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Mistakes CIOs make on IT outsourcing deals -- and how to fix them

CIOs don't sign on to large IT outsourcing deals expecting them to go bad, so what accounts for the high failure rates? Andy Sealock offers a game plan for de-risking your deal.

Andy Sealock, managing director at outsourcing advisory firm Pace Harmon, specializes in planning, fixing and terminating large, complex IT outsourcing (ITO) transactions. Like snowflakes, no two IT outsourcing deals are the same, he said, but when they unravel, reasons for failure invariably fall into three buckets: errors in outsourcing strategy, errors in the contracts and errors in post-deal governance.

In part one of this three-part SearchCIO tip, Sealock takes CIOs through the first of the three ITO failure points -- IT outsourcing strategy -- and offers advice on how to mitigate risk by knowing what to outsource and what to keep in-house.

Retain architecture, technical expertise

Andy Sealock, managing director, Pace HarmonAndy Sealock

Large IT outsourcing deals go awry when companies lose control of their IT service providers. Over the years, Pace Harmon has found that -- regardless of the deal -- ITO engagements generally work better when clients retain two key functions: architecture and IT Service Management (ITSM).

"In many of these outsourcing deals, the thinking is: 'The service provider has made all these investments in understanding technology and understanding architecture -- we'll let them drive innovation for us,'" Sealock said. That ITO strategy may sound good on paper, but financial realities often intrude; innovation is the first thing to go when providers are under pressure to maintain margins, Sealock said. There is another danger in ceding your enterprise architecture responsibilities to the service provider.

"You experience a brain drain. Your good technical people don't really want to sit around just being contract administrators; they want to be architects," Sealock said. Good technical architects are hard to come by and highly paid. "They have plenty of choices and plenty of places to go." Indeed, losing top-notch architects is one reason companies turn to an outsourcing relationship, but not having technical in-house expertise is a "trap," according to Sealock.

"Once you really lose the understanding of your technical architecture, it becomes too easy, quite frankly, for the service provider to pull the wool over your eyes," he said.

Keeping control of your architecture function doesn't mean CIOs shouldn't tap their providers for good ideas, Sealock said, but CIOs must own their technology choices. "The service provider is playing more of a tactical role, engineering and operating the architecture you design and which you understand better than anyone else in the world," he said.

Retain ITSM, operational expertise

Keeping ITSM in-house is about retaining operational expertise: specifically, how your organization handles all the ITIL functions (e.g. incident management, problem management, change management, configuration management, among others).

Once you really lose the understanding of your technical architecture, it becomes too easy, quite frankly, for the service provider to pull the wool over your eyes.
Andy SealockPace Harmon

"If you are controlling the ITSM-ware, you are closer to the operational data, you have more understanding of what is going on and you can manage your service provider tighter," Sealock said. Ignorance equals risk in large outsourcing deals. That said, CIOs must tread carefully on ITSM, as all IT service providers have their own ITSM processes and certain ways they like to work.

"The more you force them to deviate from those processes, the more you will drive up their costs, because they are doing a one-off for you," Sealock said.

Still, he advises clients to either provide the ITSM tool or insist on being given the hooks into the provider's ITSM tool, so they can audit performance on key metrics.

"For example, [IT needs to know] if the mean time to resolve is four hours, or really eight hours because a provider has manipulated the time that individual incident reports are opened and closed," Sealock explained. "If you understand the process of when people are allowed to open a ticket and close a ticket and how that is coded in the system, you can't get faked out by a service provider trying to make that SLA [service-level agreement] look better than it really is."

Go to part two of this 3-part tip to read Sealock's advice for improving the second big area where CIOs commonly add risk to their IT outsourcing deals: the contract.

Email Linda Tucci, executive editor, or find her on Twitter @ltucci.

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