Finding the Right Service-Level Measure

David HerronThere is a recent trend in outsourcing towards smaller, shorter-term deals and an increase in using multiple vendors (usually referred to as multi-sourcing). But, while outsourcing arrangements may be changing and customers continue to look for greater efficiencies, there is still much that remains the same in regards to contract governance challenges. Proper service-level measures are a necessary in outsourcing (and especially in multi-sourcing) contracts to mitigate such challenges.

Typically, these contracts are priced on the basis of labor cost. But an effective contract takes other dimensions into consideration as well. A successful outsourcing arrangement is one that delivers a high quality product that meets the needs of the business (value) for a reasonable price. Thus price, value and quality should serve as the focus.

If you're interested in learning more about these measures and how to create a successful outsourcing arrangement, download "Finding the Right Service-Level Measure in a Changing Outsourcing Landscape" here.


David Herron
VP, Software Performance Management

Written by David Herron at 05:00

Balancing In- and Out-Sourcing

AlanRecently, Hugo Miseur, a former colleague of mine, started posting a series on outsourcing on LinkedIn. I recently commented on one of his posts, and this blog post expands on what I said there.

Every company that wants to hive off its IT via outsourcing should have a discussion surrounding the question, "What remains in the company if we outsource our IT?" There is no doubt in my mind that the most successful organisations retain enough expertise in-house to: Manage strategic requirements, to thoroughly test and accept new software and services, and to successfully manage their introduction into the client organisation.

Hugo and I met for the first time on a major government contract where, arguably, they kept too much of their development in-house, resulting in the mirroring of roles at architectural levels. This led to unclear decision making and a lack of freedom of the outsourcing supplier to be more innovative as the brake was put on by risk-averse clients. This led to some conflict and a number of decisions were forced by the client on the delivery team, leading to poor package selection, amongst other things.

Contrast that with a major client with whom I'm currently working, where the realisation has come some five to six years after outsourcing that they sold off their strategic expertise, as well as the technical skills to deliver huge change on a regular basis. The result was that suppliers, some of whom were delivering the software, were making business design and architecture decisions for the client. They are correcting that now, but it will take some time to re-build the coherent expertise.

I think that the balance between what to keep in-house and what to outsource is fraught with difficulties, but that should not stop outsourcing. Some outsourcing arrangements fail, not because the supplier failed, but because the client did not know how to manage the interface. Insourcing is sometimes the panic response, as is changing suppliers without analysing the reason the contract failed.

To me, the key is to keep enough expertise in-house to enable the retained IT organisation to play a key decision making role as part of executive management.  Once the baggage of outsourcing is done, the organisation must shift its mindset and stop treating IT as a necessary evil or merely as a support service.

The challenge of the retained IT function is to become the visionary enabler of business development. Outsourcing enables that change of purpose, but how many companies actually make that leap of faith?

 

Alan Cameron
DCG-SMS, Managing Director

Written by Alan Cameron at 05:00
Categories :

The Next Generation of Outsourcing

MikeAccording to, “The New Age of Outsourcing,” there’s a new generation of outsourcing deals upon us, as IT organizations seek more from their service providers in order to accommodate increasing demands. These new outsourcing trends all have one thing in common: the desire to take a risk and try something new.

The first trend indicates that buyers of IT services are on the lookout for managed services over staff augmentation. This arrangement allows for increased flexibility, but it also requires a higher degree of trust between provider and buyer, and the buyer must spend more time outlining the scope and desired outcomes of the deal.

The second trend is that outsourcing customers are becoming more focused on business results and opting for outcome-based pricing. Of course, this requires that the buyer and seller have a clear understanding of the outcomes prior to starting work. We refer to this as vested outsourcing, which calls for an agreement based on desire outcomes, explicitly sating the results that will base the outsourcing contract.

The third trend speaks to a change in the traditional RFP. Instead of describing exactly what they want and how it should be done, buyers are now describing their problem and asking suppliers to present solutions. This speeds up the RFP process and narrows the field of competitors, but it also requires strong engagement and trust between both parties.

The fourth trend is one of the riskier ones: commercialization of outsourcing, wherein a provider develops a system for a client, the client buys the rights to that system, and then it can be marketed to others, with both parties sharing the profits. This is an entrepreneurial approach, which may not be appealing to all providers/clients, as it may not result in any industry interest.

The fifth trend relates to service integration, which is largely being brought in-house and allows clients to better manage providers.

The final trend is a reassessment of outsourcing relationships. Many clients have several outsourcing relationships, and taking a routine, holistic look at whether or not the relationships are functioning appropriately can lead to changes or a reinforced desire to continue on the same course.

These changes are indicative of a general trend in IT to bring greater value to the business – starting, in this case, by getting greater value out of outsourcing. While the trends outlined above are largely risky undertakings compared to traditional outsourcing relationships, they may prove to bring more value over time, including more open communication between client and provider.

Read “The New Age of Outsourcing,” from CIO Insight.

 

Mike Harris
DCG President

Written by Michael D. Harris at 05:00

What Should Every Client of Outsourced Software Know About Mitigating the Risk of Project Failure?

IT Governance is key for any effective IT program or team. It's important to define what decisions need to be made, who should make them and how they should be made. This process helps in reducing risks, setting priorities and increasing communication.

One of the biggest areas that business and IT providers need to exercise strong governance over is outsourcing. Managing vendor relationships and deliverables can be a difficult process, as most of us already well know. 

But, we've got you covered! This month's Trusted Advisor report reviews the most significant risks of outsourcing software development and offers up some mitigation strategies.

Read the Report

Written by Default at 05:00

How to Ensure a Good Relationship with Your IT Outsourcing Vendor

MikeA recent article from CIO magazine outlined a few steps that everyone should consider in an effort to maintain a good (and effective) relationship with an IT outsourcing vendor. Why bother? Because with any vendor, you get what you give. By putting in the extra effort in your relationship, your vendor will likely perform better in return. Here are some of the recommended steps:

  1. You are entering a long-term relationship, so first impressions matter. When negotiating your initial contract, be reasonable, so that the relationship starts off on the right foot.
  2. Be honest from the beginning, so that there aren’t any unexpected surprises later. Provide an accurate asset inventory, key data on performance, etc. Your vendor will appreciate having all the necessary information up front.
  3. Don’t be too technical when it comes to contract interpretation; instead, face issues with a problem-solving attitude and work through issues together.
  4. Reward performance – easy enough, right? Clearly link financial rewards with performance to show your vendor that you value their work.
  5. Be a team player and foster a team-based atmosphere in every aspect of the relationship.
  6. Understand that when you ask a vendor to do additional work outside of the original scope, you will have to pay more. Don’t take advantage of the relationship or your vendor’s time.
  7. If your vendor is struggling to meet contract terms, work together to resolve the issue, if possible – it’s in the best interest of both parties to foster success.
  8. Pay your bills on time. Easy enough, but often overlooked.

A vendor relationship is a two-way street, so don’t overlook these simple tips!

What would you add to this list?


Mike Harris
DCG President

Written by Michael D. Harris at 05:00

"It's frustrating that there are so many failed software projects when I know from personal experience that it's possible to do so much better - and we can help." 
- Mike Harris, DCG Owner

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