Get Real! Setting Realistic Expectations in Outsourcing

Outsourcing can deliver great advantages to your business, but it is not a cure-all of idyllic benefits. Successful outsourcing requires thoughtful planning, disciplined dedication, focused execution and a great amount of patience.

To keep this all in perspective, I’d suggest you step back for a moment and consider your original reasons for outsourcing. In almost every study I’ve read and Alsbridge has conducted on this subject over the last few years, these 5 reasons for outsourcing always hit the top 10 list:

  • Cost Savings
  • Process Discipline
  • Improved Quality
  • Performance Improvement
  • Greater Flexibility & Control

Let’s examine each one and what occurs within the first year of operation across these areas:

1. Cost Savings

It is rare that you’ll see much, if any, bottom line upside savings based on reduction in operating costs in the first year given that you have a good amount of one-time expenses that need to be accounted for in your business case. One obvious example is transition cost.

If you chose to pay for provider transition during the transition timeframe in year one (as opposed to amortizing it over the life of the agreement), this cost goes directly against any savings you would have expected due to moving your service delivery to a lower cost market (either onshore or offshore).

Other transition costs borne in your first year include employee severance, retention bonuses, outplacement fees, advisory fees, third party termination fees, vendor management software, and travel to name a few.

2. Process Discipline

While many organizations strive to attain industry standard best practices like ITIL v3 or CMM Level 5 (see footnote), few have the budgets to set up the framework, educate their internal teams, execute with discipline, and maintain the standards over time.

Conversely, service providers (especially Tier 1) view these practices as fundamental to delivering services to all their clients. With that said, we and the providers realize the challenges for the average organization to achieve these standards and the gaps between where your organization is and the best practices you aspire to achieve.

It will take time for your retained organization to embrace a new way of doing things and time for your business users to adapt to new procedures when engaging with the service provider. The service provider’s goal is to make it as painless as possible but until you get to where you want to be from a process point of view, a gap will exist.

And that gap will exist primarily in the first two years. Moving too quickly can actually be disruptive and counterproductive. Your organization will need to determine what level you want to achieve and it may not be, for example, CMM Level 5.)

3. Improved Quality

Quality improvement in the short term is based on the quality and quantity of knowledge transfer during transition and provider staff turnover. Once the provider truly understands the inner-working of your operations, processes, business and regulatory requirements, applications, environment, etc., they will be better positioned to institute more disciplined quality control standards that will have a demonstrable impact on what is delivered to the business.

4. Performance Improvement

Just as with a new employee, a new provider will increase their knowledge of the tasks they are required to perform and will, over time, become more productive. As such, it is not reasonable to expect the provider will be as productive initially as the group of employees who delivered the service previously to the business. Productivity and performance should improve over time and should begin to accelerate in the second year of the agreement.

5. Greater Flexibility & Control

If constructed properly, outsourcing can bring with it the ability to dial up and dial down the amount of resources you need based on the needs of your business. You will pay a slight premium for this flexibility and your ability to not only control your operating costs, but also better manage the resources applied at any one time to a business demand. As with any relationship, it takes time to understand the capabilities of the other party, but once you do, you can better control how you manage your organizations delivery to the business.

As mentioned, a great amount of patience is required to forge through any initial obstacles you may encounter in order to achieve a healthy outcome for outsourcing. It is recommended that you keep a list of your initial reasons for outsourcing as well as a copy of the cost/benefit analysis and business case ready to remind upper management of what was to be expected. It truly does take an investment in thoughtful planning, disciplined dedication, focused execution and a great amount of patience to achieve your outsourcing objectives. Stay the course.

“Patience is the companion of wisdom.” – Saint Augustine

Footnote: The Information Technology Infrastructure Library (ITIL) is a set of concepts and practices for Information Technology Services Management (ITSM), Information Technology (IT) development and IT operations. The Capability Maturity Model (CMM) is based on a process maturity framework that is used as a general model to aid in improving organizational business processes in diverse areas; for example in software engineering, system engineering, project management, software maintenance, risk management, system acquisition, information technology (IT), services, business processes generally, and human capital management.


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