The 7 rules of successful IT outsourcing

How can CIOs protect themselves from the risks associated with outsourcing

By David Miller, Senior Consultant, ImprovIT | Computerworld UK | Published 16:19, 10 May 11

There is one thing about a honeymoon period that is universally true: it never lasts forever. So it is with IT outsourcing. No matter how promising the vendor relationship, no matter how ideal the solution and no matter how capable your outsourcer seems to be … the chances are better than even that at some point the project will be stopped - either permanently or temporarily.

This is especially the case with complex, enterprise-wide implementations like the electronic patient record (EPR) in the case of healthcare, or Enterprise Resource Planning (ERP) in the corporate supply chain. As a rule of thumb, the more ambitious the project, the more room there is for scope creep, budget blowout, integration glitches, software bugs, testing failures and a variety of other downstream nightmares. In the worst cases, the catalogue of problems can be so extensive that multi-million pound projects are just quietly shelved, on the basis that what is required to bring the project into production faces the law of diminishing returns.

So, how can CIOs protect themselves from all this? How can they ensure that the burden of risk is on the oh-so-willing vendor and not on themselves? Well, here at ImprovIT we have put together seven rules of outsourcing which aims to ensure clients have the tools they need to a) negotiate the best price and b) ensure supplier contracts are framed in a way that favours the client - safeguarding them from these unforeseen risks.

1: Where possible enter into collaborative procurements. This is a growing trend in both the commercial and the public sector whereby organisations club together in new infrastructure projects or hardware renewal cycles for volume pricing advantage. Providing their aims are collaborative (which should be ascertained first), this collective bargaining can be very effective.

2: Know you know what you want. It is crucial that you are clear on the needs of your stakeholders and have made sure the vendor fully understands your requirements before work begins. Anything that is vague or relies on ‘figure-it-out-as-you-go’ may seem OK in the feel-good flush of a new relationship but loose ends can come back to haunt you when things get tough.

Unless everything is nailed-down, itemised and agreed upon upfront, it’s often difficult to predict the levels of complexity involved in the project. As implementation progresses, new requirements may be discovered and goal posts may shift. Unless the formal specification documentation is precise and contractual, vendors may be tempted to use any grey areas to either cut corners or add costs which can rapidly mount until they are out of control.

3: Always do your due diligence. You and your project team must be convinced your supplier has the track record to deliver. Since expensive, time-consuming legal redress for below-standard results and broken contracts is not a valid option. Take the time to speak with users and visit reference sites and companies that have been on the receiving end of the vendor's services. It’s odd that many customers will spend vast sums on a software installation but not take the time to see the solution in production.

4: Be proactive on pricing. Whether it’s a solution or service, don’t count on your supplier to point out the most cost-efficient options. By example, IT Service Level Agreements (SLAs) can be notoriously opaque and the terms often tend to favour the service provider. Unless specified, you may find on digging into the contract that you are paying for a premium 24/7 level of support when a 9-5pm/5 day one would be perfectly adequate.

5: Compare before you buy. It’s not always easy to work out if you are paying the fair market price for a service or solution, as it involves comparing different suppliers, each of whom bundles their products differently. This makes it difficult to break offerings down into components so that they can be compared on an apples-to-apples basis. And even if you could do this, market pricing data of this type (involving highly detailed service catalogues) is typically only available to specialist outsourcing consultancies.

6: Insist on phased delivery. Too often the first time a company sets eyes on its new software application is when it takes final delivery. At which point the vendor is paid and moves on, and the IT team is left to iron out the bugs – a process that can take longer than the build itself. Worse still, not infrequently the solution turns out to be something other than what was wanted. A simple way to avoid this is by insisting on a staged/agile delivery (and staged payments) so that each module can be tested and confirmed as fit for purpose.

Another way to avoid problems is to insist the vendor be responsible for all aspects of system implementation including guarantees that it performs as promised, is delivered on schedule and is maintained for its entire lifecycle.

7: Maintain the dialogue. Sometimes customer/outsourcer relationships break down simply due to lack of communication. This is most likely to happen when the service provider has taken over offsite management and maintenance of a company’s whole IT operation. Without clear direction from the client, or with messages left unreturned, drift occurs and a frustrated supplier can end up taking decisions by default, thus taking the client’s IT strategy in unintended directions. Or extra ad-hoc services are ordered by different departments directly with the provider without going through any internal management. Sometimes this activity only comes to light with the annual audit of outsourcing spend, with the CFO wondering why costs have exploded. Remember, to make outsourcing work, responsibility lies with the supplier AND the customer.

There are at least another, equally valid, set of rules for successful outsourcing but if you can tick off all of the above, then you are ahead of the curve in best practice sourcing.

(Source : http://www.computerworlduk.com)