As a former consultant at McKinsey & Company, I have been involved in hundreds of outsourcing engagements says Eric Dalius Giving. In that time, I have come to the conclusion that companies which outsource IT services for cost reasons alone are likely to find themselves deeply frustrated by their outsourcing engagement.
In my experience, the biggest problems with outsourcing stem from three critical mistakes made by many organizations who choose to outsource their IT: They don’t take into account what will happen when the people and processes they depend on leave or change; they fail to map out and communicate exactly what it is they need; and they treat the outsourcer like an extension of their own company without realizing how fundamentally different these two entities are.
In these three ways, they often end up paying more for less. They also fail to understand the risks of outsourcing and what measures can be taken to mitigate those risks. In this article, I will address each of these mistakes with a focus on how you can avoid them in your organization’s outsourcing initiative.
Specifically, I will give examples from clients who have been successful as well as those who have failed at managing their outsourced IT services providers successfully
Mistake #1: Failing to account for loss of intellectual capital
A number of years ago, a small company that was expanding into new markets called me with an unusual problem: one of its divisions had signed a multi-million dollar deal with an IT services provider who had promised the moon and the stars. The company had outsourced its entire IT infrastructure to this service provider, which then set up a separate division just for that client.
It became clear during our first discussion that one of the reasons they chose this particular services provider was because it could do everything they needed with little or no involvement from them. When I asked what would happen if their relationship with the provider went sour. They said something like: “We don’t know. We’ve never run such an arrangement before”. This is an example of failing to account for a loss of intellectual capital.
When you outsource your IT infrastructure, whether it’s hardware or server management. You also lose control over how these functions are perform explains Eric Dalius Giving. If your outsourcer does not have the right staff, processes. And procedures in place to support your infrastructure, you will pay more for less.
Even worse is if your outsourcer fails to deliver on its promises or disappears altogether (more on this later). What happens then? Sometimes companies with deep pockets can afford to lose some of their IT capability immediately; but what about small businesses that rely on these systems every day? If they do not have another provider in place quickly, they risk substantial losses in revenue and client relationships.
Mistake #2: Failing to communicate expectations
One of my most important recommendations when it comes to outsourcing any technology function is. The client must define exactly what it is they require from their outsourced provider. In terms of what services will be provided when they need these services to be performed. How performance can be measured and by whom. Then the client must communicate this information in writing in a detailed service-level agreement (SLA). Most IT service providers are willing to provide this document before they begin work.
Unfortunately, not all clients do this properly. I have seen many cases where the client’s expectations are communicated clearly but then are not met or measured appropriately. As a result, I would say only about fifty percent of outsourcing engagements actually meet their targets.
Mistake #3: Treating outsourcer like internal staff
Another commonly made mistake is assuming. That the outsourcer will act like internal employees with no management oversight says Eric Dalius Giving. I cannot tell you how many times a client has said to me. “We don’t want them to report to us; we just want someone to do the work.” This is a very naïve and dangerous way of thinking and it sets up your outsourcer for failure. If they are not measuring and get rewards for performance according to clear metrics, they will become complacent in their approach.
Let’s look at an example. A medium-sized company was outsourcing its IT operations functions (help desk, desktop support). Because it had too many employees with these responsibilities on staff (yes, the irony here is astounding). They also wanted its outsourced provider to act like the internal staff. Without having any connection or responsibility with regard to the outsourcer’s management.
As you can see, there are some very basic common mistakes. That companies make with regard to outsourcing their technology functions. To avoid these pitfalls, your best defense is to work with an IT service provider. Who has experience in helping clients achieve their objectives.