Outsourcing has been around for more than twenty years and as a result the majority of companies have had some experience of outsourcing as it relates to the benefits, challenges and value propositions it can bring for their business. The most successful ones have recognized that outsourcing is not a one-off IT project, but a long-term journey with many land mines that need to be avoided while executing key initiatives across the enterprise. With this post, I want to emphasize the importance of developing an outsourcing strategy and the main reason that companies look to outsourcing as a business management practice.
Most companies look at an outsourcing initiative as an IT project that needs to get done without determining how this engagement will impact their organization’s financial, operational and personnel processes. Without an outsourcing strategy, the organization may not be focusing on the right mix of processes to be outsourced and won’t receive the full financial or operational benefits that the organization could have received.
We can break down outsourcing strategies into three broad categories that meet different goals:
- Efficiency – the first step in an outsourcing strategy is to achieve cost savings, typically through process efficiencies.
- Enhancement – once cost savings have been realized the next stage is to achieve operational improvements related to business objectives such compliance and meeting availability expectations
- Transformation – business transformation is the end goal for an outsourcing strategy, where an outsourcing relationship is used to drive business performance improvements
Each of these sourcing relationship models requires different management and measurement methods, leading to different deal structures and different impact to the business. In an efficiency deal, for example, metrics and service-level agreements (SLAs) will be tied to cost improvement. In an enhancement deal, metrics will be tied to specific objectives identified in the deal’s business case. In a transformational deal, the service provider is paid for business performance improvement, such as increasing margins, opening access to new customers or helping manage growth.
As you develop your outsourcing strategy, you need to align this initiative to your corporate strategy to ensure that you are focusing on the correct processes and functions to maximize the outsourcing engagements benefits. An effective IT governance model looks at the service provider holistically in regards to the relationship with the outsourcing service provider and the outsourcing initiative. It is imperative that governance be discussed and agreed to from the strategic level down through the operational level. If this isn’t followed, there will be missteps, misalignments and miscommunications throughout the initiative. This includes the management of resources, contracts, relationships, costs and performance.
Look for an outsourcing partner that supports the IT governance approach and that can align to your outsourcing strategy. They should take the time to understand your business challenges and needs, demonstrating a clear expertise to maintain a programmatic approach with proven tools and methodologies that can drive increasing value for your organization.
In summary, outsourcing is about much more than cost savings. When you get the strategy right with the right partner, it’s a journey that can help transform your business
My colleague, Ken Ramoutar recently spoke about business-aligned outsourcing and developed a presentation that I urge you to read. You can also learn about Avanade Outsourcing Services on our website .
This post is part of a blog series by Chas Mullins devoted to uncovering the benefits of outsourcing that touch on strategies and tactics that drive more sales, enhance productivity, increase revenue, and lower business costs.
