While virtually every business now relies on information technology (IT) to
help provide services or deliver products to the marketplace, things have rarely
been more precarious for in-house IT professionals. This is so despite the
conventional wisdom that IT is acknowledged to be more strategic than ever.



Increased market competition, more demanding customers, tighter margins and
shorter product life cycles have caused businesses to examine where they may be
able to focus better on core competencies, reduce risk and costs, and become
more agile and competitive. For many companies and small businesses in across
all industry segments, outsourcing IT is one answer.



Outsourcing lowers operating costs, eliminates backlogs, improves data input
quality, production and document availability. And, in the end, outsourcing adds
profits to the bottom line.



But outsourcing is far from a panacea. How an outsourcing relationship is
managed – internally and externally – is as important to its ultimate success as
the execution of the outsourced tasks themselves. Given that industry analyst
Gartner recently reported that outsourcing can trigger an employee backlash,
what do organizations need to know to make outsourcing a win-win for all
concerned? How can companies best manage the firm they have just retained? What
project management issues does outsourcing solve, and what challenges does it
entail?



Outsourcing on Paper: Cost-Effective, Valuable, Efficient



Outsourcing IT isn’t only (or even primarily) about costs. In terms of hard
dollars, outsourcing isn’t always a decisive win over the in-house approach,
although it usually is. The real advantages can be seen in the “soft gains” that
accrue -- the opportunity costs of not having to reinvent the wheel, and the
efficiencies that arise when enlisting a company that specializes in doing the
heavy lifting of IT.



Quality is an issue as well. In the hosting market, for instance, a company
could hire five system administrators to run their network in-house, and find
the collective wisdom limited to the specific experiences of that small team.
When a third party assumes control of servers and infrastructure, that firm
brings real world experience, gleaned from facing an array of problems across a
diverse customer base. Dynamic learning occurs more rapidly because the
outsourcing firm is simply in a better position to benefit from -– and propagate
-- “best of breed” practices.



Managing and retaining IT staff is challenging enough in prosperous times; in a
down economy, the challenges intensify – and the management responsibilities in
outsourcing likewise increase. Keeping IT staff motivated, focused and
incentivized is perhaps the most formidable challenge. If an organization’s IT
return on investment is on the order of 20-30 percent, reinvention and
retraining are apt to be continuous. Accordingly, whether the market is up or
down, the case for outsourcing persists. By contrast, if the organization has
kept IT entirely in-house, it becomes considerably harder to double, triple or
even cut staff, should the need arise. An outsourcing relationship ensures a
constant pool of talent.



Outsourcers are occasionally brought in to “clean up” unfinished business left
by in-house teams that, for whatever reason, didn’t see a project through to
completion. It is always difficult for organizations to have to cut staff or
downsize IT operations, especially for professionals who are accustomed to
bigger budgets year after year. And when the mandate comes down from the CEO or
whomever that IT budgets aren’t going up -- and the only way the company is
going to make its numbers is let to go of some of its people –- doubt looms
large. That is the environment in which the quality of the management of
outsourced relationships makes all the difference.



Outsourcing tends to occur in waves. Even during those periods when outsourcing
is relatively less in vogue, many organizations still elect to outsource
non-core functions. The hot topic right now is offshore vs. onshore outsourcing,
but overall, the ebb and flow is modest. Outsourcing isn’t trendy; indeed, when
factoring in the earnings of public companies engaged in IT sourcing, outsourced
IT represents a highly stable segment of the economy. Against this backdrop –
and with an eye toward making the relationship between the outsourcing firm and
its client organization productive for all concerned – it’s necessary to lay
down a few rules.



Rule #1: Get Internal Buy-In.



Let’s face facts: effective IT outsourcing usually means layoffs –- and it can
change the jobs of some of those who remain. If an outsourcing firm is brought
in to displace existing IT staff, internal buy-in must occur well before the
decision is made to bring in that third party. Management must know (and
intelligently communicate) that headcount will be reduced by so many, and that a
plan of action exists to ensure that these cuts, however painful to those
involved, ultimately boost the organization.



The best route to obtaining internal buy-in is to move incrementally. Outsource
those projects linked to marginal products, rather than to strategic ones.
Create an environment where the third party complements existing staff rather
than replacing them outright. Doing so can help promote a sense, over time, that
internal staff can be deployed somewhere else -- or even let go. The more
strategic the project is, of course, the greater the political heat; the less
strategic, the easier it is to get that buy-in for outsourcing.



Rule #2: Go Beyond Buy-in to General Consensus.



“Buy-in” suggests a passive kind of acceptance. Effective management of
outsourced relationships strives to go a step or two beyond. When the outsourcer
arrives on the scene, a residue of resentment or lack of understanding
frequently follows. The key to defusing that resentment is transparency on the
outsourcer’s part, in terms of both its operations and the organization’s goals.
When all parties can view how the outsourcer works –- through a portal product
or some other mechanism -- it immediately becomes less likely that signals will
get crossed and consensus may be within reach.



While it’s helpful for the outsourcer to embrace a new assignment with
enthusiasm, that energy isn’t always enough to counter the feeling among some
that this new third party poses a threat. If management is savvy enough to know
that some resentment is inevitable, gentle prodding of recalcitrant IT staff
members toward a positive outcome can be decisive.



Rule #3: Counter Backlash With Education.



