Outsourcing 2003: How Well Are You Managing Your Partners?

By CIOinsight  |  Posted 11-01-2003

Outsourcing 2003: How Well Are You Managing Your Partners?

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  • 70% of CIOs say their companies currently outsource some IT function or application
  • 80% say their company outsources as much or more than two years ago
  • 55% say their primary outsourcing motivation is lack of internal resources
  • 28% plan to use an offshore outsourcer next year

    Outsourcing IT is now commonplace—even strategic IT functions and applications are fair game for many of our 663 respondents. On the surface, successful experiences with outsourcing have much to do with its popularity, since no more than 25 percent of IT executives expressed dissatisfaction with their vendors. But our survey did uncover signs of trouble: Nearly half reported problems with their outsourcing partners, so the high satisfaction ratings may hide low expectations. It also suggests that many companies lack the skills to manage vendors well, especially since lack of resources and expertise were the top reasons for outsourcing. Meanwhile, outsourcing remains a sore point with IT staffs, particularly at large companies, where fear of losing jobs to outsourcing is causing considerable disruption. Keeping outsourcing from undermining morale could be a bigger challenge for CIOs than most seem to think. The key outsourcing issue today is not whether to outsource, but what to outsource and how to manage both the vendors and the remaining IT staff.

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    What's the Secret of Outsourcing Success?

    Steve Lucas considers himself an optimist, but he doesn't have very positive feelings about outsourcers. The CIO of the not-for-profit Leukemia and Lymphoma Society has had too many run-ins with vendors promising the moon and then failing to deliver. "No question, it's been a real disappointment," he says. "Account reps just want to show up and get you to sign a contract and make a big commission. They don't even keep appointments on the sales side. And forget it on the service side. I feel some days like I am in existence for them, they're not in existence for me."

    This month's CIO Insight outsourcing survey isn't quite so bleak, but it does confirm that outsourcing continues to elicit mixed reactions from CIOs. No individual IT application or function scores lower than 75 percent in satisfaction. Yet half the respondents admit to having problems with their outsourcers, with "quality" topping the list of trouble spots.

    That hasn't slowed down the movement to outsourcing, however: Just 23 percent of respondents said they don't plan to outsource anything in 2004. Given the popularity of outsourcing, what do CIOs need to do to make sure they get what they pay for? First, make sure you know what you want. Second, make sure you communicate your needs clearly in contracts and service level agreements. And most important, manage, manage, manage.

    CIOs say they frequently aren't getting what they expected from their outsourcers. But all too often it's not because the vendor isn't delivering as promised—it's because CIOs don't really know what they want. At oil services giant SchlumbergerSema, Mary Stanhope, general manager of telecom products, was looking to outsource the company's IT help desk in hopes of cutting costs. But because the company hadn't specifically mapped out what it wanted, such as consolidating servers and looking at new ways to handle phone calls, "it was a rough start," she says. Indeed, until SchlumbergerSema renegotiated the contract after the first year, it spent more than it would have if it had kept the help desk in-house. "My first word of advice: Make sure you know what you want," Stanhope says.

    According to Gartner analyst Lorrie Scardino, CIOs often neglect to do the research needed to understand what services they really need from a third party. "Lack of adequate baselines going into an outsourcing deal is a very common mistake," says Scardino. "Take data center outsourcing. Without adequate benchmarks of the current service levels and the levels expected from the outsourcer, the deal tends to focus on cutting costs. But the company may have further expectations, and those aren't included as part of the deal structure." The result, says Scardino: The company feels it's getting subpar service.

    To avoid this, make sure you detail your company's needs in a carefully thought-out contract that ties service levels to penalties and incentives. Scardino says there are two levels to SLAs: the technical nuts and bolts that tie the IT services together, and a further framework for tying those service levels to the business. "Often, the IT shop and the outsourcer believe they are doing a good job in meeting service levels, yet business units are frustrated because they feel they are not getting good service," she says. "The business units want applications to be available when they need them. They want to know how much it's going to cost to make a change, and how long it's going to take."

    Not even an ironclad SLA will save you if you don't manage the process, notes Lucas of the Leukemia Society. "These outsourcers say they have this or that special management process, but it's their methodology, their view of the world, and they don't walk around to the other side of the table." To make sure his goals are met, Lucas often brings outsourcing staff in-house, where they can be managed directly.

    SchlumbergerSema's Stanhope requires outsourcers to undergo the same reporting methodology as in-house projects to make sure they are being completed on time and on budget. "We expect status reports, and we work through a standard set of metrics that we get monthly," she says. For the help desk, for example, reports include details on the number of calls per site, frequency and severity of incidents, and average time to resolve.

    Here's the key: Just because you're outsourcing a project doesn't mean it's no longer your responsibility. "Outsourcers don't perform magic," says Bill Shickolovich, CIO for Tufts-New England Medical Center. "People think outsourcers are going to wave a magic wand and make problems go away, but they're not. At the end of the day, it comes down to which organization you feel comfortable doing business with, because these are the people you are going to have to work with and manage every day. If they're not interested in your success, you're setting yourself up for failure."

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