Making IT outsourcing work

The concept of outsourcing is not new; it has been around for years in the form of one party contracting another to manage a business process more effectively and efficiently than it could be done in-house. IT outsourcing, on the other hand, is a relatively new discipline.

"Today`s IT outsourcing is different from the computer bureau services of the 1960s and 1970s because information technology plays a central role in almost every facet of business today," says Stephen Floyd, head of core services at Fujitsu Services South Africa. "The bureaus of old mostly processed simple billing functions and had no idea of managing the complex, integrated applications, networks and servers that are common today. And let`s not mention the Internet."

A decision to outsource IT processes in the 21st century will place a much greater reliance on the quality of the service provided by the outsourcer than ever before. This means the process of choosing a supplier is just as important to the outsourcee as is the reason for wanting to outsource in the first place and the fundamentals of the contract.

"Outsourcing can be a spectacular success if it`s done correctly and for the right reasons, follows due process and is based on realistic expectations and a clear understanding of where the benefits are likely to be experienced," Floyd adds. He suggests companies thinking of outsourcing should understand and take note of the following points as they form the basis of a good strategy:

* The importance of following a sound process in selecting the provider and designing the contract.
* The critical role played by the service provider`s infrastructure management methodology - or lack of it.
* The importance of developing an appropriate focus on costs and benefits, and understanding what and how benefits may emerge.
* The need for both parties to dedicate resources to properly manage the relationship.
* The need for new incentive models that reward both individuals and organisations for success.
* Understanding that failure is always a joint responsibility.
* And above all, understanding that outsourcing driven by price alone almost certainly leads to disappointment.

Looking at outsourcing from the opposite angle, Floyd notes there are also clear reasons for the many failures we hear about.

* Failing to take a strategic approach and properly determine the motives, goals and objectives of outsourcing.
* Concentrating on cost reduction rather than benefits and the value added.
* Sub-standard corporate governance of the outsourcing programme over time.
* Failure to appoint staff to manage the relationship and contract.
* Mishandled communications to staff, customers and other stakeholders.
* Inadequate incentive models that fail to motivate both individuals and the corporate entity on both sides.

"Of course, we know that outsourcing is still an important aspect of corporate IT management among all large enterprises despite the potential problems," continues Floyd. "The reason for this is that, when done correctly, it pays to outsource."

One of the primary benefits for business leaders is that outsourcing frees management from less important tasks and allows it to focus on strategic issues that deliver value to the company. In other words, it allows management to focus on the core business of the organisation.

Other benefits that attract organisations include enabling the company`s IT to function at a higher level of competence than is achievable in-house. It should also assist in facilitating the implementation of best practices and best-of-breed methodologies that will improve service levels to both customers and staff.

Moreover, in this time of increasingly intrusive and demanding corporate governance legislation, effective outsourcing also leads to improvements in the transparency and consistency of decisions over time. This means easier and more accurate reporting on governance issues.

Outsourcing also supports cost-reduction in the IT department. It supports economies of scale derived from the sharing of resources, infrastructure, tools, utilities and specialist skills. It also makes IT costs visible in a way that does not happen in traditional management reporting. All costs for labour, supplies, maintenance and the like are identified and reported on in detail. Apart from supporting tighter governance controls, this also uncovers previously concealed expenses, which often helps explain why IT seems to deliver so little while costing so much.

"While cost benefits are part of the deal in many outsourcing arrangements, outsourcing is a strategic decision and not a tactical cost-cutting exercise," warns Floyd. "Unless outsourcing is strategically planned and managed, there`s a considerable potential for failure."

Making outsourcing work is therefore not magic. It is simply a strategic discipline that requires the application of proven strategies and processes appropriate to specific industries and situations, instead of industry jargon or the latest quick-fix fads.