If the outsourcing evaluation and decision are not on the CEO’s top five list of priorities, a bad decision and failure are highly likely. Senior management must take an active interest in the entire process from identifying the objectives for outsourcing to the ongoing management of the relationship. A decision to outsource or not is ultimately senior management’s responsibility and should not be delegated down the management chain.
Organizations have a better chance of success when senior executives involve themselves and take an active interest. The CEO should:
- Put the best, most capable managers in charge of the outsourcing evaluation and management of the outsourcing relationship. Outsourcing decision-making and management are substantial responsibilities with important consequences in terms of the information that supports an organization’s functioning. Outsourcing requires good people.
- Avoid going around the step-by-step process. Some vendors may encourage by-passing the outsourcing decision making process by going directly to senior managers, who might then be tempted to make outsourcing decisions without adequate analysis and support.
- Engage capable, experienced outsourcing consultants to assist and advise throughout the process. The suppliers have far more experience with outsourcing negotiations, so it is wise to level the playing field.
- Negotiate a sound contract. A good outsourcing contract is clear about what is to be done, who does it, who owns it, who pays, and what happens if it is not done correctly. A good contract should be a win-win arrangement for both parties. But remember that the relationship with a vendor involves more than a contract.
- Consider the key issues when evaluating and negotiating an outsourcing contract. These include:
- defining the business issues, scope, desired results, and metrics;
- defining the change management process and who will be responsible for what. Contracts involve agreeing on a schedule and cost algorithms, and resolving personnel issues;
- specifying how to manage the relationship; and others.
- Encourage ownership of outsourcing at the business unit level. The business units will be the primary users and bill payers. Take-charge business units will manage usage and adjust charges. Moreover, without business unit accountability and cooperation, the IT function will be less than successful, if not an outright failure.
- Identify and involve the Key Stakeholders. Early in the evaluation, identify who will take project management responsibility, perform the analysis, and make the decisions. The persons who should be involved depend on what is to be outsourced and the circumstances surrounding the outsourcing decision.
- Appoint an Executive Sponsor. An executive sponsor or champion is necessary, and in cases that involve organizational politics, an executive sponsor is absolutely critical. For larger outsourcing initiatives, top management must play a key role. For smaller initiatives, middle-level managers might do the heavy lifting with the support of senior management. The team usually needs a mix of managerial and technical talent and representatives from user areas whose services will be directly impacted by outsourcing. User perspectives and objectives are essential for setting scope and assessing risks.
- Identify the relationship management team early in the process. The size of the customer’s team depends on the scope and size of the project, but smaller teams are generally more effective. The team can be small in the planning phase and expanded when analysis begins. Teams with full-time members are often more focused and effective than teams composed of people who work part-time, although full-time allocation may only make sense for big outsourcing projects. It helps tremendously to have persons experienced in outsourcing on the team for the insight they bring to the issues and the realism they bring to cost and benefit estimates. Again, outside consultants are highly recommended.
Once the decision is made to consider outsourcing, identify persons who will be given responsibility for oversight and management of the outsourcing arrangement and vendor relations after the contract is signed. These people should be part of the team that crafts the contract, if possible. Their inclusion is important for several reasons. First, there is no better way to understand the issues involved in outsourcing than to be involved in all aspects leading up to the decision. Second, relationships start at the moment discussion begins. Being on the ground floor and having continuity in the relationship with people in the vendor organization contributes to success.
- Remember, when outsourcing threatens to upset the status quo in an organization-as in instances of outsourcing motivated by high costs or poor performance-it may not be possible to rely on the customer’s internal sources for accurate estimates of internal costs or internal effectiveness. Under these circumstances, use of objective third parties may be necessary to accurately assess internal costs and effectiveness.
- Revisit the outsourcing decision from time-to-time to see that it still makes sense. Changes in business conditions or changes in technology can change the benefits, costs, and risks of outsourcing.
Senior managers must not abdicate responsibility for outsourcing results. Delegate responsibility for performing the outsourcing evaluation, but follow up and take the steps necessary to see that the whole effort is undertaken in a way that meets the organization’s outsourcing objectives