White Paper. SmartStart : Outsourcing 2.0 in Action

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1 SmartStart : Outsourcing 2.0 in Action Process Tools People By Robert E. Gelinas, Technology Executive, Author, and Novelist. 2009

2 Evolution of Outsourcing IT outsourcing has come a long way from the time when it was nearly taboo for companies to share their outsourcing habits, to the time when outsourcing is now discussed as a strategic necessity for some companies to stay in business. Today, outsourcing is a respected business topic considered along with SaaS, cloud, mobility and security; discussed in many forms and classifications such as location (near-shore and off-shore), contract type (traditional, co-sourcing, multi-sourcing, alliance, joint venture, internal sourcing), and attitude (treating service provider as supplier, vendor, strategic partner). While there is no officially documented history of outsourcing, research by Carnegie Mellon defined outsourcing as an evolving and popular management tool: 1960 s time-sharing 1970 s parts of IT operations 1980 s entire IT operations 1990 s alliances 2000 s IT enabled services 2010 s mobile/cloud/standards As outsourcing business models and relationships evolve, not all has been smooth. Based on the Gartner Group s research 1, over half of all companies who outsource portions of their business report having renegotiated a contract for services and in nearly 25% of these cases, the original service provider lost the account. Dun & Bradstreet s Barometer of Global Outsourcing reports 2 that 20%-25% of all outsourcing relationships fail within a two-year period, and 50% of the relationships fail within five years. With outsourcing well established as a business model and many success stories to share, why is it so difficult for some companies engaged in outsourcing to deliver software on time, on budget, and with few or no defects? Why do some companies spend more time changing requirements, rewriting code, and retesting than they do building the software in the first place? The answer is usually due to lack of communication, requirements, and good processes within an outsourcing relationship. While most clients were content with their outsourcing relationships, many continue to voice the desire for a direct, proactive and innovative business partnership, not just a technically competent order taker Forrester Research 4 Lessons from Early Outsourcing Deloitte Consulting LLP research 3 asked an interesting question of the history of outsourcing and related lessons learned: What would companies do differently if they had to re-do their outsourcing initiative? Surprising some, the answer wasn t to go back in time and reassess costs, rather it is a desire to better determine service levels and assure alignment with business goals as the decision to outsource was considered. 2

3 IT professionals have long been standardizing and improving on the premise an ad-hoc approach to software development will not deliver desired results. Today, clients and service providers alike are employing the same improvement processes to outsourcing acknowledging outsourcing is a business model and as such, should be addressed as a strategic element of business. It is more effective for clients to look for a partner who can bring technological solutions to leverage their business, rather than seek a service provider who supplies body-shop resources for unknown business needs. Clients and service providers need to approach market in a very different way: clients need to look at IT services as support for business operations, rather than support of technology. Companies now realize the consequences of not following an in-house approach to outsourcing, instead merely trying to save money and quickly get solutions to the marketplace. For some, early experiments in outsourcing resulted in the waste of money and did not produce quality solutions as hoped. Gartner Group Special Report Many industries acknowledge it is better to buy a mature competency from a good service provider, as opposed to internally building skills and competency to serve ongoing needs. A Gartner Group Special Report titled The Future of Outsourcing and IT Services 5 states: The IT services market is at a tipping point. The status quo won t be able to sustain buyers or providers in the long term. Buyers and providers will need to adopt new delivery models and methods to improve the quality, predictability and value of services. The outsourcing model needs to further evolve to deliver on its promise of greater market efficiency and effectiveness challenges still exist in outsourcing relationships that need to be overcome to create lasting and replicable success. Outsourcing Challenges Researching common challenges associated with outsourcing, issues such as multiple time zones, cultural differences, communication problems, security, and quality are often cited. All are valid concerns of any business relationship. But that s only half the story. Companies who claim success with outsourcing are more likely to have used a self-developed approach to selecting a service provider and managing the business relationship. Success of this kind can be troublesome as it s heavily dependent upon the individuals who created and maintain them. Success is often based on the competency, maturity, attitude, and most important, dedication as held by the individual who championed outsourcing. In other words, success is too often limited to the interest and ability of those involved and less so on the process by which the relationship is founded and managed. The challenge with many outsourcing arrangements is sustaining the relationships beyond the people who created it. This may be a leading cause of why so many outsourcing relationships fail within 2-5 years, as cited earlier in this document. There are too many one-off elements to a single successful relationship and not enough predictable structure to replicate and sustain ongoing success across many engagements, with multiple clients and service providers. 3

