Avoiding the pitfalls, reaping the benefits


23 Jul 2007

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Done properly, outsourcing is a powerful business enabler; done badly, it can be a nightmare.

When it comes to adopting new trends and business practices, Ireland tends to be a follower rather than a leader. This is certainly the case with IT outsourcing, which has been stubbornly slow to cultivate a strong following among Irish businesses.

In fact, the landmark, seven-year €500m outsourcing deal between Bank of Ireland and HP back in 2003 is still one of the few examples of full-scale outsourcing in the Irish market.
As a German based in Dublin, Malte Gloth, divisional manager at Siemens IT Solutions & Services, sees a marked contrast between the adoption patterns in his home country and here in Ireland.
“In Germany, outsourcing is not unusual, especially in the financial sector where there are lots of large-scale outsourcing deals and also in sectors such as manufacturing. Ireland is a much more immature outsourcing market. The Bank of Ireland/HP deal was really ahead of its time, although I do think we will see some more outsourcing deals over the coming years.”

What has perhaps made some Irish companies reluctant to outsource is the perceived risk involved. While there certainly are risks, outsourcing providers argue that they are manageable and companies can greatly increase the chances of success if they do their homework first and know what pitfalls to look out for.

Among the cardinal sins, says Gloth, is outsourcing for the wrong reason. “You cannot solve problems in your IT environment by outsourcing them. The business model is about cost saving and focusing on core activities; it is not about solving problems in your service delivery. So resolve any issues you have first and then look for a potential outsourcing provider.”

He also stresses the importance of choosing an outsourcing partner that is culturally a good fit with your own company. Since this is not always easy to judge, it is best to start with a limited engagement and then scale it from there, he says. “It’s a good idea to enter into selective outsourcing or managed services environment first to get to know the provider and then really go into a full-blown outsourcing arrangement if you choose to do so.”

His colleague at Siemens, infrastructure services manager Lorcan Burke, adds that companies sometimes make the mistake of choosing the lowest cost provider. A partner with the right business credentials and good reference sites is much more important, he says.

Taking up the partnership theme, John Staunton, head of outsourcing at Accenture, argues that clients should look for outsourcing providers that not only provide a service but that also add business value through their experience.

“In outsourcing, the best outcome is when you can drive improvements and get a better service. In the Accenture case, we have a lot of the innovation, ideas and best practice that we have been thinking about and doing on the consulting side of our business for many years and outsourcing gives us another opportunity to apply the innovation and process improvements.”

He also sees preparation on the client’s part as a key success factor. “It’s important to think through the reason why you’re outsourcing in the first place. You should also consider the business outcomes you want to achieve from outsourcing. These could be reducing costs, boosting revenue, improving customer service or helping employees do their jobs better.”

Brian Hurley, head of Services at HP, offers the following blueprint for outsourcing success: “Have a sound IT strategy and clear business objectives for outsourcing. Be open about the problems with the vendors. If employees and other suppliers are affected, move communications to the top of the agenda. And allow plenty of time for the preparation and selection process.”

What turns some businesses off the idea of outsourcing is they may feel they lack the business skills to manage the outsourcing process itself. This is especially true of small business. John Purdy, managing director of IT services firm Ergo, says small businesses shouldn’t be daunted by the prospect but should work through a number of logical steps during the outsourcing process.

First, carefully choose an IT partner with the necessary skills and credibility in the area. Second, sit down with them and set out the scope of work required and the objectives. Next, agree a service level agreement (SLA). Lastly, undertake quarterly business review with them to measure actual performance against the SLA and afterwards, set objectives for the next three months.

“Unless you’re doing it in that very structured way you’re going to get a very hit-and-miss result,” he observes, echoing the ‘planning and preparation’ message of many outsourcing providers.

Outsourcing: points to consider

DO

* Have a sound IT strategy before outsourcing

* Set clear targets and objectives before entering an outsourcing deal

* Spend time choosing the right partner – not just the one with the right skills and technologies but which offers a good cultural fit with your company

* Put in place a clear governance model to manage the outsourcing deal – this includes a detailed SLA

* Take a long-term perspective – outsourcing usually yields the greatest benefits if done over a long time frame; it’s not a quick fix.

DON’T

* Think outsourcing will solve problems in your IT department – it won’t

* Go for the cheapest provider – it may be a costly mistake

* Rush into it. Take the time to find the right provider and flesh out the details of the outsourcing arrangement.

By Brian Skelly