Ten Things to Consider for Sourcing Success Director of Professional Services IHS Support Solutions
Table of Contents List of Figures 2 List of Figures 1 Understand Your Current Environment 3 2 Understand Your Sourcing Objectives 3 3 Choose the Appropriate Sourcing Option 4 4 Target the Appropriate Service 6 5 Build a Better Contract, Better Partnership 6 6 Prepare for Change 7 7 Build a Successful Relationship 7 8 Cross-Organization Processes 8 9 Transfer Knowledge 8 10 Measurements of Success 9 Success Factors 10 About the Author 11 Figure 1 Outsourcing Options 5 Figure 2 Outsourcing Factors 5 Figure 3 Service Sourcing Strategies 6 Figure 4 Sample Cross-Organization Process Diagram 8 Page 2 of 11
O utsourcing is a challenge. Meta Group reports that 80% of businesses found that their outsourcing arrangements did not match their expectations. Gartner reports that 80% of outsourcing deals are unsuccessful with problems ranging from strained relationships to catastrophic failures and ultimately cancellations of service. And 60% of outsourced organizations encountered business-critical problems, according to Meta Group. 1 In the face of so many public outsourcing problems, why would your organization still choose to outsource services? The outsourcing question is really something that is driven by many different factors. Of course, there is the obvious attraction to a reduction in cost. But with the associated risks, organizations may not always have significant cost savings. So we must make the decision of whether outsourcing is right on more than just cost. To ensure that your organization makes the correct sourcing choice, the following ten rules of sourcing success should be considered. 1 Understand Your Current Environment A successful outsourcing relationship requires an in-depth knowledge of the current level and quality of services that are provided today. Without that knowledge, an organization may buy more or less service than is required to serve its customers. The first mistake can be costly buying more service than an organization needs. And the other mistake can result in the loss of customers due to a decrease in the level of service that is provided. The loss of customers may eventually offset any cost savings derived from the sourced solution, not to mention the damage it can cause to the company s image. An organization also must have an adequate insight into how much the service costs today. Understanding costs will help your organization to understand if the valueproposition of outsourcing makes sense financially. If a service doesn t work today, outsourcing the problem will not solve it. Develop a complete understanding of how the service is provided today and decide to source it for the right reasons, not to get rid of a headache. The best way to understand whether outsourcing is right for you is to really baseline your current operations, over all critical elements (people, processes and tools) and make an informed decision of whether outsourcing is right for you and what sourcing model makes the most sense. 2 Understand Your Sourcing Objectives More Services, Better Services Outsourcing is much more than a cost issue, it can provide your organization with access to proven expertise and capabilities that do not exist in house. Since the outsourcer is focused on the service as their core competency they can dedicate the funds to the constant improvement in skills and technology, and remain on the cutting edge. Page 3 of 11
Outsourcing can provide more flexibility and reliability of service the outsourcer focuses on building redundancy and consistency in the service and the underlying technologies. This transfers the organization s risk to a specialist. Outsourcing allows you to focus your efforts and resources on your core business areas eliminating the need for your organization to become the expert in service or support operations. Cost Savings, Increased Revenues Another objective will be cost savings and greater efficiency of the services that are provided. Outsourcing has the potential of improving the contribution of IT to business performance while freeing up an organization s talent to focus on other business critical IT needs. In some sourcing arrangements, you can also benefit by creating new sources of revenue and profit by providing services to your customers that you do not have the capability to provide in house today. This is especially true when you consider offering services from contact centers to your external customers. And because the outsourcing contract outlines the costs for providing the services, it assists organizations to more effectively manage the financial-side of IT. If your organization needs to reduce overhead including facilities, then sourcing is a consideration to achieve lower overhead. If your business has a need to be scalable, scaling up or down quickly and efficiently, then an outsourced vendor has a much more efficient way to deal with changing customer demand. Customer Satisfaction Will we be able to provide enhanced services? Are our customers going to receive a better service experience? Will it enable us to provide a higher level of service to our customers? Outsourcing should ensure that you can maintain that level of customer satisfaction at a minimum. 3 Choose the Appropriate Sourcing Option Sourcing is a model that provides two choices an in-house or co-located solution, or a solution that exists externally. In Figure 1, we demonstrate the different options. An insourced model delivers a managed service within your organization. This would include such services as help desk, network monitoring or security. Everything outside your organization is then outsourced. This could also be services such as help desk, remote network administration or application hosting. If it is done within the same country, you are then using just a traditional outsourcer to provide your services. If that outsourcer exists outside your country but within the same continent, it is a near-shore sourcing model and then outside that continent it would be an offshore solution. Page 4 of 11
