Use Caution When Outsourcing

THE CONCEPT of migrating internal business processes or functions to an outside organization may seem quite appealing on the surface. Reducing internal resource constraints and corporate expenditures and increasing quality may make service providers a potent draw.

Today more types of services are available than ever before. Among other things, you can choose to outsource your network infrastructure, e-mail services, Web applications, and collaboration activities.

However, without careful planning and preparation your outsourcing project can easily result in lost revenue, added expenses, and, potentially, litigation. In this Test Center Action Plan we'll show you how to craft a winning outsourcing strategy.

(1) Establish requirements

Define the processes or functional requirements. Begin your path to outsourcing by defining exactly what business processes and/or functions it makes sense to maintain via a service relationship. Unless you have a lot of resources to expend, it may make sense to prioritize outsourcing projects based on the number of benefits you expect to gain from the arrangement.

Determine what level of service is acceptable. You need to fully define your expectations for the service.

What security measures are mandatory for this service? During what hours must the service be available? What is the minimum acceptable performance measure?

Will server-level fail-over provide adequate redundancy, or do you need to also have a provider who can implement session-level fail-over? How much of your training budget can you allocate for this project? What type of service provider support package do you need?

Outline business recovery strategies for the function. In this step, you need to perform a detailed risk assessment. What would be the impact on your business if the service was down or not functioning as promised?

If the business process or function is considered mission-critical or if large financial loss would result, you need to define a recovery strategy to minimize your risk. Consider a standby arrangement with another service provider or an in-house product-based contingency solution.

(2) Locate potential providers

Find colleagues who have outsourced the same process or function. Now that you have determined what you want to outsource, your expectations for the project, and your risk and recovery strategy, you'll need to locate service providers that might meet your needs.

Start by asking colleagues, business associates, or friends who may have implemented a similar arrangement. The best service providers are often found by word of mouth. Relying on service providers' references alone is ill-advised because they will generally comment positively on their experience.

Check service-provider directories. If you cannot locate candidates by word of mouth, you might also try researching service-provider directories on the Web.

You can locate these directories via a category search on most of the major search sites. Be sure to investigate how long the potential providers have been in business. Try to find out how many clients they have and what their financials look like.

Locate candidates that most closely match your needs and budget. Choose three to five likely candidates for your outsourcing project after asking each several questions. You'll need details on their infrastructure, technical resources, support staff, and average uptime. Go back to the list of requirements and determine how well the service provider stacks up against your expectations.

(3) Set up pilot programs

Establish a test environment for pilot programs. During this step, determine how you will evaluate each of your likely candidates. You might need to set up servers at the service-provider location or add connectivity. You also need to determine how many internal resources will be allocated for the evaluation process.

Test drive each potential service with a small group of users or customers.

Define an evaluation window of 30 to 90 days during which you use the service in a manner that meets your requirements. Service providers that want your business usually provide this evaluation period at no cost or at a very low cost. For example, during the trial period, have your sales staff conduct multiple meetings and presentations, and ask two business units to correspond via the external e-mail server. Obtain feedback from these test groups.

Evaluate and grade how well each service matches your requirements. By the time you reach this step, the decision should be a no-brainer. Hopefully, one service should stand out from the rest and be a logical choice. However, if you end up with two rivals that are well-matched, set up a competition to determine which service provider can give you the best pricing, expanded support packages, and added training.

(4) Select provider

Finalize how well the service provider can meet your needs. Revisit your requirements once more, and share them with your chosen provider. Make certain that your goals are clearly communicated. If need be, have the provider sign off on your requirements.

Negotiate the contract. Make sure your interests (and not necessarily those of the provider) are met within the context of a legally binding document. Include text that clearly describes your requirements and outlines steps that you might take in case the service does not meet your expectations. The fee schedule should also be clearly defined in this document. Have your legal team review the contract thoroughly before signing.

Create the service-level agreement. Most companies that choose to outsource establish a formal contract, but many people forget to define a day-to-day service-level agreement. This document should depict the tactical arrangement between you and the provider. Be sure to detail how the service provider will manage the inevitable changes to your service and define the official hours when the service must be up. Include all relevant details that are required the service arrangement.

(5) Determine "go live" date

Choose the initial start date and users. The temptation with a service arrangement is often to turn it on and stop thinking about it unless a problem occurs. When you define your production "go live" date, choose a subset of your user base, and take a cautious approach to going live.

Monitor service during initial start-up period. Closely monitor the service during the first 30 days of production use. Withhold your final sign-off (or perhaps a third of the payment) until you can verify that the arrangement is working properly.

Provide final sign-off and expand service use. If you are satisfied with initial production results, make the final payment and continue with the service. If problems exist, fall back on your prior support mechanism for the process or function. See if the provider you selected can resolve the issues without greater risk or expenditure for your company. If the issues are not resolvable with that provider, cut the cord and choose another path that might prove more successful.

A conversation with many business or IT executives may likely yield more than one negative story about an outsourcing project of one sort or another.

However, taking extra precautions and following a step-by-step approach will more likely lead you down the road to service provider success.

Maggie Biggs (maggie_biggs@infoworld.com) is the director of the InfoWorld Test Center.

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