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May 25, 2007

Save Your Failed Outsourcing Initiative (or make sure it’s not doomed from the start!)

Boris By Boris Pevzner

Over the last few years outsourcing has become a popular answer when the topic of IT cost cutting comes up (as it often does), but in my experience speaking with numerous CIOs in many of the world’s leading organizations, it is rarely ever as effective an answer as it may seem at first glance. In fact, according to a CIO magazine article, the failure rate is anywhere from 40%-70%.

Many outsourcing initiatives are destined to fail because the demand for IT services is not well controlled or accurately forecasted at the organizational level. Most outsourcing is structured so that all new (“out of scope”) services are charged on a “per drink” basis. This means that while the spend for “in scope” services may go down, the total IT costs go up over time because of the uncontrolled “out-of-scope” spend.

Knowing what we know now about why it fails, how do we then approach an outsourcing initiative without having to navigate all of the guesswork that comes along with it? And once an outsourcer is in place, how can you ensure seamless service delivery for your customers, and how do you make sure you’re getting what you paid for?

For many reasons, a comprehensive Service Portfolio, including integrated Financial Management and Demand Planning capabilities and a requestable, customer-facing Service Catalog, is the answer:

  • Financing Transparency and Benchmarking around Services: Makes it clear which service lines should be outsourced and which should be retained
  • Demand management: Publishing choices at different price points in your Service Catalog enables an organization to control business demand for IT services before it gets into the outsourcer’s work stream
  • Customer satisfaction: Provides a single place that communicates what services IT delivers to internal customers, regardless of which vendor is actually doing the work
  • Seamless Fulfillment: Allows coordination among multiple outsourcers participating in service fulfillment, which is particularly important in a multi-vendor outsourced environment
  • Vendor Management: Tracks SLAs associated with outsourcer contracts and reports back on when agreements weren’t met.

Simply put, before you approach any outsourcing initiative you should know what you need now, what you will need in the future, and how much it costs to deliver what you need internally. You are then empowered to either negotiate a contract with an outsourcer that will meet your needs (and make sure they deliver to it), or keep the service in house with the knowledge that you are able to provide the service better, faster, and cheaper.

So, if outsourcing is on the roadmap for your organization, take the guesswork out by getting help from industry experts like my team at Lontra in implementing a strategic Service Portfolio and be sure you’re not jumping in blind.

Posted on May 25, 2007 | Permalink

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