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Ten keys to successful outsourcing April 2, 2003

By Anthony Tardugno 

When an organization is struggling with IT services or support of a specific system or application, there's a

propensity to say, "We don't have the skills or understanding to do it right. Let's outsource it to someone whodoes." But the mindset should be, "We don't have the skills or understanding to do it right. Let's develop our requirements, service-level expectations, and associated metrics. Then, let's entertain options for how bestto source them."

I know this sounds ridiculously basic, but if you look at the reasons surrounding any outsource failure, at thetop of the list will be not defining requirements, expectations, and metrics sufficiently. Waiting until the periodof due diligence is too late; you need to complete this process before going into the partner selectionprocess. If your company is contemplating or pursuing outsourcing, these 10 keys can help you develop asuccessful outsource partnership.

The decision to outsource is not purely an economic consideration. The ability to react to changes in thebusiness with timely delivery of quality services (the D and Q of the quality, cost, delivery, and value [QCDV]equation) plays a big role. QCDV also plays a very large part in customer satisfaction, your most importantfactor. To determine whether it makes sense to outsource, you must understand what makes for a

successful outsourcing partnership.

1. Customer satisfactionThe most important factor to consider is customer satisfaction. How many times have you been willing topay more for a good or service because your level of satisfaction was so high? If the customer isn't satisfiedwith the goods or services you provide, you can be sure they'll either be looking elsewhere or escalatingtheir concerns. You must take a customer approach and insist that your outsource provider have the samecommitment.

2. Definability and measurabilitySuccessful outsourcing is dependent on not only how well you define your customer requirements but howwell you can measure how they're being met. This may sound basic and obvious; however, the fact remains

that if you can’t clearly define what you need and are unable to put the appropriate measurements in place,how can you expect your outsourcing partner to meet, let alone exceed, customer expectation? You must beable to put the appropriate metrics in place.

3. Financial savingsOutsourcing in many cases provides a financially compelling alternative to providing the services in-house.However, if reducing cost year over year is a key measure, it’s essential that you craft the partnership sothat the provider has the incentive to help you meet your goals.

Changing the mindset of the outsource provider to go into year over year cost-cutting mode after they’veenjoyed a year or two of flat or increasing revenues is very painful. The initial reaction is to rotate the mostmarketable and experienced staff off the assignment and either backfill with junior or lower cost resources or spread the work to the rest of the less-experienced team.

Like every other company, their goals are to grow revenues with existing clients and increase profitability.You can see how things will begin to degrade if you don’t define this up front; if you don't, the end user is theone who suffers.

4. Share the riskShare risk with your outsource provider, both from a reward and recognition perspective and from aremuneration perspective. If you’re meeting or exceeding your goals and expectations, make sure thataccolades are shared appropriately. On the flip side, you need an "or else.” The failure of your outsourcepartner to meet any of the established service levels or metrics must result in a predefined penalty (dollarsor services).

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5. Delivery and qualityDelivery and quality aren't always used in the same sentence, but they should be. Be very specific anddeliberate when documenting your expectations on delivery and quality. For example, it’s not enough to saythat all requests for service will be responded to within 15 minutes from time of call and closed within eighthours.

To truly make this a "robust" requirement, add a metric that tracks the number of requests for service thatare reopened with the same problem. This adds the quality aspect to delivery. This all needs to be boundedin the overall level of service agreement. Don't just be hung up on delivery.

6. ScalabilityYour outsource partner needs to be positioned to meet your growth requirements, so don't just look at their current capability—look at their ability to scale. Just as you need time to ramp up skills and staff, your outsource provider needs time to react to your needs.It’s very unlikely they’ll have a "bench" filled with resources ready on demand. If they do, I can assure youthat you’re paying for it somehow. Partnering with your outsource provider means sharing your strategy andgoals (without compromising your corporate mission) as much as possible.

7. Stability and variabilitySome of the most successful outsourcing ventures are with components of IT or applications that are very

stable, mature, definable, and measurable. This is why legacy operations (which have very little variabilityassociated with them) are a perfect example of how you can be very successful with outsourcing.

When I say variability , I refer to changing requirements, changing functionality, and a dynamic customer base. As stated before, variability drives change, change drives instability, and instability drives breakage,which drives cost and downtime—all resulting in customer dissatisfaction. Think about the different pieces of your operation; those with the least amount of variability are the ones that are most manageable from both adelivery and a financial perspective.

8. PredictabilityHow many times have you gone to your favorite fast food franchise expecting to get predictable quality,service, and price, regardless of the town you’re in? It’s the same with any good or service: Customers

expect predictability. Establish metrics around what you define to be “predictable” and measure your outsource provider against them.

9. Competency and staffingCompetency and staffing are strategic business issues. Decide whether the environment, set of services, or application that you will outsource is deemed "business critical" and whether the intellectual propertysurrounding it must remain in-house. Once you've decided that, it is equally important to assess your abilityto adequately staff according to the business needs.

10. Velocity (reaction to change)Outsourcing has associated with it an increase in “formality,” which manifests itself in the form of “red tape.”Therefore, if your business requirements change frequently, the ability for your outsource partner to respondwith the same velocity may be hindered. Clearly document your rate of change and expectations of deliveryand quality. This will also allow your outsource partner the ability to staff appropriately. Addressing these

factors early on will ensure your greatest chances of success.

For more information on the Harris Kern Enterprise Computing Institute, visit http://www.harriskern.com/ .