LAS VEGAS -- The path to successful outsourcing is paved with 10 steps, according to Linda Cohen, managing vice president of Gartner Research. She laid out her prescription in a keynote at the Gartner Outsourcing Summit 2004:
- Institutionalize multi-sourcing as your operational model: Multi-sourcing is the "new normal," Cohen said, and many businesses should treat sourcing as a core competency. She recommended getting a sourcing management team in place, developing integrated management processes with vendors and selecting performance measurements to help make multi-sourcing part of your company fabric.
- Align all sourcing actions to your business strategy: A sourcing strategy must be defined in business terms, Cohen said. "You've got to get business executives on the same page," she said. Cohen recommended evaluating how internal staff can achieve business goals and then defining sourcing ROI to make sure sourcing is in synch with business strategies.
- Articulate expectations in terms of business outcomes before you outsource: This is important because outcomes must map directly to the deal's structure. Defining desired outcomes in business terms, determining mutual benefits for buyer and seller and aligning expectations with responsibilities and required actions are key steps to making this happen. "You have to create deals that are flexible and find a provider that can take you up the chain," Cohen said. She also said it's a good idea not to be too focused on efficiency; you should be focused on effectiveness and how to make your outsourcing deal take your business up a notch.
- Weigh the value of customized versus standardized services: Customization can deliver specialization and differentiation whereas standardization can deliver agility and speed. Which one is right for you? You must evaluate the risk/benefit of each solution and determine the strategic importance of the expected outcome to determine the right fit for your firm, Cohen said. "Just remember," she said, "having everything your way is going to be expensive."
- Select the delivery model that best suits business and financial goals: The only way to get sustainable business benefits and performance improvements is to leverage and adapt to the service provider's operating environment. Making the right delivery model choice means you must understand the different types of delivery options (offshore, nearshore, utility and so on) and align your preferred options to the business goals.
- Define the relationship model and incentives for mutual benefit: "We don't define these relationships enough," Cohen said. A true partnership means accepting risk and sharing rewards on both sides and is appropriate only in strategic business-critical outsourcing relationships. Mapping outcome to payment and incentive structure, determining the mutual investments and benefits and defining "success" will help outline the relationship, Cohen said.
- Negotiate and renegotiate a win-win deal: No deal stays the same. Two to three years into any deal, business drivers can change for both parties, Cohen said. It's best to realign expectations and benefits on an annual basis. She recommended benchmarking performance, measuring customer satisfaction and revising service level agreements.
- Depend upon a network of providers to deliver business solutions: Delivering technology and business services seamlessly take what Cohen referred to as a "consortia approach." CIOs become "business solution aggregators" in this scenario. Defining expectations, gaining consensus and scanning the market for "build, "buy," "joint venture" and "compete" possibilities will help companies develop that network.
- Develop and apply deal-centric management disciplines: Management can get complicated, Cohen said. To develop a deal-centric management discipline, define mutual benefits, build a common language, develop integrated processes and a responsibility matrix and mediate conflicts.
- Balance trust and control to optimize outsourcing relationships: The right balance of trust and control delivers real value, Cohen said. Defining the "co-management" process, mutual benefits and appropriate balance of control -- and making adjustments as necessary -- will help you strike that balance with your provider.
"Sourcing is a discipline, not an action," Cohen said. "You need to make multi-sourcing management and governance a core competency and not let hype control your deal." She also told attendees that they need to budget now to "skill up" to the complex process changes that lay ahead of them.
"We're going to take the 10 steps and see what we come up with in analysis," said Mark Anderson, general manager of contact center solutions for MCI Inc. "There's no revelation here, but on the flip side of it, this stuff must be thought through." Anderson said he came to the Summit to learn more about the realities of outsourcing because he, like many other attendees, has learned that when you get past the seductive layer of cost savings, outsourcing is a complicated process.
"I think at first, we were so drawn to the price points that we weren't thinking about [the complexities] enough," he said.
Dealing with the complexities and following these 10 steps require a lot of work -- and that may surprise some services buyers. Joe Delaney, vice president of commercial IT services for Northrop Grumman Corp., said that many companies underestimate the amount of work it takes up front to make a good outsourcing deal work.
"I think people think that from day one, they can give it up and turn it over to someone else, and they don't have the problems anymore," he said. "Managing outsourcing engagements from a customer standpoint is very critical, and communication on all levels is an ongoing process."
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