There’s a lot of debate going on right now about whether to outsource, what to outsource and why. Every organisation is facing new pressures that lead to a drive to reduce costs in their totality and at the same time get flexibility into a fixed cost base. On the face of it, outsourcing is the answer.
Outsourcing is certainly an answer, but it depends what the question is. Many organisations have inbuilt inertia. It’s done that way, because its always been done that way. The pressures we’re facing now mean it’s a really good time to start asking some much harder questions.
Those questions start with, ‘What are we trying to achieve, what’s our strategy?’ From there, it’s a natural progression to ‘What do we need to do – what processes do we have - to make our strategy succeed?’ In turn, that leads to ‘What IT systems do we need to make our business processes as efficient as possible?’
Sounds very logical. But when you’re up to your neck in alligators, draining the swamp isn’t always an immediate solution. That’s where outsourcing comes into play.
The basic rationale for outsourcing is getting a specialist to perform some of your business functions, rather than trying to do it yourself. Successful outsourcing is predicated on having a clear view in business terms of what success looks like.
Getting external help to form the view of what is required to succeed is often a really good thing to do. An internal team will always step around some of the harder questions. There will always be some vested interests somewhere that are protecting something that maybe shouldn’t be protected.
A change to outsourced services should be coupled with a change management plan. A part of that plan should define the business transformation you’re seeking. It should also define the sort of service levels you want from your supplier, expressed in business process performance terms.
Server uptime is interesting, and you may well depend on those servers for your business to work, but the overall business process performance is what you’re really after. That’s the true value your outsourcing contract will deliver.
That leads to two other thoughts to consider when setting up a new or renewing a current outsourcing contract.
The first point is that traditionally most outsourcing deals are financially engineered to show lower costs at the beginning of the term and higher costs at the end of the term.
Outsourcers have traditionally done this to show attractive savings over the previous service delivery, and clients like it because they’re confident they’ll be able to renegotiate the Contract before the higher charges kick in.
What we’re now seeing, is a world where the lack of credit makes it much more difficult for an outsourcer to do this financial engineering, and this is beginning to force up the charges in the early years of new Contracts.
Clients are going to have to work much more closely with providers to gain value and achieve sustainable cost reduction throughout the duration of their contracts. So how is this gain in value and sustainable cost reduction going to be achieved? Only through a deep understanding of what the business needs and the primary IT service requirements.
The second consideration is the need to use an outsourcer’s standard services wherever possible.
The moment you start to customise anything, you’re probably making it more expensive. If you look at the statistics, more than half of ERP/CRM installations are heavily customised. And how many stories are there of massive cost and time overruns in implementing these systems?
This begs the question, why customise a service in the first place? So often, it’s because ‘We’ve always done it that way’ without a real consideration of the underlying business needs.
A proper assessment of the business requirements coupled with the courage to question the way it’s always been done can lead to radical streamlining and cost savings. The end result is more business agility coupled with lower and potentially variable costs. Exactly what’s needed right now.
__________________________
Mike McCormac has in depth experience working with organisations to realise the benefits of IT outsourcing,transformation and service delivery. He is known and respected for devising pragmatic solutions to complex problems, especially in the field of optimising IT solutions to support business processes. His background includes a number of senior roles within IBM, Bull, Steria and T-Systems and during this time has worked with both public and private sector organizations. In Procertis, Mike works with our clients to help them create effective programmes to drive their IT and business efficiency.
Procertis is an independent Consultancy and Intellectual Property development company focussed on IT and business inter-relationships. We develop rational frameworks which help organisations define and implement major integrated business/IT change agendas, and measure the resulting benefits. We work with single organisations and with large initiatives involving multiple parties, where our longer-term role is to keep all stakeholders focused on and honest to the developed vision.
