Business today is looking for a way to provide shareholder value. Outsourcing has become one of the latest “crazes” to boost stock values because shareholders believe it will reduce costs. While your share price may increase in the short term, you may not see the cost savings and your share price will suffer later as your cost basis increases.
It is sad that the cost saving “dream” presented during all those sales pitches often become a “nightmare” of spiraling costs and management headaches. If you go into your outsourcing arrangement with eyes wide open you are much more likely to get better results and you just might see some cost savings.
INTRODUCTION to OUTSOURCING RESULTS
In the spirit of full disclosure I’ll provide some insight on why I am doing these outsourcing posts. The reality is I don’t like outsourcing, NOT because I’m threatened by it, and not because of any particular sense of betrayal by companies who take this path; my reason is simple, too often the outsourcing benefit claims are at best misleading and at worst blatant lies.
If you know what to look for and how to structure these arrangements you just might get apples to apples comparisons on real outsourcing costs. If you know what you are getting into, and how to manage your outsourcing arrangement, you might benefit. But that is up to you to construct your contracts, management structure, monitoring mechanisms, and QA processes to ensure those results.
EFFECTIVE MANAGEMENT OF IT OUTSOURCING VENDORS
It may seem obvious that you do NOT, NOT, NOT want to give up control of your business processes to an outsourced vendor but you would be surprised how often this happens. And when it does you are the outsourcing vendor’s cash cow. Someone will control the processes and if it isn’t you they will be controlled to favor the outsourcing vendor at your cost.
One of the first areas to contractually ensure some measure of control is in oversight. You, as the client, must insist that you will have final say and control over all processes, standards, templates, and resources. This should include but not be limited to:
- QA reviews and internal audits
- All Deliverables
- Scope development and scope management
- Change processes (or you WILL be change ordered to death!)
- All code reviews
- Adjustment and approval of all standards
- Adjustment and approval of all processes
- Adjustment and approval of escalation procedures
- Project Management activities
- How OCM (Organizational Change Management) will be handled
- Data standards and processes
- Testing requirements
- Required documentation
- Control of all resources the vendor might provide
You get the picture. The minute you give up management of any of these key areas you are headed for unanticipated consequences, change order costs, less than optimal results, etc.
CONCLUSION on IT OUTSOURCING
When you outsource your management requirements increase rather than decrease. Because of the outsourcer’s profit motive you must be more diligent than ever to ensure you are getting results and getting what you pay for. If you are not aggressive in managing these areas you will likely experience some nasty financial surprises.
My opinion is to do an honest assessment of your internal capabilities for more aggressive management of outside resources. Strong management must be a key competence of any company wanting a successful outsourcing arrangement.
This is the wrap up to the series on Outsourcing:
- SAP and IT Outsourcing – Vendor Management Considerations
- SAP & IT Outsourcing – Vendor Management Tactics & Strategies
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