4 Unnecessary shortcomings in outsourcing relationships often include simple things such as not assigning stakeholders from either side of the relationship for routine communication and performance monitoring, resulting in unnecessary delays in deliverables and confusion in shared priorities frustrating service providers and leaving outsource clients with the feeling expectations haven t been met. Sometimes there s a faulty communication model between the client and solution provider that affects all levels of an engagement: project, relationship, and strategy. On the project level, project managers from both the client and service provider side of the relationship work with each other on a daily and weekly basis. At the relationship level, there are monthly discussions between mid-management from the service provider and the outsourcing sponsor on the client side to discuss project roadmaps and client satisfaction. Strategy level discussions among top managers are typically held semi-annually, regarding strategy of the outsourcing relationship. These same levels are often used for escalation to resolve issues. A problem with this model of multi-layer communication is not defining each level before the engagement or simply assigning the wrong people to a given level of communication. For example: the service provider s project manager is not able to effectively discuss with the client strategic issues within the outsourcing relationship. Neither the client nor service provider is solely at fault they often both share in the shortcoming of their relationship. The suggested solution is to mature outsourcing relationships, employing similar processes successfully used to improve in-house IT software development. The Future of Outsourcing Many industries now realize individual best practices should be considered, analyzed, and transformed into outsourcing standards everyone can use to succeed. The International Association of Outsourcing Professionals (IAOP) is part of the leadership effort to institutionalize outsourcing, defining outsourcing as a long-term, and results-oriented business relationship with a specialized services provider. Their thought-leading report, Outsourcing Professional Body of Knowledge (OPBOK), is widely available to the public and a good first step to planning and managing IT outsourcing. A common success trait of those engaged in outsourcing is a tightly integrated relationship whereby each partner has a vested interest in the other. The two parties are blurred to act as one. This model of outsourcing can be described as Outsourcing 2.0 a business relationship evolved beyond simple interest in cost reduction to arrive at a whole much stronger than its individual pieces. This model of outsourcing leverages the core competencies of both the client and service provider approaching the engagement with similar goals, but differing in their perspective of the engagement. Future outsourcing success is likely based on both client and service provider sharing focus across key areas of the engagement, but approaching each area of focus from their own worldview and interest in the outsourcing relationship. This approach creates the strength of the relationship beyond each party s individual efforts. Outsourcing 2.0 can be defined through best practices of individual clients and service providers, providing a roadmap to success others can follow. Below are the key considerations of successful outsourcing based on improving communication, requirement definitions, and closely coupled shared interest: 4

5 Outsourcing Outsourcing 2.0 Tactical approach clients use for outsourcing to fix isolated problems without sharing the big picture with the service provider Refers to the outsourcing service provider as the other team Relationship based on serving technology: since the service provider usually is not aware of the big picture or the client`s strategic goals, both companies end up talking about specific technologies and things the service provider needs to deliver Status quo between client and service provider when it comes to managing tasks and deliverables One dimensional analysis and risk assessment of issues between client and service provider no collaborative assessment or shared metrics Strategic approach clients use to identify how outsourcing meets their strategic business goals and objectives seeking a service provider that will partner with them to reach these goals. Approaches outsourcing from the view of finding a partner that offers necessary scalability, skill-set, and expertise Refers to outsourcing team as an extension of client s team Relationship based on serving the business: as strategic partners, both companies analyze business need and brainstorm which technology and solution serves it best Standardized, predicable approach to planning, initiating, executing and maintaining the outsourcing relationship between client and service provider on a strategic level of shared goals and understanding of the big picture Mature risk management of issues on both sides of the business relationship all risks are tracked together and are visible to all stakeholders This Outsourcing 2.0 framework above provides a high-level perspective of outsourcing evolving to a shared experience between client and service provider whereby both entities share risk and act in the interest of the other. The result is a tightly coupled business relationship that allows the client to benefit from the skill-set, experience, and expertise of the service provider they select as a true business partner. The desired outcome is sustainable, profitable, and replicable outsourcing success. SoftServe s SmartStart Taking into consideration the evolution of outsourcing, its challenges, and roots of success, SoftServe concluded from its own experience and expertise that most successful projects begin with the end in 5

