IT Managers Series–Is Outsourcing in Your Future?

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Does the thought of outsourcing parts of or your entire IT department just make you cringe? You’re not alone. The demand for IT outsourcing continues to grow in 2003.

Outsourcing is the use of a third party to provide services, rather than using your own in-house developers, administrators, help-desk or other IT staff. Outsourcing can include hiring contractors over full-time staff, reaching out to service providers or hiring for a specific project. Depending on the size and scope of your needs, the solution will probably mean some combination of these resources.

The most popular reasons for companies to seek outsourcing is to unload IT assets and human resources in order to convert to a fixed-cost model that allows companies to do more with fewer resources. Large companies like Xerox and Bank of America have turned to outsourcing, but you don’t have to be a billion-dollar company to realize outsourcing’s benefits. It is becoming more and more accepted in small to medium-sized businesses.

So what does IT outsourcing mean to an IT manager? If your company has turned to you to build the business model for outsourcing some or all of your IT resources, it means ensuring that you select the right vendor and then manage that vendor to achieve the desired cost savings without impacting security, uptime or response times. If you are responsible for managing the relationship once it has been established, it means ensuring that everyone is on the same page as to the company goals, requirements and service-level agreements. All of this requires a lot more than they taught you in MCSE school!

Scoping Your Outsource Requirements
There are several aspects to consider when deciding which IT functions to outsource. Ideally, the outsourced functions should realize at least a 5 percent cost savings, not just in the current year but for the life of the relationship with the services provider. That means taking a look at different pricing models and different payback periods. Pricing models can include time and materials, fixed or cost-plus. Payback periods are the duration of the outsourced relationship. Typically, you would outsource for a three-, five- or 10-year period, though for certain low-risk commodity functions you may want to consider a shorter contract period. In order to do this analysis, an IT manager should do a cost-benefit analysis that includes a time value of money analysis, determining a payback period, determining the type of outsourcing arrangement and developing alternatives.

Any outsourced solution should entail putting together a team to manage the project, complete with an official project manager. As the owner of the outsourcing project, you should work very closely with the project manager to scope the project. This will include identifying the requirements and expectations of each of the stakeholders affected by the solution. For a refresher on project management and project scoping, see past columns online at that deal with these topics.

Define Objectives for the Business Relationship
As with every project, you must have clearly defined expectations. You should avoid any relationship with a service provider without clearly defined and measurable objectives. Having a provider coming into your network with the vague objective of “take over the help-desk function” will leave you open to a variety of disasters, including slow response times, angry customers and lost revenue. A service-level agreement is a requirement in defining the business relationship. It will define your expectations when it comes to the size of the team supporting your account, their response time to any issue, their escalation process, issue resolution time frame, acceptable downtime and maintenance times. These are just a few of the things you’ll want included in your contract. It’s practical to define your own expectations prior to meeting with vendors. Their responses may surprise you.

Reviewing Vendors
It is very important to develop criteria for evaluating vendors. Some of the natural things to include are reputation, overall market share in that service area, experience in your line of business, if possible, and references. You should determine your criteria ahead of time and evaluate each vendor against the same criteria. Organize the information that you collect in a manner that helps you make an objective selection and, very importantly, involve others in the decision-making process. It is critical to ensure that you receive consensus from the members of the evaluation team. If they have issues, find out what they are and address them promptly.

Managing Your Own Expectations
It is particularly important to enter this process with eyes wide open. In most situations, outsourced solutions will not be like having someone right down the hall. Slowdowns in response time, frequent personnel changes, slow communication and lack of understanding the needs of the organization are realities, especially early on in the relationship. You must keep these in mind before pulling your hair out and firing your contractors on the spot. It can get even worse when you’re dependent on outsourced providers to communicate with one another. A formalized project management system will help mitigate these occurrences. It’s also the reason why mission-critical applications should not be outsourced. These mission-critical apps that only your organization has the competency to manage are what you should keep in-house.

You should also consider the role of outsourced solutions in your long-term IT planning. You certainly don’t want to be left behind the times by failing to consider workstation and server upgrades, infrastructure upgrades and integration of systems. Just because you’re not managing them on a day-to-day basis doesn’t mean that you don’t have to think about how to use technology to stay competitive.

Making the Move
The piece that is often forgotten in the move to an outsourced solution is the people. How often should you communicate with the employees who will be impacted by the move? Do you let them in on the consideration of moving to an outsourced solution? What happens to these employees when you do decide to outsource? Communication is key throughout this process.

When Xerox’s CIO Patricia Wallington decided to outsource all IT operations to EDS in 1994, she decided it was important to let people within her organization know what was under consideration. Many regarded this a bold move. It was the right thing to do at the time because of the possible negative impact on employee morale.

The more communication, the better, especially as it pertains to the impact on employees’ careers and financial stability. At the end of Xerox’s decision, the majority of the IT employees actually ended up working for EDS and did not lose their jobs. And along with them went the knowledge of Xerox’s systems.

Summing Up
You may not be asked to outsource your entire department, but at some point over the next year you may have to contract your help desk, augment your development team or outsource off-hours support. It will be your job to ensure that it’s the right thing to do.

Paula Moreira is vice president of e-learning for New Horizons Computer Learning Centers Inc., the world’s largest computer training company. Paula is also author of “Ace the IT Resume” and “Ace the IT Job Interview” (McGraw Hill).


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