In the current economic environment, margins are under pressure and Finance Directors continue to demand reductions in operating costs. As the IT Manager, you may be asked to consider the viability and benefits of outsourcing some, or all, of the IT department.
For many IT Managers this seems akin to inviting turkeys to vote in favour of Christmas! For good leaders, however, that is not their starting point.
Start with clear business-driven objectives for outsourcing
Successful IT managers know that their primary duty is to support the activities of the business in the most cost-effective manner. Therefore, when considering the potential value of IT outsourcing to the business, they make sure they are clear about the business goals they are being asked to satisfy.
Cost reduction, alone, is rarely the right basis on which to adopt IT outsourcing (ITO) and there are plenty of horror stories from the last two decades in the UK to support that view.
A good basis for consideration of ITO, would include some or all of the following:
- Flexibility to raise or lower capacity (of any resources) in line with fluctuations in business activity;
- Access to expertise, e.g. to maintain a legacy technology or to introduce a new technology that may only be a niche area for the business;
- Financial engineering, e.g. to move IT-related expenditure to a variable, non-capital cost in the P&L and, possibly, to remove financing liabilities from the balance sheet;
- Reduction of permanent headcount;
- Reduction of operating costs.
If outsourcing is the chosen route, there are a couple of key questions for you to consider as part of the provider selection process.
Do they match your culture and style of doing business?
Any outsourcing arrangement is a long-term commitment (most ITO contracts are for three to five years). The more successful ITO contracts arise where the provider empathises with the client’s business, in addition obviously to providing the required skills, capabilities and commercial offering. Empathy with “how you do business” is more important than simply understanding your market place. For example, if the culture of your company is to drive people hard with little time for the “softer” aspects of people management, then don’t select a provider that does not adopt that approach – or else it will end in tears.
What’s the significance of your contract to their business?
During the procurement process, make sure you understand the customer profile of your potential providers. Successful contracts are more likely to arise when both parties are comfortable about where they sit in relative terms in the other’s business mix.
These factors, together with normal good procurement practices should enable an IT manager to make a confident recommendation on the choice of provider. There are, however, a couple more important elements to handle, internally, if a good contract is to be successfully executed.
Educate the end-users in your business
Regardless of the extent to which the user community is engaged in the procurement process, as the IT manager, you must plan for and communicate extensively and consistently to your business community. Users need to understand what will happen to the delivery of their IT services, why it is being changed and how the contract will operate going forward.
If you set things out clearly and get the contract off to a positive start then, when problems arise along the way (as they inevitably will), your users will be more tolerant and you and your provider will be better placed to recover the situation.
Ensure you have the skills and resources to manage change
Managers of successful ITO contracts build a team with the skills and capacity to manage the changes that inevitably arise with new service delivery arrangements, not just at the start of the contract but throughout its life. As the IT Manager, it is important for you to ensure the service arrangements you have under contract keep pace with the needs of the business. Without the capacity in your team to lead the way then your contract will almost certainly atrophy and you may find yourself subject to your provider’s view on what needs to change and when.
Do not allow the contract to become a “battle-ground”
With the best of preparation and intentions it is still possible that the relationship between customer and provider breaks down. As the IT Manager you are in a privileged position to recognise what is happening, before everyone else and to initiate rapid, appropriate corrective action.
If you find yourself at a loss to decide what is the most appropriate action then seek external help. There are a number of specialist commercial and contract management companies that can assist in such circumstances.
Andrew Hall works for Devant, the specialists in commercial contract development, negotiation and training. Andrew has worked in senior roles at Sema Group, Accenture and EDS, for all of whom he has led the negotiation of major contracts.