Figure 1 Outsourcing Options When understanding these different models, there are core issues that you need to be aware of that impact the success of a sourcing relationship. These factors are illustrated in Figure 2. The farther away from the company that the solution is hosted, the greater the distance. This impacts the ability to provide an ease of managing the relationship. Distance impacts the ability to build that relationship and time impacts the quality of the relationship. An example would be the need for code changes to an important component of a proprietary application. Something that needs to be fixed now, may not be fixed until your provider is awake and its employees are physically there to make changes. With the increase in distance you also have a proportional increase in the complexity. Not only in the management of the service but in the time differences and in the underlying technologies. Complexity is also dealing with differences in culture and language that became apparent for those early adopters of offshore technical support. Figure 2 Outsourcing Factors Page 5 of 11
Because of the distance and complexity, there is a greater risk the farther the solution is from your company s physical location. But the farther away, the greater potential value in cost reduction exists, utilizing cheaper labor to provide the services. Not only does your organization need to consider the insource vs. outsource option, your organization must also address the critical factors of distance, complexity and risk, and weigh it against the potential value of ultimately the chosen solution. 4 Target the Appropriate Service There are many different flavors of sourcing. If we look at a company that exists today as silos providing IT services, then we really are looking at three options. Service sourcing is where we take a service that is provided today, either across silos or within a particular silo and outsource it. Selective sourcing is when we take only a portion of that service and source it. An example of service sourcing is if an organization outsources break fix or help desk services. If we choose to outsource just the after hours portion of the help desk, or host a particular application externally in an ASP model, this is selective sourcing. Full service outsourcing is when we take an entire service offering end-to-end and outsource it as a whole to one or more vendors. Examples of this would be complete asset lifecycle services, application development or maybe even the entire infrastructure. The full-service sourcing option can be a collection of insourced, outsourced, offshore, near shore and managed services. Each of these options is depicted in Figure 3. Figure 3 Service Sourcing Strategies 5 Build a Better Contract, Better Partnership The contract that defines the sourcing solution must be fair to both the company and the service provider. Your contract should include at a minimum: Purpose Page 6 of 11
Company Background Detailed requirements Statement of business problem Scope Service level metrics Required deliverables Customer Satisfaction Pricing options Volume discounts & minimum requirements Roles & Responsibilities Transferring of Assets Transfer of Employees Dispute Management Controlling Prices Quality Assurance Rights and circumstances for cancellation of contract All contracts should have discovery or consulting to ensure that a quality solution is developed and customized to your organization s unique environment and business objectives. 6 Prepare for Change Don t underestimate the effect of outsourcing on your organization or on your service and support department. It is highly important to open up the lines of communication between the business and the service and support organization. Without that communication, the business may make mistakes in creating a partnership with the service provider that will not cohesively integrate with internal processes and systems. It is easier to transition to the new service provider when the business establishes the expectations of the customers, managers, and executives. Communication why you are outsourcing, what you are outsourcing, how the transition will occur and what the expected service level objectives will be. Outsourcing often does not result in a huge reduction in cost. But certainly it should result in higher levels of service, better capabilities, and a higher quality of service. The customers and the business must understand all the key drivers of change to more rapidly accept and adopt those changes. 7 Build a Successful Relationship Remember, there is a substantial effort and cost associated with building a successful outsourcing solution. The decision to outsource is a buy vs. build decision, not a cost savings option. Outsourcing is a more complex process to manage often than doing it internally. It requires your organization to open up the lines of communication with the service provider, integrating them into all the critical business and support processes. For Page 7 of 11
example, if a change occurs in your environment and your service provider is not part of the change management process, this will result in an inadequate picture of the environment. When the service provider does not understand the business through a strong relationship, the customer will ultimately suffer the most. A successful relationship will be the result of the efforts of your company and its desire to provide the best services and ensure the success of its service provider. 8 Cross-Organization Processes In order to be successful, cross-organizational processes must be developed to ensure successful transition of services. These processes must be customized to the tools and technologies that enable the services and to the internal service providers associated with the internal support of the external service provider. The processes must clearly define the roles and responsibilities of both organizations, defining the process steps that occur before the handoff of the service and what happens afterwards. Define Roles & Responsibilities across Organizations Figure 4 Sample Cross-Organization Process Diagram In Figure 4, we demonstrate how the customer interacts with your organization s technologies, how the handoff occurs to the external outsourced help desk and how they interact with the service provider s technologies. In addition, it is important to understand how the two organizations will work together during any significant breeches in service levels or functionality. 9 Transfer Knowledge Knowledge is an important asset to your organization. It is also the asset that will ensure that your chosen service provider has the tools necessary to provide the highest quality of services. There are four types of knowledge that must be shared: corporate, business, process and information technology. Page 8 of 11
