Outsourcing: Ensuring that you reap the benefits of IT

It used to be that IT capabilities were a strategic differentiator. IT provided companies with new and unique ways to process business transactions and information. These unique capabilities provided organizations with a competitive advantage that allowed them to leapfrog their peers.

Until recently, the only way to gain the benefits from IT was to "build" these capabilities in-house and from scratch. In order to take full advantage of what IT could offer, organizations had to master the art of developing, operating, and maintaining information systems. Since each organization is different, unique solutions were built to meet those special needs. This, in turn, led to dedicated teams of specialists who developed and operated dedicated complex information systems.

As technology progressed, it became possible for organizations of all sizes to possess these same capabilities. Commercial off the shelf solutions - also known as COTS - have become more powerful and available. Organizations were now able to buy solutions instead of building them. It was no longer necessary to hire specialists to build applications.

Today, IT is more like a utility and is no longer a strategic differentiator. The advent of powerful flexible yet affordable systems has made it possible for even the smallest organization to acquire the same capabilities that only large companies possessed only a few years ago. IT has moved from being a differentiator to being a necessary part of doing business.

The commoditization of IT has transformed the issues facing organizations. Instead of the challenge of acquiring new capabilities, organizations are now faced with the need to manage complex systems and keep up with change. Technology has introduced an era of "hyper change": a time of rapid and increasing rate of change. Organizations need to have the ability to change their infrastructure and resources rapidly in order to keep up with the changing business environment. In addition, the reliance on complex systems to run the business has created the need to ensure that IT systems and applications are available at all times.

If done properly, IT outsourcing can address both the above challenges. By choosing the right outsourcing partner, and negotiating the appropriate terms, an organization can get access to a flexible infrastructure and resources, and at the same time receive consistent and high levels of service.

So, what should you look for in an outsourcing relationship?

The first thing you should look for in an outsourcing partner is their ability to deliver; after all, the whole point of IT outsourcing is to take the burden of managing your systems away from your organization! Their track record and customer references are the obvious indicators. But you should also look at their tools and processes. In particular, examine how they monitor and resolve problems, and how they manage change. Take a look at how they handle their service desk, and what tools and processes they use to accomplish that. Their adoption of international standards and models such as ITIL are also an indicator of their ability to deliver.

You should also make sure that you negotiate an outsourcing agreement that provides you with clear service levels through Service Level Agreements (SLA's). However, choose your SLA's wisely. Understand what systems and applications matter the most to you, and ensure that the SLA's you specify match your business needs. The more guarantees you seek, the more expensive the service becomes.

You should also look for outsourcing partners who have the ability to access a large pool of varied and experienced IT professionals. Access to such a pool of resources gives your organization the ability to bring in the appropriate talent when needed, rather than keep it on the books full-time. When critical problems arise, your outsourcing partner should be able to quickly provide the specialist expertise required.

In addition, as your business changes, and if necessary, your outsourcing partner should be able to quickly identify new team members and assign them to your organization in order to meet your new needs. Without access to a large pool of resources, your organization cannot react to change quickly since it will be limited to retraining existing resources, recruiting what resources it lacks, and terminating resources it no longer needs. All of these are costly and time-consuming activities for management.

Finally, seek a partner that uses a leveraged infrastructure model. When an IT outsourcing partner shares their infrastructure assets across multiple clients, it provides your organization with two additional benefits: flexibility and cost reduction. By sharing infrastructure across multiple clients, capital and operational costs can also be shared and the savings can be passed back to your organization. In addition, shared infrastructures usually mean that the service provider has more capacity than they are providing to you.

This extra capacity can be quickly assigned to your organization as the need arises. In addition, shared infrastructures are normally designed in a modular fashion that allows the service provider to make incremental changes as technology changes.

However, in order to achieve these benefits, initial investments have to be made by your organization. For your outsourcing partner to be able to provide you with the flexibility and guaranteed service we discussed, some fundamental changes may have to take place in your IT organization and infrastructure. For example, your outsourcer may have to upgrade your desktops and servers to meet certain standards. They may also need to implement specific network, security, and backup infrastructures. Although IT outsourcing deals usually provide long term savings, an initial investment is usually required.

The Bottom-Line

Outsourcing can help you become more competitive by ensuring that you get the service you need when you need it. But, you have to pick the right outsourcing partner - one that can deliver, has access to significant resources, uses a shared infrastructure, and provides you with appropriate SLAs. IT Outsourcing can save you money in the long run, but expect to invest a little more up front.