's Guide to Successful Outsourcing">

A CIO's Guide to Successful Outsourcing

Assess the culture of your outsourcing partner. This is usually the single biggest reason outsourcing deals fail to achieve their full potential. At the end of the day, it's all about people, not technology or processes. If you can't trust the outsourcer's people—or they can't trust yours—no proprietary project-management methodologies, cool technology or management support will help. Be sure that your culture and your partner's culture mesh.

Pick an outsourcing partner with a strong partner network. Outsourcing, particularly for customer-facing and supplier-facing applications, has become so complex today that even outsourcing giants like EDS and IBM can't do it all on their own. Superior subcontractors for technologies, services and support skills can make or break an engagement, so ask who they work with, how long they've worked together and on what kinds of deals. (Tip: Ask your product vendors who they partner with and why. Ask them which prime contractors are the best "managers.")

Don't be a guinea pig. One of the most important assets of an outsourcing company is its knowledge of your market. So, if you're in the health care field, be suspicious of any potential partner that can't tell the difference between an HMO and HBO. If they haven't done work in your industry before but you still like the company for whatever reason, at least be realistic in understanding that they'll have a much longer learning curve.

Ask for and check those references. But do not merely call them and do a phone interview. Get out of your office and into their shop—see the outsourcer's work in practice. Remember, they're trying to sell you, so they'll put their prior engagements and customer satisfaction in the best possible light. (Tip: Check out some of the customers who the outsourcing company doesn't give you. You can do a little research on that by reading industry publications, Web sites and market-research reports on deals that go down between the outsourcing company and its customers.)

Don't just get executive buy-in—get their sponsorship. It's one thing to have the CEO and the board green-light your project and allocate the funding. Remember that things change, including financial conditions, corporate priorities—even board members. Having your CEO, CFO or key board members actively promoting your project and sharing your vision is essential. Build coalitions early, and reinforce them often.

Don't be cheap. Translation: Don't be blinded by low bidders. After all, rarely is cost-reduction the primary goal of an outsourcing project, unless you're looking to clean up your balance sheet by taking IT assets off your books. And even then, you still want superior service and support, uninterrupted data availability and ironclad security—qualities not exactly compatible with the term "lowest bidder."

Open the kimono as much as possible. Until recently, the single biggest reason companies have been loathe to outsource mission-critical applications is fear of their corporate secrets falling into the wrong hands, even through inadvertent means. But again, think about why you're outsourcing in the first place. Is it to implement a limited-scope project, like applications development or network infrastructure build-out, or is it to develop new revenue streams, enhance your customer satisfaction or improve your competitiveness? If it's the latter, your outsourcing partner will need to know as much as possible about your strengths, weaknesses, corporate goals, competitive set, customers, suppliers and corporate culture.

Get it in writing. Specifically, you'll need well-defined contracts, service-level agreements and non-disclosure agreements. If you're like the American public at large, the idea of having lawyers in your IT planning probably is about as inviting as a root canal, but this is one place where lawyers are an essential player. (Tip: Unless you're a very large company with a significant in-house legal staff and you've done outsourcing in the past, don't just assume your in-house counsel can handle this. Get a specialist; this is a hot special practice in the legal profession, and there are more and more outside firms who know how to write SLAs and other documents that will protect your company.)

Evaluate multiple options—both suppliers and approaches. Don't just go with the outsourcer your CEO's golfing buddy used when his company went down that road. Even though your company's application might be sensitive enough that you won't want to publicly advertise it via a formal RFP, you should go out of your way to get proposals from at least two, and ideally three, viable companies. (Tip: Again, since you'll need to share potentially sensitive information, have your lawyers draw up NDAs for companies participating in this process.)

Metrics matter. Your CEO and the board will want some proof that this mulitmillion-dollar investment is, in fact, yielding dividends. However, keep in mind what you're measuring, if it's measurable, and if the measurements can be a realistic appraisal of the outsourcing project. For instance, if your goal is to achieve a 20 percent increase in customer satisfaction measured on an annual customer survey, don't blame the outsourcing project for failing to meet that goal if your sales organization turns over every six months. —M.P.

This article was originally published on 05-01-2001
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