Commentary - Slow job growth projections combined with an upcoming presidential election have made "outsourcing" a four-letter word in American business circles. The largest proponents of outsourcing have remained quiet about their projects and engagements.
In reality, the majority of large American IT departments do outsource, but few will discuss it. A Harvard Business Review article has clarified that point. Specifically, Ben Heineman Jr., a former GE executive and current Harvard Business School professor defends outsourcing, urging that American companies need to efficiently integrate offshore workers into their businesses in order to stay competitive in international markets. Companies can "responsibly" outsource by examining engagements based on Business Purpose, Revenues and Quality.
But it’s not just about the companies – vendors and strategic partners need to play a major role as well. Three key areas exist in a vendor-outsourcing relationship will help establish accountability and responsibility on both sides:
Evaluate on value, compared to overall cost
Traditionally, outsourcing has been viewed as a way to reduce the cost of a manual, lower-level IT process. But with the majority of projects, such tasks are already completed, and cost has been reduced. The next step involves higher-level engineering and productivity.
In a value-driven engagement, vendors are evaluated based on the business values created, not time and materials consumed. Value is derived from success with the client, and should be a relationship of mutual benefit.
With shared benefits comes shared risk. When risk is involved, the key currency in the vendor relationship is value, which can be a welcome change for any company that has experienced an outside party running up the bill based solely on the number of time and materials spent on an engagement.
Measure success by business results
For an outside supplier perspective, the delivery and engagement models need to deliver business value, where suppliers need to have a clear idea of the overall problems of the business. Suppliers need to establish their engagement model strategy and goals, and they must be aligned with that of the customer. Outsourcers are more deeply ingrained in the IT department, utilizing their technology expertise to suggest ways the business could run more productively. This "business or strategy consulting" type of approach often uncovers opportunities a client did not realize even existed. Vendors provide an additional level of sophistication evaluated by the needs of the client's client – not solely by the needs of outsourcing client alone. In this scenario, overall business goals are met and a relationship of optimum value is cultivated with the customer.
Focus on management and accountability
Considering economic and political pressures inside and outside of an organization, the most important role in an IT-vendor relationship is to create organized and strict management practices. This extends beyond traditional benchmarks. It must align Best Practices which directly create a business outcome. When held to a high standard in the business context, a vendor can utilize its full range of expertise and resources to ensure success with a client.
Effective measurement involves clarity and visibility at the outset. Historically, "shared risk and reward" projects fail because of a void of structure and visibility. The outside party would tie its work to client success, but the projects did not define what success was. When success is linked to solid, measurable business outcomes, vendor and client head toward the same goal as partners.
The “time and materials” approach to delivery models does not align with the needs of the market and discourages a discussion of outsourcing in the corporate public discourse. Now is the perfect time to examine how the industry can evolve to deliver better IT services and achieve a greater positive impact on U.S. businesses. Outsourcers – and suppliers in general – need to take the next step in productivity by being more accountable and synchronistic with the overall IT goals. With a confluence of value, efficiency and solid measurement, U.S. Companies can use outsourcing to gain a competitive advantage.
David Kruzner is an executive vice president at iGATE, the first Business Outcomes driven integrated Technology and Operations (iTOPS) solutions provider. iGATE delivers effective IT solutions to over 360 Fortune 1000 clients spanning such industries as: banking & financial services; insurance & healthcare; life sciences; manufacturing, retail, distribution & logistics; media, entertainment leisure & travel; communication, energy & utilities; public sector; and independent software vendors. For more information, visit: www.igate.com.”