Corporate Your service provider must know and understand the corporate mission. They must understand your competitive landscape and your corporate culture. The service provider must also know and understand what is important to the success or failure of the company. Business Your service provider must know and understand the business unit mission within the corporation. The provider must understand the business unit culture, understanding for example that housekeeping is different that budget. They also must understand the importance of the business unit to the success or failure of the company. If someone in Sales calls for assistance with a laptop for a critical presentation, it requires a higher level of service than someone working from home catching up on their email. Process The processes of a business exist both internally to the company and externally to the service provider. The provider must understand the fundamental business processes and understand the relative importance of major business processes. They must know and understand how the service provider s relationship effects the success of a given process. Information Technology After an understanding of the company, the business, and the business processes, the service provider needs knowledge about the information technology and services. The service provider must develop an understanding of the scope and depth of products and services that are provided to the customer. They must understand the impact of outages and the priority of issues. In addition to any traditional off the shelf products, they must develop knowledge of the specific proprietary applications used by your company. If an issue must be dispatched back into your company, they must know the established points of contact to dispatch an issue back into the organization. They need to understand if it is appropriate to escalate an issue and to whom. The knowledge transfer must touch all parts of your organization to be successful. 10 Measurements of Success How will your organization measure the success of the sourcing solution? The measurements of success should address business objectives and customer satisfaction. Measurements of success to the business include: Cost savings Benefits of focusing on core capabilities Business process efficiency Service level enhancement Measurements of success to the customer include: Quality of service Page 9 of 11
Consistency of service Availability of service Increased service offering The measurements of success should be baselined when determining the appropriate solution, baselined prior to the initiation of the solution and trended over time to ensure that the contract is meeting all expectations. Without constant measurement, it will be impossible for your company to manage the relationship. Success Factors Even with all the preparation and attention to details, there are other critical factors that your company must address. Never outsource your core competency or core business knowledge to an external service provider. The risks associated with the loss of that knowledge are greater than the potential cost savings. Your organization must manage the risks that you take carefully. Your organization must also reduce the risk of loss of intellectual property and business-process secrets. Don t risk your long-term competitiveness by sourcing a service in your organization that defines the difference between your organization and your competitors. It will limit your abilities to drive that service and match it with the changing business and industry demands. Don t just take the lowest bid in an RFP process. It may have dramatic results on quality and customer satisfaction. The decision should not be based upon cost alone but on quality, enhanced service offering, increased service levels AND cost. Page 10 of 11
About the Author Julie Mohr is the Director of Professional Services with IHS Support Solutions. For over 14 years, Julie has been passionate about service and support management. Her broad range of experiences include working as a Managing Consultant for outsourcing providers ARC and Pomeroy as well as NASA, The National Institute of Health and the Department of Education. Julie is a certified Helpdesk Director from Helpdesk 2000 and certified ITIL Service Manager. Julie provides imaginative insight and dynamic leadership to transform IT service and support organizations into best practice, customer-focused environments. Julie has helped organizations to implement Knowledge Management, ITIL processes, organization structures, service catalogues, and service level management. Julie is an active contributor to the future development of the industry through speaking engagements at conferences and publishing articles on best practices. Julie is the author of The Help Desk Audit: Blueprint for Success, The Help Desk Toolkit: Companion CD and The Help Desk Dictionary, and maintains a service desk enhancement website at www.blueprintaudits.com. She is also a member of IEEE Computer Society, the Help Desk Institute, itsmf, ICMI and the Association of Support Professionals. Julie.Mohr@ihssupport.com 530-750-0240 1 Brudenall, P., Technology and Offshore Outsourcing Strategies, Palgrave Macmillan, New York, 2005. Page 11 of 11