IT outsourcing can be risky.
You’ll invest a significant amount of time and resources defining your needs, seeking out promising candidates, and evaluating options. You’ll need to clearly communicate what the organization needs, and what level of performance you will expect.
Then, if you start working together and feel like it’s not a good match, the relationship could turn sour. And if you can’t turn it around, getting out of an outsourcing commitment is not easy—especially once the resource has amassed an in-depth knowledge of your processes and systems.
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Quantitatively, 50% of companies feel their outsourced suppliers are reactive, not proactive; 40% experience a lack of innovation and underqualified resources; and 30% suffer high attrition and costs. (Source: Deloitte)
To mitigate risk, I recommend the following systematic approach to ensure you pick the best outsourcing vendors for your organization. I have used this process on many occasions with great success.
(Note: This process assumes you have already developed an IT sourcing strategy.)
8-Step Resource Selection Process for IT Outsourcing
1. Establish guiding principles.
Developing guiding principles will build consensus around what is most important in an outsourcing relationship, and define why something will be outsourced. The exercise results in a document or slide that can be used as a communication tool within your organization. These principles should shape your path through every stage to follow—they act as guideposts for making sound decisions.
2. Analyze the attributes of potential resources.
Engagement Model: What type of relationship do you want to have? You may want to have a fully-managed, metric-driven relationship or one that is more flexible, utilizing staff augmentation and all the options in between.
Proximity: Where is the optimal location, country or region to outsource your services? Do time zone, culture, or language impact the ideal dynamics of this relationship?
Size: Do you want a mega, large, medium, or small outsource firm? If you are a small organization, mega firms may not be interested. If you a large organization, small teams may not be able to provide the depth and breadth of service you require. How mature are your organization’s processes? If they are well-honed, you may match better with a larger firm.
Scope of Services: Do you want a vendor with core capabilities that are broad or deep? Do you need specialization? Do you want a one-stop-shop or a combination of vendors? There are pros and cons to each direction. Personally, I have always believed it is best to have at least 2 vendors, but not many more. This approach offers greater exposure to best practices, gives you pricing leverage, and helps keep each vendor hungry for the business they aren’t getting.
3. Create a short list.
Research a range of outsourcing vendors and narrow the list to a half dozen or less that have most of the attributes you’re looking for. Use all the tools available to you including the web, IT research firms, colleagues and friends.
4. Bring in procurement.
I strongly suggest to loop your procurement team into the process early as possible. They can help you develop and issue a Request for Proposal (RFP), and manage the responses. Be sure to incorporate your strategic objectives into the RFP.
5. Meet with all RFP respondents.
Schedule time to meet with each organization that responded to your RFP. This will give you a chance to learn more about the team’s style, resolve any questions you have about their response, and answer any questions they have about the opportunity.
6. Cut the list in half.
Use the guiding principles you established earlier in the process to decide which vendors to keep and which to cut.
7. Do your due diligence.
It is essential to visit the suppliers at their corporate headquarters. This will help you better understand their culture, level of commitment to your organization, abilities, vision, strategy, and more. Speak with a few of their customers that look most like you.
8. Negotiate.
Finally, again using your guiding principles, select the firm you believe will make the best long-term partner. Spend significant effort to negotiate the MSA, rate card, SOW, and a transition plan. There are some very competent consulting firms who specialize in working with organizations to get the best contract with vendors. They know the going rates and reasonable T&Cs, and are worth every penny.
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Congratulations! Now you are married to your outsourcing partner. Like any marriage, you need to constantly work on the relationship, as there will be good times and bad.