Employee backlash is often manifested in passive-aggressive ways -– not sharing
immediate deadlines or the full scope of the assignment with the outsourcer, for
example, thereby triggering talk that the outsourcer isn’t delivering on the
promise. Education is an effective antidote to situations where the ground
hasn’t been cleared as well as it should have been in advance, and can reverse
uncertainty, ambivalence and even downright hostility.



Situations occasionally occur when those new to outsourcing approach the
outsourcer with assumptions that don’t turn out to be well-grounded. This
pattern was chronic during the dot.com era, where companies were built overnight
and needed to tap a huge skill base at a moment’s notice. In some cases,
managers themselves were new to the outsourcing process. Demands for instant
response were complicated by requirements that armies of internal IT staff also
be involved the process – hardly a recipe for mutual success.



Education should begin during the sales cycle. Determine how educated the
organization is on the outsourcing process and see if they’ve done it before. It
always helps make our lives a bit easier in terms of fulfillment of the service
later on. The more knowledgeable they are on how to manage this relationship the
more successful it is going to be.



Rule #4: Communicate -- To Avoid Asserting Control.




Companies win with complete communication. In outsourcing, communication’s twin
is control – and the perception of control. It is vital that the outsourcer
never seize control from the customer (or appear to do so) because that is when
complications arise. Maintaining open lines of communication so that the
customer feels he or she is still in control -- and having a portal-type product
that provides a complete window into the operation –- is vital to securing a
strong, stable relationship. At the end of the day, a client who feels in the
dark may well assume the outsourcer isn’t fully on the case.



Rules #5: Clarify Roles, and Stick to Them.



In today’s market, most organizations have tried various outsourcers, with
varying degrees of success. Because not every encounter is a positive one,
companies often have their defenses up, and it’s not unusual for hurdles to
exist at the outset –- even in a fresh relationship that isn’t immediately
leading to job loss. In that environment, the very best way to overcome these
hurdles is to emphasize the (non-threatening) partner role: that the outsourcer
is more of an offshoot of the IT department than an adversary or replacement.
The consistent goal is to make it easier for IT managers and IT staff to do what
they must do to meet the business’s needs. The outsourcer’s key function is not
just to affect head count; it’s to help the organization improve upon the
services it could obtain internally at a given budget level.



Rule #6: Learn and Apply Patience.



It typically takes about three months before both sides in a relationship are
fully comfortable with one another and truly understand mutual expectations.
Even for outsourcers with well-defined processes, writing that custom playbook
takes a bit of time. Patience invariably fosters teamwork, and avoids common
laments (e.g., “I’m opening a trouble ticket with so and so, and who knows when
they’re going get to it?”) that can afflict outsourcing relationships. Once the
mutual discovery phase is over, it’s time to for everyone to get comfortable
with how things are going. At that point, however, if the comfort level isn’t
there, for any reason, it’s an optimum time for management on both sides to
examine why.



Rule #7: Impose and Enforce Structure.



In order to have a successful outsourcing engagement, companies need clear,
concrete goals. A goal shouldn’t be something vague (like, “we want to get our
IT outsourced”), it should be as concrete as, “we offered our exchange server
hosting to this company and we will make sure that service availability is 99.9
percent or greater.” To hit that goal, organize formal, frequent meetings (even
twice a week) until everyone knows what the milestones and the deadlines are.
After the first few months, once a decent product or service is up and running,
it’s less important to adhere to a rigid structure around deliverables. Weekly
meetings, with an overview of outstanding items, new items, upcoming items,
etc., should suffice.



Management has a major role to play here. Prior to bringing in an outsourcer,
some organizations find that IT staff has been sitting around doing very little,
if anything. That isn’t because there is nothing to do -– it’s because
management hasn’t said, “here’s the IT project, here are the goals we have,
here’s what we have to do, here’s what will help us strategically.” Because
these edicts are not handed down, no one has been clear on the mandate. In an
outsourcing relationship, by contrast, there tends to be a great deal more
specificity because hard dollars are leaving the company. The best discovery
meetings address budget issues head on; the charge then becomes to determine
exactly what the organization wants from its investment. What is the goal? What
is the value to the organization? What’s to come out of this? These are the
kinds of questions that make for smoother relationships.



Rule#8: Keep the Humanity in the Equation (then, re-read Rules
#1-#7).



In the end, outsourcing is a human business. Emotions do come into play, since
jobs are ultimately at stake. Keeping that big picture in mind, have a clear-cut
goal for what the relationship is going to be. Identify and maintain a single,
designated point of contact who is tasked with managing the outsourcer; don’t
have six contact people, and don’t let management responsibilities stray from
the IT realm to other departments. Have weekly review meetings with the
outsourcer to make sure that goals are being hit; don’t assume that the
outsourcer is doing its job.



Ask for feedback from the outsourcer; use this seasoned third party as a live,
informal auditing arm. Ask for ideas about recommended internal improvements.
(Side benefit: if the outsourcer doesn’t offer input, that in itself may be a
red flag.) Good outsourcers will always find issues, because the nature of the
business is to gain an intricate look into internal operations. If the
outsourcing relationship is on a solid footing and the outsourcer is on its
game, the firm’s best practices will come into play. That, in turn, should
provide ample comfort to everyone involved -- and retire the backlash in the
process.

By Suresh Srinivasan

Suresh Srinivasan is president and co-founder of BroadSpire (www.broadspire.com),
an IT managed services provider in Los Angeles.

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