Outsourcing, getting the basics right

Outsourcing, getting the basics right

The projected growth for companies outsourcing all or component parts of their IT Service Delivery on a global scale over the next five years is unprecedented. Many have entered into outsourced agreements for the first time recently, while others are just about to take this step.

We are working with several companies to help them enter into outsourced agreements that will enable their goals to be achieved, so have decided to prepare this short article that discusses the key things to consider when moving to an outsourced model.

The pros and the cons

It is important to weigh up the pros and cons of outsourcing before committing to it.

There are several potential benefits. With the rise in cloud computing, changing customer needs, and an abundance of new technologies and delivery methods, many companies want to outsource their IT Service Delivery to the `professionals`. This will free them up to concentrate on what they do best, be that insurance, retail, logistics, hospitality, or whatever their specialism is. Outsourcing enables companies to tap into expertise that they could not dream of developing internally, with the ability to get cheaper costs through an outsourced model.

As with everything, you cannot have your cake and eat it. Yes, all the above are potential benefits but there are dis-advantages that you must be sure you can live with. When you outsource IT Service Delivery to an external partner, you automatically lose control, and the ability to make quick decisions. You will have to live within the boundaries of a contract. We mentioned in the previous paragraph that outsourcing can bring cost reductions, but if you do not get it right it can also bring large cost overheads. Profit is always in the equation, as your outsourced partner like any other commercial business needs to make money. This means that if the outsourcer needs to do something that varies from the norm of the contract, or the norm of their delivery model, there is a high chance that you will have to pay a high price for the privilege. Lastly, adding to a loss of control, you must be sure that your company can work around a reduction in flexibility. When IT Service Delivery is an in-house function, you can make changes quickly if business needs dictate this. When you operate in an outsourced model, you will not be able to change as quickly as you could previously, as you will need to agree an amendment to the service being provided.

Contract structure

If you have made the decision to move to an outsourced model and decided that the pros outweigh the cons, the next key thing is to make sure that the contract is clear for both parties and that every foreseeable eventuality is catered for. Every contract is slightly different, but the basics are the same and these are some of the things you need to look out for.

  • Service description

This is usually the first thing in the contract and lays out `who is doing what`. The detail of the services being provided are included here, what the client will retain, and the roles and responsibilities of both parties. If this is clear and understood, you are off to a positive start.

There will also be a sub section or follow up section describing how the service will be transferred to the outsourcer and the roles and responsibilities of both parties in this.

  • Service levels and reviews

This is the crux of a successful agreement, as it sets out the minimum standards of Service Delivery. Availability, response and restoration times, locations, and minimum staffing levels/headcount will be provided and documented in here. Also, all financial information will be presented, including costs, payment schedules and clauses, and the process for terminating the agreement. The value of fully understanding all the above cannot be understated, as otherwise you could get into a to-and-fro with your supplier when the agreement goes live, about what they are and are not responsible for, and what falls outside of the standard agreement.

Understanding the level of service

A key reason why outsourced agreements do not always deliver value and can end up being costly, is that the client does not fully understand what the contract means in relation to the level of service and the implications of this. This often leads to blame being apportioned to the outsourcer when in fact the level of service being delivered is as per the contract. Understanding the level of service you will receive is not only important so you know what to expect, but also so you know what you need to do internally to close any gaps, and the roles that your internal teams will have to play.

Some specific details will include availability of the service, response times, and restoration of service times. This will tell you the figures that will be reported by your outsourcer and the level of data you can expect.

A crucial element of any contract and agreement is setting joint expectations of business impacts. In the case of a service failure or outage, your outsourcer needs to know the criticality of key services to business-as-usual activities. If the outsourcer understands the importance of a critical service they are supporting, then they will understand why service needs to be restored as a priority and the appropriate expectations are set.

Service Requests and Changes to Service

We talked earlier about how entering into an outsourced agreement means that you will have to learn to live within the constraints of a contract, but you also need to understand this process and the implications of changing a service. This can include adaptations to a current service or requesting additional or reduced headcount from your outsourced partner. All of this should be fully documented in the contract, including pre-agreed pricing structures per service, and the process for adding and reducing numbers. Sometimes your outsourced partner may take a flexible approach in certain situations, and therefore it is important to cultivate a solid working partnership which we will come onto shortly.

Assessing performance

Building from the previous section on understanding the level of service to expect, knowing how to assess and appraise performance is of paramount importance. The more constructive and consultative you are with your outsourced partner, the more likely it is that improvements will be made in the right areas.

When looking at availability statistics and your outsourcer’s performance, if you look at when and how outages occur, and restoration times in relation to this, you will be able to see if there are any time-based trends that need to be addressed, so the outsourcer can take the appropriate actions. When are response times slow? When are response times fast? And so on…

Another statistic to look at is restoration or fulfilment time, and the elapsed time from the request being made to the request being fulfilled.

Finally, another key trend to look at on an on-going basis is support calls. Which services are generating the highest number of support calls and how are these being resolved? By asking this question you can decide if the best course of action is on the outsourcer’s side, i.e., providing additional resources for certain call types, or if it is your responsibility to provide your users with internal training.

Nature of the relationship

Many companies enter into strategic outsourced agreements with a dual goal of setting ambitious targets for the outsourcer and then `beating them up` if they do not deliver against these. In our experience, this creates a master-servant relationship between client and outsourcer, with very little in the way of actual alignment between both parties and joint efforts to make the agreement work. There are different approaches you can take to create an effective partnership with your outsourcers, and this will be the subject of our next post.

If you would like to discuss how iCore can help you then contact us on +44 (0) 203 8211252 or email us at info@icore-ltd.com