The hidden benefits of outsourcing
Everyone knows the standard benefits of outsourcing, like reducing costs and focusing on core competencies. But a well-structured outsource engagement can also deliver some significant business returns that you may not expect.
IT Outsourcing has been round for over 50 years now, and it’s still a staple proposition used successfully by many great companies round the world. It has evolved from a pure infrastructure proposition, to applications, process and just about everything in between. It has morphed with the advent of specific offshore destinations, then to co-source, and further refining into on-shore/near-shore/right-shore derivatives, and finally into software as a service (the second time?), allowing us metaphorically both to follow the sun and live in the cloud.
Love it or hate it the outsource proposition, in its various guises, has stood the test of time. So what is the secret-sauce that keeps it at the forefront of business thinking? The principle of paying someone to do work that you do or could do yourself is not new and the benefits are well understood. They are as valid now as they have ever been. But recently, I have noticed customers referring to a couple of more subtle and less known benefits.
Outsourcing improves discipline and control
A successful outsource arrangement, be it short or long term, requires:
- Clear roles and responsibilities documented and agreed by all parties
- Concise requirements, signed off by the business
- Detailed planning
- Good cost management
- Commitment to dates and resource levels
- Strong project management and governance
- A good understanding of baseline costs
We recently provided a proposal to undertake some urgent outcome-based software development for a client. The pressure was on us, as this was a new product to market with great potential and a high opportunity cost. We provided our proposal, which would see us deliver the finished software (outcome) within six weeks at an agreed price. The company decided to do the development in-house, and yes you guessed it, several months later the product is still not live; in fact the development has not even started. Will anyone analyse the opportunity cost of this delay? Probably not. It would be too depressing I fear.
The lesson here is that the disciplines required for the successful running of an outcome-based contract are the same as those needed to successfully manage an internally run project. So a side effect of an outcome or outsource-based deal is improved internal management disciplines resulting from the exercise itself.
Wrapping process around the water cooler conversation
The relationship between many business users (customers) and their internal IT group is too informal. Hallway conversations become ‘agreed changes’, emails become ‘scope’, and phone calls become ‘priority changes’. This may create an illusion of dynamism, but it is in fact the main cause of many complaints I hear. Not surprisingly, the same environments complain about ‘frenetic pace, mayhem, out of control’. In an outcome-based or outsource engagement, there is degree of separation between the business users (requirements) and the third party delivery organisation. This relationship is managed by a set of commercial terms which provides rigor and invariably will push cost into the third party company if they do not manage these Terms & Conditions tightly.
Managing the delivery using this commercial relationship gives more certainty on cost, quality and delivery. But does this come at the cost of flexibility? Not at all. Scope can and often does change once the agreement is signed, but the proposed changes go through a formal impact assessment, estimation, and costing by the third party. This is then reviewed and approved before there is any agreement to change the scope. This is basic good project management practice, but it is here that things can break down if the relationship between the business users and internal IT is too informal. In an outcome-based engagement, hallway conversations are still valuable but they do not change anything until the process has been followed.
So imagine your management dashboard glowing green, your KPIs breaking records, your customers happy, the call waiting queue showing zero and the soundtrack to “The Girl from Ipanema” being piped quietly through your serene IT shop. A nice thought, but more realistically working with a trusted IT partner in an outcome-based arrangement will remove one less reason for your ulcer.
