Avoiding the pitfalls of outsourcing IT by miv12499


									 Avoiding the pitfalls
 of outsourcing IT
                           Received wisdom on the pros and cons of going for managed IT services is anything
                           but consistent. Antony Adshead examines the issues

                                        s a means of saving money and improving           towards identifying best-of-breed partners for specific
                                        service, outsourcing IT has not got the best      requirements. Also, there is a move towards integrated
                                        of track records. Earlier this year, for exam-    business process and IT outsourcing, as well as integrat-
                                        ple, in what seems to be an annual pro-           ed applications and infrastructure outsourcing.”
                           nouncement, analyst Gartner published research saying              Jon Fuller, operations director at network outsourc-
                           that 50% of all outsourcing contracts signed in the pre-       ing specialist Centrix – which supplies manufacturers
                           vious three years had failed to meet expectations.             like Suzuki and printer maker Kyocera – also notes the
                              Nevertheless, manufacturers continue to outsource           trend to more modular outsourcing. “That’s where serv-
                           some IT functions and the business processes attached          ices are distributed across outsourcers in an attempt to
                           as the drive for efficiency grows. And most do it with         spread risk and build in business continuity,” he says.
                           optimism – a PA Consulting survey earlier this year            “Projects are also becoming smaller and contracts short-
                           found that 100% of outsourcing suppliers cite the chief        er to address the risk of large scale failures.”
                           customer expectation as cutting costs.                             But while these trends are the result of hard lessons
                              But there is a clear disparity between expectation          learned, outsourcing has not become a procure-and-for-
                           and outcome on many outsourcing projects. So, what             get area of IT management. Manufacturers may find
                           are the latest trends and how can you ensure your proj-        themselves with some experience of outsourcing after
                           ect is not one of the staggering 50% that fail?                years of offshoring physical processes, but as supply
                              Until recently, transfers of entire departmental func-      chains become more global they will need to make
                           tions on multi-million pound decade-long contracts             business processes yet more efficient – and there are
                           were common – and headlines telling of outsourcing             still a number of pitfalls for the unwary.
                                                                                              For example, a common failing is not critically exam-
     “Services can be distributed across                                                  ining expectations – and instead effectively ‘outsourc-
                                                                                          ing the problem’. As John Dowthwaite, director at
     outsourcer companies to spread risk”                                                 London-based outsourcer DMW Group, with clients
     Jon Fuller, Centrix                                                                  including BOC, Glaxo SmithKline, Eli Lilly and Pepsico,
                                                                                          says: “Sometimes one of the drivers to outsource is a
                           disaster were often the result. Why? Contracts were too        management belief that the internal IT service is not
                           long, too inflexible and often badly managed. Each of          performing well, and that a specialist IT outsourcer
                           these is a serious problem on its own, but the contracts       must be able to do things better.”
                           agreed were also often an attempt to solve problems                This can result in a decision to speed up the pro-
                           simply by giving them to someone else.                         curement – often with neither the outsourcer nor the
                                                                                          customer understanding what is being outsourced
                                           Jack of all trades?                            before the contract is signed. “Under these circum-
                           Unsurprisingly, where long contracts were once the             stances, there is a risk that the outsourcer will incur sig-
                           order of the day, shorter-term deals are now seen as           nificant additional expenditure, which will inevitably be
                           more prudent as they give more scope for changes to            charged back, undermining any financial benefits of
                           contracts and service provision. Also, gone is the belief      outsourcing,” says Dowthwaite. “A better approach is
                           that outsourcing many functions to one supplier is a           ‘Ideally don’t outsource a problem, but if you must,
                           good thing. As with any area of business there are no          make sure you understand the problem and structure
                           suppliers that can claim to be good jacks of all trades so     the relationship so that there are no nasty surprises’.”
                           a trend now is to engage suppliers that bring ideally              Other pitfalls at this stage include failing to plan
                           matched products, services and skills to the table.            management of the project, in particular the IT and
                              As Sudhir Chaturvedi, associate vice president for          business aspects of the transition to the outsourcer as
                           EMEA with India-based outsourcing giant Infosys, says:         well as ongoing management of the relationship with
                           “Customers are moving away from long-term end-to-              the outsource supplier.
                           end outsourcing deals – and increasingly moving                    Other things to be avoided include trying to out-

30                                                                              Manufacturing Computer Solutions • October 2006 • www.mcsolutions.co.uk
                                                                                                  manufacturing business strategy managed services

                            source too many functions at one time to a single sup-           hand. Consider using a mid-sized outsourcer that is big
                            plier and thus getting locked into contracts that, for           enough to be a stable partner but not too big to weath-
                            whatever reason, may not be flexible enough to                   er the loss of your business.”
                            account for changing circumstances. And there’s the                  When suppliers have been earmarked and you have
                            common error of going for the cheapest supplier.                 some quotes, an assessment of the likely benefits in
                                                                                             financial and service terms should be carried out.
                                                Due diligence                                Another prerequisite to these project tasks is to have a
                            What then, should manufacturers do to ensure their               team capable of managing the relationship. This will
                            project doesn’t become part of some analyst’s grim sur-          become more important as you start to tackle negotia-
                            vey findings? From the start you need to decide your             tions with the outsourcer and then the transition of
                            purpose. Most businesses cite cost, but service improve-         functions to them. Project-based handover is one way of
                            ment is often an aim, and this is effected by handing            doing it that helps you retain control of events, says
                            over the day-to-day running of discrete business                 Fuller. “Divide your functions into smaller projects and
                            processes to a supplier with greater expertise than you.         hand them over one at a time. Only move onto the next
                               A key part of this stage will be to identify whether          project when the current one is successful,” he warns.
                            the areas outlined for outsourcing are appropriate for               Management of the relationship with the out-
                            that treatment. It may not be sensible to outsource              sourcer becomes the prime concern as the project goes
                            processes where your expertise is what gives you the             live. Monitoring of service provision should be ongoing
                            edge in your field, but there will be plenty of other            and measured against clear, agreed service levels.
                            aspects that could profitably be done by suppliers.                  Finally, it’s always wise to keep a supplier on their
                               Whatever you decide to outsource, you must retain             toes and you should ensure that renegotiation of a con-
                            the key levers of the IT element of your business. As            tract is possible. “The outsourcer should always know
                            Infosys’ Chaturvedi says: “Don’t outsource everything –          there is a realistic chance of the service being switched
                            you need to keep strategy and planning in-house. The             to another provider or even brought back internally,”
                            outsourcer can support you as you require specific               says DMW’s Dowthwaite. I
                            capabilities.” And Fuller’s advice: “When it comes to
                            outsourcing, price and quality often come hand in                    Enter 360 at www.mcsolutions.co.uk/enquiry
illustration: Elly Walton

                            Manufacturing Computer Solutions • October 2006 • www.mcsolutions.co.uk                                                      31

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