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Outsourcing dos and don'ts part 1: Set your strategy

Outsourcing performance can be improved with prior planning. Get expert advice on developing outsourcing contracts, strategies and more.

CIOs who establish clear requirements, a well-defined sourcing strategy, internal alignment and structure in supplier selection and management processes should expect to receive big dividends in the business value delivered from outsourcing initiatives.

Here are six IT sourcing and procurement dos and don'ts to help you successfully plan your outsourcing strategy:

Identify opportunities for outsourcing

Don't ask the turkey about Thanksgiving! When defining core and noncore services for your organization, you should gather as much data as possible.

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Outsourcing dos and don'ts: Manage suppliers

Domestic outsourcing resource center

Offshore outsourcing resource center
Consider using external help to conduct benchmark studies and identify areas for opportunity. Also consider using a supplier to conduct a study, as this will give you the best alignment to market offerings, along with drawing on the supplier's experience with other clients. Learn from those who have gone before you, including suppliers, their customers, industry analysts and other third parties. Ensure that you have sponsorship from senior leadership to drive success of the outsourcing projects. You should have professional IT sourcing and procurement expertise manage the commercial aspects of your deal. All suppliers have trained sales personnel, so why would you want to put amateurs up against them?

Select initial projects and the managers who will make them successful very carefully, and include them in your request for proposal (RFP). You want the person who will find the 100 ways to make it work, versus the one way to sink the project -- and potentially the entire outsourcing initiative.

Sourcing strategy development

Do get your act together internally. Ensure that you have the right cross-functional team formed to assess service options, including sourcing/procurement, financial and technical representation.

Establish clear criteria for supplier selection and have it live beyond the selection process to become the basis for monitoring services and value delivered. This criteria should include elements of a cultural match between your organization and the supplier's, quality of services, ability to scale services up and down, and cost savings.

Don't proceed without clear and visible senior management support for outsourcing initiatives.

Do maintain a healthy competitive environment. Never sole source. You can have a primary partner (e.g., globally) and keep that partner honest with a mix of regional partners.

Supplier assessment and selection

Do create and maintain an environment that fosters open, honest, transparent communications and mutual trust. Feedback is a gift, and some days are like Christmas. Ensure periodic visits to development centers (especially for offshore services). Be explicit in governance meetings at all levels (eliminate use of colloquialisms). Include two simple slides and check these regularly -- what our company wants from the supplier, and what the supplier wants from us.

Negotiations and contracts

Do use your contractual terms as the basis for negotiations and include them in the RFP with a redline copy as a condition for response.

You will find out very quickly what snags will arise when it comes time to close the deal. This also allows you to negotiate through issues with leverage -- which you will no longer have once a supplier is selected. Identify and manage the risks associated with the services and ensure that your contract supports this.

No organization has the time, energy and resources to mitigate all risks, so you will need to identify and manage the right set. Look to your IT auditors for input before you contract and establish services. Ensure that you use the structure of a Master Services Agreement that provides the terms and conditions for doing business, without commitment. Use statements of work for each project/service area, allowing your organization to efficiently negotiate effort for additional projects and services, with rates and business terms already in place. Ensure that your Master Services Agreement includes rate tables for all skills and countries where you could potentially be doing business.

Vince Pultorak is director of the IT strategic sourcing practice area at Pultorak & Associates Ltd., a Seattle-based IT Service Management consulting and training provider.

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