A helping hand with outsourcing

Steve Watmough, Xantus Consulting

Photo of Steve Watmough You may have spent a year or more negotiating an outsourcing contract that delivers the right functionality at the right price for your organization. But it's only now that the real headaches start: how do you manage this multi-million pound project? Steve Watmough, managing director of Xantus Consulting, talks about how IT organizations can plug the skills gap created by outsourcing.

The growth of IT outsourcing shows no sign of slowing - UK companies increased spending on outsourcing by more than a quarter last year, according to industry research[1]. What's more, companies are outsourcing more broadly than ever before. Along with infrastructure outsourcing, IT directors are beginning to realize the benefits of outsourcing everything from application development to human resources.

Along with these new models of outsourcing come new organizational relationships. Today's IT leaders need to handle a portfolio of relationships with and between multiple outsourcing providers, hosting companies and offshore specialists, operating in different offices, countries and even time zones.

This approach - known as 'selective outsourcing' - allows companies to select partners based on their expertise in particular areas, thus improving overall service delivery. Selective outsourcing can also provide businesses with greater financial flexibility, reduced operational costs and improved access to skills and resources.

Increasing your reliance on outsourcing, however, can bring with it greater headaches. According to a survey of IT executives conducted earlier this year, the three top concerns around outsourcing for today's IT leaders are delivery cost, service quality and maintaining control of the operational environment. In a selective outsourcing environment this is particularly true - since IT leaders must broker relationships with multiple suppliers, who may need to work with one another as well as with the client.

All of these challenges are even greater when many of your most skilled, experienced workers are transferred to the outsourcing supplier. Moreover the likelihood is that you are finding it difficult to recruit new employees in key areas, because top candidates are being wooed by the higher salaries and greater opportunities of working for IT services companies.

A typical outsourcing deal will involve the transfer of many key internal IT staff. This makes a lot of sense: if you're outsourcing your network management to a third party, there's no point keeping a highly-paid network manager on staff (the network manager is also unlikely to stay in the job for very long, since there's really nothing for them to manage). It isn't unusual for outsourcing to transfer virtually all IT staff, with the exception of the IT director, a small technical support team and legacy experts.

This is good news for the company balance sheets - and perhaps also for the company's IT systems. However it's not ideal for IT directors wrestling with concerns over whether they've lost control of their systems or if their supplier is providing value for money.

If you embark on an outsourcing relationship without the necessary skills to ensure it stays on track, there are a number of possible risks. Without good contract managers, you may end up paying over the odds for a service, or end up with a contract that will be out of date before the ink dries. Without good project managers, implementation deadlines can be missed and projects can easily be run to the supplier's agenda and experience, not the client's needs.

Recruiting a team of project managers, technical specialists and system architects isn't an option for most IT directors - and would completely negate the point of outsourcing in the first place. However there is a way to enjoy the benefits of outsourcing without losing control or visibility of your IT systems.

Working with a specialist consulting partner allows companies to remain in control of all stages of the outsourcing relationship. A good consulting partner can help its clients to negotiate an outsourcing contract that offers value for money while still being in line with the organization's wider strategic goals.

This kind of advice is vital because, no matter how good a service provider might be, they work by assigning resources to a project based on contractual scope - not operational need. So if a project suddenly needs more time or resources, this requires contractual negotiation. IT directors, who may be used to working with internal, flexible teams, could benefit from advice from a third party with commercial and vendor management skills to set up such processes at the outset of the relationship.

The second area where organizations can benefit from some outside help might be during the delivery of an outsourced IT programme. Outsourcers will generally be selected because of their experience and knowledge of your organization's technology - but this doesn't automatically mean that the delivery will go to plan. Common problems that can arise at this stage of a project include project creep, changes in technology products or budget changes.

In this scenario, IT directors must be able to work effectively with service providers to agree on how the project will continue. This means not only planning future work but also monitoring and resolving issues as they occur. In order to do this effectively, organizations must have retained employees (or have access to external consultants) with excellent collaboration, negotiation and problem-solving skills.

The advantage of using an external consultant in this regard is that consultants can usually afford to hire the best candidates - people who have worked on this kind of implementation previously, and have vast industry knowledge and experience. An external consultant will also be available for as long as they are needed - and no longer.

Ideally clients will be provided with consulting in three key areas: high level strategy, commercial and service planning, and delivery of programmes. In each case, consultants should combine the knowledge and experience of the very best internal staff with the flexibility and cost-effectiveness of a service provider - allowing organizations to bridge the outsourcing skills gap.

Ten questions to ask a consulting partner

Consulting can help organizations to fully realize the benefits of outsourcing - but it's important to ensure that a consultant can add value to the relationship and won't simply duplicate the work of your existing outsourcer.

The key questions which clients should ask any potential partner are:

(i). Can you offer consulting at a strategic, programme delivery and contract negotiation stage of the relationship?
Contract negotiation is only the beginning of your relationship with a service provider; problems can and do arise further down the line. If they do, you'll be glad you have a consultant who is familiar with the details of the original agreement.

(ii). Can you work with a portfolio of service providers on my behalf?
In most organizations there will be more than one service provider and, at the beginning of the relationship, there needs to be a lot of work in ensuring they can work effectively together.

(iii). Can your team build relationships effectively at all levels of the organization, from the CIO and CEO down to technology managers?
There's no point having great relationships with the board if the people actually putting in a new system don’t buy into the project.

(iv). Does your daily rate represent good value for money, appropriate to the expertise of your people?
It's easy to pay too much for advice, so make sure you're not paying for someone with more expertise than you really need. But never be tempted to skimp on external advice.

(v). Are you independent or tied to a particular vendor or service provider?
Although vendor-owned consulting firms should live up to their claims of independence, in practice they may often not have equal experience of implementing other suppliers' products.

(vi). Have your consultants got experience of working in this sector or market?
If a consultancy has never worked in your industry before, will you end up paying for their time while they learn the business?

(vii). Do you have experience of working with offshore, onshore and nearshore providers?
If you're not offshoring yet, you soon might be.

(viii).Do you have experience of recovering contracts that are in trouble?
It's important to find a consultant with skills like negotiation, conflict resolution and communication - before you really need them.

(ix). Does the consultancy have the right mix of technical, commercial and business skills?
Some consultancies specialize purely in one area or another.

(x). Is there an existing relationship and trust in place?
A supplier in the hand is worth two in the bush.

Reference
1. Forrester Research, European IT Outsourcing Deals

See also
A Guide to Global Sourcing - Offshore Outsourcing and Other Global Delivery Models