In the latest sign of an economic recovery and a pickup in government spending, Hewlett-Packard has been
awarded a multi-year contract worth up to $2.5 billion to provide technology services to NASA. In another strategic outsourcing deal
Nokia will outsource its Symbian software activities to Accenture, transferring 3,000 employees to the company in the process, as it moves its focus to making phones running on Microsoft’s Windows Phone operating system. It seems that the tough economic climate has revived the technology outsourcing activity as businesses reduce costs and focus on their core operations. But how do you approach outsourcing if you are a CIO, CTO leading the Technology function of your organisation? What are the best practices? And what basics do you focus on? What lessons have we learnt from first and second generation of outsourcers?
A few days ago I attended a CIOnet event in London (with title similar to this post) where three CIOs shared their insights, lessons-learnt and views based on their outsourcing experiences coming from a range of industries. They were, Kevin Baker of Jardine Lloyd Thompson Group, James De Watteville of RSA Insurance Group plc and Stephen Hand, ex Lloyd’s Register. It was a fascinating listen. I am sharing synopsis of this session along my analysis in this blog post. This is essentially representing the CIO view of the world coming from the Information Technology buyer or purchaser perspective, hence certainly useful if you are in similar role or position. However I felt there were some good insights in their observations for Information Technology outsourcing vendors as well.
Establish the objectives, drivers and need for Outsourcing – Before jumping into an outsourcing relationship Know what you are looking for from outsourcing engagement. Define the strategic plan and objectives for outsourcing with business buy-in. Define a Sourcing model backed up by business plan and what each partner will do to make this real. Above all there needs to be clarity of purpose to understand why outsourcing contract is needed and what needs to be achieved.
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| Image credit – Danilo Rizzuti |
Knowing the Organisation, its strengths and weaknesses before Outsourcing – Take time to understand your organisation. Why do you want to outsource? What will you lose? Make sure your internal and external customers understand what it means to outsource. Also understand your organisation’s maturity level. There are various industry benchmarks which will help you in assessing this maturity level, for instance Six Sigma for assessing BPO, CMMi for assessing applications, ITIL for assessing infrastructure and so on. Can your organisation work with off-shore providers? Or work with multi-location work flow? Experience of staff to undertake this transition and Governance model requirements are also crucial to take into consideration.
Transfer / Transition / Transformation – Irrespective of the size, shape and above considerations of outsourcing, it will a challenge to successfully hand over and run the outsourced operations. It is important not to expect too much too soon. Transfer the as-is state initially instead of rolling transition and transformation in one go. Expecting immediate improvement in operations is unrealistic. Allow relationships to build and process to stabilise first and transition to new processes against transition plan. However transformation is important as the contract progresses to avoid complacency. Conducting regular reviews of performance against objectives and assessing risks to check if the business plan changed is essential to keep outsourcing relevant as time passes by.
Evolving role of the CIO and IS/IT Department – The CIO and IS department should be responsible for relationship management with outsourcing partner. Partner is a keyword here used in place of supplier. Showing trust and sharing risk with your outsourcing partner helps so CIO should share business plan and strategies as much as possible. More importantly, shared goals such as positive references, project successes, on time deliverable, etc. help achieve success together. CIO should understand the governance and delivery process of the outsourcing partner to make the most of relationship. Going a step further a key question to answer together is what can parties do to make each other successful? CIO should manage internal marketing and communications of such success stories as he / she owns this relationship. In more ways than one outsourcing can be compared with M&A. it can be argued that, compared to M&A outsourcing gets less management visibility and support and CIO can help in this case. In multi-vendor scenario facilitating a collaborative environment is important. For example, getting all vendors together once a month to share challenges, common goals and resolution items may proactively nip a number of issues in bud.
In summary Outsourcing offers a good compelling alternative over in-house operations – It allows business to focus on core capabilities and business operation while allowing technology companies and vendors to focus on what they do best i.e. technology delivery. Often the decision is to be made between internal investments vs. outside investments. CIO should not be turned into HR partner instead he / she should turn into an effective broker and relationship manager to get best value of technology for the organisation. Contract is a good tool in this process which should be used effectively to keep all involved parties honest and focused. Business is dynamic and keeps on changing its objectives, shape and direction. Hence it is important to reassess the outsourcing requirements. As required they should be reviewed, re-base ined and benchmarked on regular basis to ensure right fit for the organisation.
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