Outsourcing, off-shoring, call it what you will, it’s been with us long enough that you’d think that the rules for how to do it correctly would be well known, right? It turns out that this isn’t always the case.
The current down economy is probably going to have most IT shops looking for ways to further trim costs and, of course, outsourcing MORE will be an attractive option. Geraldine Fox and Nigel Hughes work over at Compass and they’ve got a few words of caution for the rest of us when it comes time to consider IT outsourcing.
It’s all too easy to do this stuff the wrong way…
Skip The Planning, Dive Right In:
This is how all to many firms approach the outsourcing of their IT operations. All too often, firms view outsourcing as an opportunity to simply replace their expensive onshore headcount with less expensive offshore staff.
This view is not only short sighted, but just flat out wrong as lots and lots of firms discovered during the first wave of outsourcing in the 1990’s. It takes time and lots of planning in order to move IT functions from inside the firm to an outsourcing shop. Once they are there, you’re going to need more management resources than you have right now in order to stay on top of how the work is going.
“Lift & Shift”:
Many firms attempt to just pick up their existing IT operations and move them over to the outsourcing operation hoping that lower salaries there will automatically deliver the savings that they are looking for. What’s missing from this thinking is the simple fact that it will always take MORE people at the outsourcer to do the same job.
A good rule of thumb is to expect a 15% increase in headcount. Sure, you can probably move your ineffective IT operations offshore and experience some immediate short-term savings. However, very quickly these will vanish as outsourcing salaries continue to go up and staff turnover rates range annually from 25%-80%.
Out Of Sight, Out Of Mind:
Just dropping the work off and then not paying any attention to the people who are now doing the work is a clear recipe for disaster. Your firm is going to have to take on a whole new set of responsibilities.
These will include retaining outsource staff, investing in outsourced resources (training, orientation, retention), and making sure that they have a clear career path. Oh, and by the way, you had better be doing all of these things for your onshore / in-house staff or else they will become very jealous very quickly!
More, More, More:
One well known reality of outsourcing is that that productivity will drop. This means that it’s going to take more bodies to accomplish the same task. When you couple this with a high rate of turnover, you can pretty much wave goodbye to any outsourcing cost savings that you were counting on.
Smart firms realize that the solution to low productivity is not to throw more bodies at the problem; instead, you need to work with the outsourcer to fix the productivity problem at its source.
Everyone Else Is Not Doing Better At This Than You Are
No matter what your competition may be telling the press, don’t worry. No firms are really seeing monster discounts because of their outsourcing efforts. Many firms claim that they are achieving 40% cost saving when the reality is that at best they really are seeing cost savings in the 20% range.
Hold Those Horses:
When you decide to outsource more of your IT operations, keep in mind that this will have a major impact on your firm. Companies don’t do a good job of dealing with change and outsourcing part of your internal processes most definitely is change. Take some time to create the right mix of in-house and outsourced operations and then use a measured approach to implement it.
It Takes Two To Tango:
There is always the possibility that an oursourcing effort won’t work out. If this happens, you need to realize that both your firm and the oursourcer are to blame.
Don’t waste everyone’s time pointing fingers at the oursourcer and expecting them to fix everything. Instead, acknowledge your part in creating the problem and then sit down with the outsourcer and get to work finding a way to fix it.
Has your firm already started to use outsourcing firms to perform IT operations? How has it gone so far? What is the most important thing that you know now that you didn’t know when you started outsourcing? Leave me a comment and let me know what you are thinking.