Don't be naive about outsourcing

Outsourcing IT functions is extremely popular these days, but many companies are still approaching outsourcing decisions with a good deal of naiveté. If your organization is thinking about outsourcing all or part of IT, here are five rules to help you avoid common pitfalls.

1. Know your strengths. If your organization runs a world-class data center, don't be surprised if you're unhappy with the outsourcer after turning it over. Companies will see the most dramatic cost and service-level improvements after outsourcing functions that aren't among their core competencies. It's best to outsource the things your IT organization isn't currently good at.

If you lack the information needed to determine what your IT organization is good at, step back and figure that out before identifying areas for outsourcing. Determine how your IT organization compares to the outside market by doing workload benchmarks and cost comparisons. You may be surprised to learn that your staff is as good as, or better than, the outside competition.

2. Don't completely write off IT infrastructure. I hear a lot of IT managers saying they'll outsource infrastructure because "it's not strategic." These kinds of statements make me nervous. For the record, infrastructure, as used here, refers to the nuts and bolts of an organization's information systems, including data center operations, networks, desktops and help desks.

While parts of IT infrastructure are often good candidates for outsourcing, companies have a tendency to go overboard when identifying the components of so-called noncore IT functions. Let's say a company decides to outsource its data center because it can save money and increase service levels by doing so. That's great. However, best-in-class companies don't outsource 100 percent of the staff involved in the activities being outsourced. They retain individuals who "own" the key processes involved in the functions being outsourced.

By retaining key individuals, the company is more likely to see continual improvements and overall success. In the example above, a company that outsources data center operations might retain a business continuity and disaster recovery process owner because it feels that function is critical.

The lesson here is to make sure you don't inadvertently discard processes that are essential to the success of IT when looking for areas of the infrastructure to outsource.

3. Know what you are outsourcing. Many companies struggle when identifying exactly which IT services they wish to outsource. Often, this is because they lack good definitions and boundaries around the IT services they deliver. Companies that have clear definitions of the IT services they provide (and clear definitions of the components of those services) find it easier to identify areas that may be candidates for outsourcing.

4. During vendor selection, don't shop based on price alone. Cost savings are often a motivator for outsourcing, and price is definitely important. However, price shouldn't be the only driver of the vendor-selection decision. I meet a lot of IT leaders who proudly describe how they outnegotiated an outsourcing vendor and got the best deal available. The reality is that vendors are in business to make money. (The typical profit margin on IT outsourcing is around 30 percent, by the way.) So a company may push a vendor to the wall on price, but in the end, that vendor will find a way to make money on the account. It's better to negotiate a contract that's fair to both parties at the outset than it is to get a "great deal" that ends up costing more money than expected because of changes in scope.

5. Stay engaged with the work and the vendor after outsourcing. Some IT managers are under the impression that outsourcing an IT function absolves them of responsibility for the quality of that service. Untrue. To ensure that the vendor delivers and to manage the ongoing relationship, companies need to devote staff to the management of outsourced services. Failure to do so guarantees disappointment with the outsourcing deal. Whether they call them contract managers, relationship managers or vendor managers, companies need representatives of their organization to manage the outsourced relationship.

- Barbara Gomolski, a former Computerworld reporter, is a vice president at Gartner Inc., where she focuses on IT financial management. Contact her at barbgomolski@yahoo.com.

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