6 mind. Most successful companies engaged in outsourcing are looking for: High quality products Small number of defects Positive user experience Complete customer satisfaction In order to achieve the desired objectives above, service providers and clients alike need to go into the project knowing who, what, when, why and how success is to be defined, measured, and sustained. SoftServe has learned, after many successful projects, that when it comes to software development, organizations working with a third-party, especially working on critical projects, need a proven process to start the relationship off right. It was for this very reason, SoftServe created SmartStart. Approaching outsourcing from the dimensions of people, process, and tools, SmartStart consists of three distinct phases, each specifically designed to create a successful engagement and lasting success: The Pre-Project Phase establishes clear goals, objectives, and shared interest fundamental to good communication and successful business relationships. Project Start-Up Phase creates success metrics, risk analysis, and ongoing communication. On-Boarding Phase promotes and assures ongoing success, shared knowledge, and evaluates quality. At the heart of SmartStart is the commitment to three critical elements of successful business relationships process, service and value: Process People Tools Process: A set of processes and services performed at the initial stages of a project that ensures efficiency and a successful collaboration between SoftServe and you. Service: A service that meticulously analyses and defines all that is needed, people, process and tools, and also identifies and reconciles gaps and risks that are essential to a successful end-product. Value: A value-added service that assures project start-up is stable and efficient. The SmartStart client engagement process addresses the challenges too often experienced in poor outsourcing experiences and puts into action a solid framework proven to provide ongoing and replicable success, while reducing risks and barriers to achieving software development goals. 6

7 Conclusion Outsourcing is widely accepted as a proven business model, capable of lasting success. And as with any model of success, outsourcing evolved through decades of refinement brought about by numerous experiments based on price, geography, and levels of trust, commitment, and corporate involvement. Lessons learned from earlier outsourcing models include the need for greater communication, deeper understanding and sharing of a client s strategic needs, and shared risk between client and service provider as true partners in a business relationship. Those companies who share success with outsourcing acknowledge service providers as partners produces the most lasting, predictable, and replicable success. This style of Outsourcing 2.0 is based on improved communication, shared risk, and deeper understanding of both the service provider and client s measurement of success and strategic goals. The SmartStart client engagement process is based on the lessons that support the concept of Outsourcing 2.0 and is proven to increase organizational compatibility and operational functionality, all the while managing risks and removing common barriers to achieving ongoing software development goals. Quite simply, SmartStart is the best route available to ensure the greatest experience in working with a software development partner. If lasting success is a goal of your outsourcing relationships, SmartStart should be considered as a framework to deliver that success time and again. References: 1. Gartner Group, Dataquest s Market Forecast for Business Process Outsourcing (BPO) 2. Dun & Bradstreet, The Barometer of Global Outsourcing 3. Why Settle for Less? Deloitte Consulting 2008 Outsourcing Report, page The Forrester Wave : North American Applications Outsourcing, Q Gartner Special Report The Future of Outsourcing and IT Services SoftServe Inc. US Headquarters University Drive, Suite 410 Fort Myers, FL USA Toll Free: Tel: Fax: Europe Headquarters 52 V. Velykoho St. Lviv, Ukraine Tel: Fax: info@softserveinc.com Web: 7