The Chemistry of IT Outsourcing

Today's guest blog on IT outsourcing is from Mike Slavin, Partner and Managing Director, CIO Services North America, TPI.

It’s the speed, not the volume.

When it comes to managing the cost and effort of using new technology in a sourcing solution, the overall level of technology doesn’t matter nearly as much as the pace of technology’s evolution and frequency of change. To stay one step ahead, an organization has to have a well-developed sourcing strategy and a plan to manage the sourced environment.

The dominant strategy is obvious: The use of leading-edge technologies helps companies create, or at least maintain, a competitive advantage. But its adoption burdens many with frequent and high cost increases.

Firms have done the math, however, and figured out the fix: Pass the fixed cost onto a service provider, pay the price for the IT services, and incur any adjustment expenses. Additionally, many view the service providers as having a deep bench and array of experts to accelerate their languishing initiatives.

It’s a win-win scenario. Or should be.

For its part, the service provider exploits economies of scale by deploying to a large user population, as many IT aspects have common ground across firms and industries. So the fixed cost becomes negligible with the diffusion of the burden.

The service buyer gets cutting-edge technology without incurring the ever more frequent cost of computer and IT upgrading. It faces the price of the outsourced service and any transaction or adjustment costs -- their sum being significantly less than doing it in-house.

In theory, everyone is happy, but in practice there are kinks that need massaging.

Service providers and buyers find it difficult to predict the IT needs over a three-year horizon, let alone over a longer term. IT advances in fits and starts. So, clients and service providers end up arguing over which new technologies are included in the fees. Add to the mix non-price barriers to sourcing activity and the specificity of services, and the need for good sourcing management becomes even more apparent.

In a constantly evolving IT environment, management flexibility is key. Providers and buyers of services need to be able to, if not anticipate, readjust quickly to equilibrium shifts and missed expectations.

And that’s where strong management practices and market navigation experience play a vital role. Ensuring that the right scope is extended to the right service providers propels agile ITO relationships. If chemistry is created, readjustment to technological change becomes a natural reaction.  Selection of the right service provider depends as much on their adaptability and future capabilities as it does on tackling the current scope of work.

Without a good sourcing strategy and sourcing management practices in place, parties tend to spend too much time managing technology changes at the negotiating table.

Comments

[Dinesh Goel]

Mike - Excellent points made. The challenge really lies in being able to address them with success. IT sourcing is so complex if you try to fathom and include all possible things that could happen in future and not to talk of those that SP could do for you. I find it a real minefield....even for relatively known things such as server consolidation and related aspects...baking them into the contract with commitments is not easy. Its an ever changing world with IT landscape for any potentiao customer, I have found they just don't know how to deal with it when they outsource since they are now dependent on a partner who tends to have conflicting objectives.Thoughts?