Raising the return on outsourcing

Raising the return on outsourcing

Forrester gives tips on long and happy outsourcing relationships

Vendors gave tips at this year’s Forrester’s Services and Sourcing Forum in Nice on how to raise their return on outsourcing relationships.

Cognizant said the challenge is in preventing outsourcing relationships from turning sour. Malcolm Frank, the firm's vice president of marketing and strategy, gave research supporting the “three or four year itch” pattern, showing that if values are not renewed by the contract’s fourth year, the savings gained from outsourcing overseas tend to disappear.

Stephanie Moore, Forrester vice president and principal analyst, said that outsourcing executives need to be more specific in their requirements so that providers have greater success in developing to the specifications the user wants, especially when dealing with foreign providers because of the cultural barriers. “If IT service managers don’t know what service levels they require, then they probably shouldn’t be in those jobs,” Moore added.

Frank explained the importance of project management and adhering to methodology while in an outsourcing relationship. “Have internal methodologies that you know work inside your organisation and get your outsourcing provider to adhere to those, or you just go to the opposite extreme if the provider is steeped in their own capabilities, methods and approach. What firms should not do is something in the middle because this is where things really going wrong.”

After the requirements are established, Moore said businesses should “focus on outcome-based outsourcing.”

“This means leaving the scorecards, attrition, re-sourcing and cost per head worries to the vendor and just engaging at the level where you can focus on the deliverables,” Moore said. “Vendors then take responsibility for the service level as opposed to just providing bodies.”

“Moving from a staff augmentation relationship to an outcome based relationship is not easy because middle IT managers do not want to give up control. Their job is to give time cards and do rather mundane tasks, not really recognising that their job could be strategic for them. Therefore internal change management is required,” Moore added.

Moore said multi-sourcing is still proving more successful than single sourcing. “The people who do soul sourcing tend to abdicate responsibility for those relationships and so when the deal fails, they say it is the vendors fault.” However instead they should be managing the vendor to success, Moore said.

Moore said organisations need to recognise the importance of the sourcing and vendor management role. “Not only are these folks helping the company to save money but they help to make the companies more competitive and if you look at the money companies are spending on outsourcing, the position of the vendor management expert has been elevated to the highest level because they are managing multi million dollar contracts,” Moore added.

Frank said a key lesson Cognizant learned when it was in outsourcing relationships was the importance of alignment. “It is the soft issues which quite often derail the relationships more than the hard issues.”

Frank pointed to the importance of engaging in diversity workshops to familiarise staff with different cultures and of creating individual relationships at each level “so if issues arise, they can be easily sorted out.”

Online repositories should also be used to ensure knowledge is transferred and “you need to find people who have a good absorptive capabilities,” said Frank.
The Forrester event explained the value of companies developing a sourcing strategy. Alastair Henderson-Begg, Novartis global head of IT sourcing, said it is a “myth” that sourcing strategies should be aligned to an organisation’s business strategy because “sourcing strategies last a long period of time and go through business cycles.” He also advised organisations to build in flexibility into the contract.

“You need the ability to exit contracts whenever you want because events happen…and you can’t have contracts get in the way of business,” Henderson-Begg added.