Outsourcing IT
Virtualisation, data centers, broadband availability, cost cutting, cloud computing – all of these have been causing business leaders and IT leaders themselves to look again at outsourcing of some or all IT activities.
Companies may have any number of reasons for considering partial or complete outsourcing of IT activities:
- Cost cutting
- Reducing dependence on/ exposure to limited inhouse resources
- Avail of Pay as you go options
- Access to scalable solutions
- Access to expertise
- Seeking to improve quality of service
- Seeking to focus efforts on added value
- Seeking to replace capex with ropex
- Improving security
- Implementing DRP/ BCP
We have worked with a number of clients in assessing IT outsourcing options and putting outsourced arrangements in place. There are a number of issues to be considered.
- Scope – What are you looking to outsource e.g. production environment and associated systems administration and support, software development, specific applications support, desktop build, etc.
- Accountability – In order to implement effective outsourcing arrangements accountability needs to be addressed. You cannot hold a third party responsible for patch management if your own IT personnel are going to continue to apply patches as they arise
- Service Level Agreement – often see as the ‘mantra’. The SLA defines the service being provided to the client by the outsourcing provider. However the SLA cuts both ways and should be very specific on the responsibilities of both parties and their mutual expectations.
- Support v. projects – often sustaining IT and executing IT dependent projects are blended within a company (people work across support calls, admin tasks and projects). This is not always a good thing and obfuscates performance of the IT team. In an outsourcing arrangement expect to have clear distinction between projects and support calls.
- Interaction/ communication on resolution of issues, scoping of projects – this is critical to the success of outsourcing arrangements. In many cases post implementation of outsourcing arrangements some of the escalation points fail e.g. outsourcing provider does not escalate to client or communications within client breakdown
- Account management – provision of IT services if critical to most businesses. The outsourcing provider needs to provide effective account management – back to the client. The client needs to manage the outsourcing provider – to ensure that SLAs are complied with, planning and budgeting takes place, business manager/ leads are satisfied with the service being provided. Unfortunately in many cases account management is underestimated by both sides.
- Ownership of support desk calls (and resolution) – in the event that all support calls are being logged on the outsourcing provider system the client may want to agree their access to data specific to them – including availability on a future termination.
- Intellectual property – the agreement entered into between both parties should be clear on intellectual property rights e.g. related to solution developed in the source of providing the managed services to the client
- Trust/ Partnership – sometimes outsourcing arises out of some breakdown in trust/ respect between an internal IT team and the business. Trust/ partnership are equally important between a business and the outsourcing provider.
- Management of other parties, renegotiation of contracts e.g. datacentre, phone systems, applications – In a non-green field site the company will have any number of support contracts in place e.g. re software, telecommunications, server technology. The company needs to work out which contracts should be novated to the outsourcing provider. The provider will also have a view on this – and may wish to terminate some of the contracts and appoint preferred partners or assume some of the support responsibilities themselves.
- Remote v. on campus – in the case of an established business there will most likely be a move to migrate hardware, on a phased basis, to a third party data center. This in turn may give rise to additional telecommunications costs. The timing and costs need to be planned and agreed.
- Annual budget process – transferring to an outsourced arrangement does not remove the need for planning for IT investment/ expenditure. An outsourcing partner will expect a client to commit to a level of expenditure which enables them to manage and support the environment efficiently. It may be that over the first period of time the outsourcing provider will support applications running on the platform at the time of signing the contract – but will gradually look to migrate to more current technology. How this is paid for will vary – potentially to be included in a monthly charge through to additional annual capex.
- Interaction with any inhouse IT resources – in some circumstances the company may retain some IT resources e.g. architect, business analyst, specific application support, desk side support. The company will need to agree how calls are to be rooted between staff of the outsourcing provider and internal IT staff. IT is important to be clear on how this will work.
- Joint commitment to exceed user expectations – user expectations will only be met and exceed if both the inhouse team and the outsourcing provider partner to do so.
- Qualifications and experience of staff – the company outsourcing should insist on the outsourcing provider retaining personnel with appropriate skills and training.
- Induction/ orientation of support team members/ cultural awareness – this is an important process for any new employee in a company. It is equally important that staff from the outsourcing provider are inducted/ properly briefed before coming on site or interacting with personnel at the company. For instance of the company operates in a specific field important to understand the nuances, relevant regulations, etc. Examples would include FDA regulate pharma industry, healthcare industry (patient confidentiality), etc.
- Incentives to drive down costs – less support calls, improved hardware, management of other vendors, end user training – sharing of savings. Any company implementing an outsourcing contract needs to look at the potential impact of investing/ not investing in improving basic systems and infrastructure. In the event that support calls are paid for on a per call basis the company will be incentivised to reduce calls by continuing to invest in systems and associated training. In the event that there is a fixed support call charge per month this may not be the case. If the outsourcing provider identifies opportunities to generate real savings for the company then there may need to be a mechanism for sharing some of the savings. Again this emphasises the need to think partnership.
- Some of the forgotten costs. In general companies are the beneficiaries of a number of savings through the flexibility of staff – willingness to complete upgrades outside of hours and accept leave in lieu, availability to complete projects in parallel with other support activities. An amount of this flexibility is generally lost in an outsourcing environment. On the other hand costs of holidays, sick time, training and recruitment are now absorbed by the outsourcing provider within the charges to the company.
- Failure to meet SLA – outsourcing providers may fail to meet SLA targets from time to time. This may give rise, ultimately, to termination of the contract. However long before this you will want to have a commercial agreement in place which costs the provider in the event of non-achievement of SLA targets.
- Termination/ exit – it is essential that the termination and/or exit conditions are agreed at the outset.