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Six Issues to Resolve in Creating an Effective Outsourcing Strategy

by: Ronald Escanlar

Monday, January 3, 2011 |

Creating an Effective Outsourcing Strategy

Outsourcing strategies are difficult to encase in an all-encompassing template since outsourcing providers offer varied business functions, says SearchCIO.com. To create an effective outsourcing strategy, the website, which caters to the needs of technology managers and executives, offers six questions that can be asked during deliberations in choosing an outsourcing provider.

Choosing an outsourcing provider is critical, says SearchCIO.com, since companies re-negotiate outsourcing deals with their current provider 70% of the time. The website based their figures on a research done by advisory firm Gartner, Inc.

SearchCIO.com created the six questions with the help of Gartner, outsourcing advisory firm Pace Harmon LLC, and IT consulting firm TPI, Inc.

1. Can IT services be delivered following set rules and procedures?
IT processes that are transactional, routine, and simple can be outsourced, says TPI. The advisory firm compares IT processes to the left-brain and right-brain functions - those that deal with simple, process-driven functions can be effectively outsourced, while complex, concept-driven processes should be retained in-house.

2. Will the application be retired or is it being shifted to a Software-as-a-Service (SaaS) provider?
Service providers profit on optimizing applications, from which they benefit during the contract’s duration. Outsourcing legacy applications that are near retirement will require premium prices, says SearchCIO.com. These legacy applications are either phased out, or shifted to being an SaaS application.

3. Is the application or IT infrastructure functioning normally?
Unstable applications or IT infrastructure are prone to being outsourced to experts. Pace Harmon LLC advises firms not to. “If it is something that can be fixed internally, you should do that first. The reason is that you don't want to outsource an operation that is hugely sub-optimized. While you are getting the benefit of wage arbitrage, you are not getting the benefit of the optimization, which will inure to the outsourcer,” the firm says.

4. Is the application properly documented?
A properly documented application does not need to be reverse-engineered, so the outsourcing provider can maintain the application and do further development. Proper documentation reduces the overall costs of the outsourcing deal, advises Pace Harmon LLC.

5. Will the team evaluating the application be affected if the application is outsourced?
Most outsourcing deals result to job losses or loss of managerial control, says Pace Harmon LLC, so there needs to be a lot of due diligence about the application. TPI recommends that Chief Information Officers (CIO) be as frank as possible.

6. Can your company efficiently manage an outsourcing service provider?
Managing outsourcing service providers must not be outsourced, explains Gartner. Companies can either immediately learn how to manage service providers on their own or hire another provider to manage outsourced services, the firm advises.

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