Outsourcing IT functions can be a double-edged sword. As Emma Connors aptly put it in Boss Magazine, it can sometimes lead to spectacular success or, just as easily, to spectacular failure. If you’ve managed such a project before, you know there aren’t many reliable roadmaps to guide you. Most of the literature focuses on the advantages and pitfalls of outsourcing, leaving little guidance on navigating the process itself.

This post doesn’t aim to teach you the ins and outs of outsourcing or to debate its pros and cons. Instead, it emphasizes the critical steps you must take to ensure success and explains why each step is essential.

When Outsourcing Goes Wrong

The repercussions of a poorly crafted outsourcing agreement can be severe:

• Misaligned Contracts with Organizational Goals: Contracts that don’t align with the organization’s motivations can lead to many issues.
• Micromanaging External Teams: This often results in higher costs and inefficiencies.
• Lack of Clarity: Unclear expectations regarding business outcomes and mutual responsibilities can lead to dissatisfaction and unmet goals.
• Hidden Costs: Unanticipated expenses can emerge after the contract is signed, eroding the perceived benefits of outsourcing.

Journalists and auditors often describe these situations with phrases like “disastrous failure,” and beneath these headlines lie tales of complex issues between organizations and their service providers. A significant part of the problem is the lack of commitment to contractual obligations. It wouldn’t be surprising if, in the near future, someone writes a best-selling handbook on how to escape such obligations.

When Outsourcing Goes Right

On the flip side, a well-managed outsourcing process can yield numerous benefits:

• Alignment with Business Objectives: Ensuring that the outsourcing arrangement supports the organization’s goals.
• Comprehensive Understanding of the Scope: Clearly defining the full scope of work.
• Focus on Core Objectives: Allowing the organization to concentrate on its core objectives while managing the inputs and performance of external resources.
• Effective Relationship Management: Maintaining strong, healthy relationships between the organization and its external partners.

How to Get It Right

Many authors, including Halvey, Melby, Gay, Essinger, Klepper, Jones, Graever, Wilcox, and the pioneering Mary Lacity, have written extensively on IT outsourcing. Their works, listed in the “Further Reading” section of this book, provide valuable insights. Here are some key elements for successful outsourcing:

• Understanding Organizational Motivations: Clearly define why you’re outsourcing. Ensure these reasons align with your organization’s goals and have the support of upper management. Additionally, understand the motivations of your external partners. Why are they willing to do something you’re not? Are their executives aware of the promises their sales teams have made to you?
• Knowing What You’re Bringing In: Invest significant effort in discovering and documenting the assets, processes, and people involved in the agreement. Misjudging these elements can lead to costly mistakes, such as underestimating the resources required.
• Careful Selection of External Partners: As discussed in earlier chapters, choosing the right partners is crucial. Establish clear criteria for selection, analyze and test their responses, and consider organizational, commercial, and technical aspects. Don’t forget to factor in subjective judgments as well.
• Ensuring the Contract Reflects Your Expectations: Organizations often underestimate the importance of the contract. Avoid this trap by ensuring the contract accurately reflects your motivations, goals, management processes, rewards, penalties, and termination conditions. To do this effectively, you need the right people, tools, goals, experience, and control over the entire contract process.
• Defining SLAs Focused on Outcomes: Your Service Level Agreements (SLAs) should focus on deliverables, responsibilities, and performance metrics. Ensure these meet your business needs and are achievable. Regularly monitor performance and review results.
• Managing the Transition: This is about managing change on a large scale. The BTOPP model (Business, Technology, Organization, People, Processes) will help you maintain stability during this transition. Change management skills should complement program management skills in this process.
• Managing Relationships: This may require hiring a contract manager, additional staff for project administration, and implementing robust oversight processes. It’s in this area that many outsourcing projects go off track.

The Guide to IT Outsourcing is a comprehensive resource on how to manage this process. Outsourcing is challenging and risky. Mistakes are easy to make but difficult and expensive to fix. If you’re considering outsourcing, study the subject thoroughly, consult with those who have gone before you, and seek advice from experts. Many consulting firms can offer high-quality advice in this area.

Whatever you do, don’t take it lightly!

Given the importance and risks associated with outsourcing, further reading is essential. The “Further Reading” section at the end of this book lists valuable resources. If you’re going to do it, do it right.

Checklist for Successful Outsourcing

1. Does the organization clearly understand its true motivation for outsourcing? Is this motivation valid?
2. Do senior executives agree with and support these motivations?
3. How will outsourcing help achieve the specified objectives?
4. Why can’t these objectives be achieved more effectively and efficiently through other means?
5. What criteria must the provider meet to achieve these objectives?
6. Do these criteria encompass organizational, commercial, and technical attributes?
7. Are you confident in the accuracy of their claims?
8. Have you interviewed their employees, particularly those involved in the day-to-day operations, not just the sales representatives?
9. Do you have an appropriate process in place for negotiating the contract?
10. Does your team possess the necessary skills, such as mediation, financial modeling, auditing, technical consulting, and legal expertise?
11. Do you have a clear understanding of what you want to bring into the organization?
12. Have you developed a suitable change management plan?
13. Does this plan include checkpoints to ensure progress is monitored and controlled?
14. Have you considered a risk mitigation plan in case the project encounters issues during the outsourcing process?
15. Are the contract termination conditions clearly defined and practical?

By following these guidelines, you can navigate the complexities of outsourcing and maximize your chances of success. Remember, outsourcing is not just about cutting costs; it’s about making strategic decisions that align with your organization’s long-term goals.