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How IT can benefit from strategic outsourcing

‎08-23-2013 09:44 AM - edited ‎08-26-2013 08:10 AM

Strategic IT outsourcing works very much like a marriage—both parties must live with both the benefits and the drawbacks of the partnership. Outsourcing is tempting to enterprises for a number of reasons that emanate from various corner offices. The CIO may be acting on an agenda that includes outsourcing as a catalyst for change; the CFO's may be on a mission to move from capex to opex wherever possible; perhaps outsourcing is what underpins the CEO's master plan to gain new market share. From fear of competition to leveraging brand value, business cases are meant to justify big decisions such as outsourcing.


SLAs, data-driven analysis and governance

While negotiating a deal, we must be very careful about Service Level Agreements (SLAs), financial models, sourcing governance, creating joint success stories, alignment of objectives and business value, etc. The SLAs should be more business-centric than IT-centric. A balanced set of SLAs with targets of improvement linked to business value and reward will help you run the show better.


A balanced scorecard drives a data-driven, fact-based analysis rather than subjective judgment. Similarly financial models should be simulated thoroughly if you are in a revenue share model. If the duration of your outsourcing contract is longer than your business plan and strategies, be sure to include a realignment clause every two years based on the current market situations. Otherwise, inflexibility and lack of course-correction will kill the relationship.


Contract governance helps you navigate the roadblocks that you will encounter during the course of the execution of the contract. It is essential to set up forums starting from lowest to highest levels. It is important for the senior folks to participate in governance forums, even if it means thanking one another for good work. In my view, phone calls work better, and replacing "why" with "what" goes a long way to change the relationship. It is always good to set up a governance team, with good process and control and fully supported by the CIO to drive the relationship.


Strategic outsourcing brings the opportunity to make long-term gains by leveraging innovation, product bundling from both sides, gaining new markets and a whole lot of opportunities of shared value creation. We often fail to see these opportunities until it is too late. In strategic outsourcing, choosing a partner larger in size is fraught with significant challenges of managing the partnership. Be very careful to think beyond cost and capability when creating your short list of potential partners.


CIOs and the rest of the company's leadership should drive the strategic outsourcing partnership with the perspective of trust-building. Ignoring individual KRAs of cost savings and P&L to generate larger value for both the organizations will pave the way for success. Before outsourcing, the customer must prepare itself for outsourcing by creating processes, asset registers, current performance benchmarks, and hiring people with right skill-sets to drive the post-outsourcing relationship.


Related links: SMART SLAs enable IT performance measurement


Currently a partner at CIO Specialist Advisory LLP, DD Mishra has more than 19 years of experience in IT. He has played key roles, including IT governance and outsourcing, program and portfolio management, consultancy, presales and delivery for various customers in the UK, India and Singapore and has experience from both the buyer side and seller side. He is a member of the Discover Performance community's IT Strategy & Performance LinkedIn group.


This blog was first posted on www.dynamiccio.com and is being reposted with prior permission.

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James Wilson
on ‎05-31-2014 05:23 AM



Thanks for sharing this nice article !


Outsourcing can be done with a proper strategy.







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