the potential of providing a lot of highly specialized expertise in certain IT areas. As an outsourcer takes on more business, they may gain more expertise across a broadening mix of customer needs, thereby making that pool of expertise even greater.
I think assuming there is no reason for outsourcing is just as big a mistake as assuming there is "nothing to it and it will be cheaper".
As in anything in life worth doing - to do it well will take hard work, not cutting corners. With the corporate short term thinking (i.e. what is the bottom line impact THIS quarter) currently in vogue, this probably won't happen until there is enough pain to force CIO's to confront the issues.