Outsourcing 101


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everything you ever wanted to know about IT Outsourcing,, and some things you didn\'t

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Outsourcing 101

  1. 1. IT Outsourcing 101 Everything You Ever Wanted to Know About IT Outsourcing…. (And some things you didn’t) Michael DeMartino I nnovative I nformation T echnology S olutions LLC e-mail: [email_address] Cell: 262-613-6552 Office: 262-691-5004
  2. 2. “ The subcontracting of business functions and services traditionally performed by in-house, company resources, with the goal of reducing cost, improving quality, service, processes, and reducing delivery time” What is OUTSOURCING?
  3. 3. What is OUTSOURCING?... Really <ul><li>A strategic business decision </li></ul><ul><li>A fundamental and dramatic change in the way products are developed, delivered, and serviced. </li></ul><ul><li>A major organizational and cultural change. </li></ul><ul><li>An opportunity to improve operational and financial performance </li></ul><ul><li>A formalization of operating relationships which becomes contract driven. </li></ul><ul><li>An opportunity to lose process control, “ tribal knowledge” and cripple company performance </li></ul><ul><li>An intended partnership that often ends in contract renegotiation and sometimes, litigation </li></ul>
  4. 4. Outsourcing: Why Consider it? <ul><li>It is an current industry trend embraced by many world class companies </li></ul><ul><li>Low value or commodity type activities may be done better and cheaper by outside resources who specialize in those activities </li></ul><ul><li>Outsourcers have numerous specialists, are not restrained by fixed staffing levels, and are prepared to meet aggressive delivery schedules </li></ul><ul><li>Outsourcers are not hampered by your internal politics, organizational issues, management biases, or other business conditions </li></ul><ul><li>If you do not consider it, someone else in your company will </li></ul>
  5. 5. How To Make A Smart Sourcing Decision <ul><li>Resist the predisposition to rule out or rule in a sourcing decision based on initial reactions, emotions or biases. </li></ul><ul><li>Engage experienced outside experts to help you </li></ul><ul><li>Define the parameters of your Business Case up front </li></ul><ul><li>Know your current costs and targeted costs objectives </li></ul><ul><li>Calculate one-time outsourcing transition costs into your cost case </li></ul><ul><li>Define meaningful and measurable metrics so you can quantitatively compare costs </li></ul><ul><li>Limit your number of best-fit Outsourcing providers to the smallest practical number </li></ul>
  6. 6. How To Make A Smart Sourcing Decision (Continued) <ul><li>Allow sufficient time to thoroughly analyze your requirements, proposals and contracts but put an end point on the decision </li></ul><ul><li>Involve corporate and business unit management early on in the discussions and analysis process </li></ul><ul><li>Do not over-estimate the “intangible” benefits </li></ul><ul><li>Do not underestimate the organizational impact </li></ul><ul><li>Identify and fully understand all in-scope and out-of-scope services and cost components (out of scope services and components will add to your annual cost) </li></ul><ul><li>Develop a detailed Statement of Work in order to document all service expectations and commitments </li></ul>
  7. 7. How To Make A Smart Sourcing Decision (Continued) <ul><li>Understand the Outsourcer’s Services and Support model thoroughly prior to contract signing </li></ul><ul><li>Anticipate the impact of outsourcing on ALL employees </li></ul><ul><li>Make retention provisions for essential personnel </li></ul><ul><li>Develop and execute a complete organizational change management and communication plan. </li></ul><ul><li>Make provisions for a retained governance and over-sight team. </li></ul><ul><li>The decision to outsource is not irreversible, but a reversal of that decision can be extremely costly and disruptive to the business . </li></ul>
  8. 8. Outsourcing Considerations: <ul><li>Outsourcing is not an “all or nothing” decision. </li></ul><ul><ul><li>Out-tasking is an option </li></ul></ul><ul><li>Outsource processes that provide no critical operational value, i.e. processes that are not differentiators </li></ul><ul><li>Consider issues of scale and synergy when making outsourcing decisions </li></ul><ul><li>Only outsource processes that you fully understand and have under control. If you don’t understand your processes, your outsourcer won’t either </li></ul><ul><li>The type of relationship you develop with your Outsourcer is typically dependent on the objectives of the outsourcing decision ( Partnership, Customer/Vendor, etc) </li></ul>
  9. 9. Outsourcing Considerations: (Continued) <ul><li>Decide on the the objective of outsourcing; cheaper or better. Better will cost more </li></ul><ul><li>Expect your internal staff to resist and resent your decision to outsource </li></ul><ul><li>Outsourcing rumors will negatively impact the morale and productivity of your in-house staff. Be Proactive to this </li></ul><ul><li>Outsourcing affects all employees </li></ul><ul><li>Your outsourcer may re-outsource low margin and low competency services to other vendors </li></ul><ul><li>Outsourcing will involve the consolidation and centralization of hardware, services, and personnel </li></ul>
  10. 10. Outsourcing Considerations: (Continued) <ul><li>Internal customers of IT will expect services that are at least as good or better than historic performance levels </li></ul><ul><li>A talented team needs to be retained to manage the Outsourcer and the resulting performance </li></ul><ul><li>A recruitment and retention strategy must be developed to attract exceptional new talent into an organization that has been partially outsourced </li></ul><ul><li>All service and cost issues will ultimately be decided by the terms and conditions incorporated in the Service Level Agreement </li></ul><ul><li>You will only get what is stipulated in your contract. </li></ul>
  11. 11. Preparing for Service Level Agreement Creation and Contract Negotiation <ul><li>Record all current and required services, quality levels, operating relationships, resource inventories, etc., in a formal Statement of Work document </li></ul><ul><li>Establish a Service and Cost “Baseline” </li></ul><ul><ul><li>Know all your costs at a detailed level </li></ul></ul><ul><ul><li>Know your asset base </li></ul></ul><ul><ul><li>Know your software inventory </li></ul></ul><ul><ul><li>Know all your third party contracts </li></ul></ul><ul><li>Identify all services considered “premium” or on-demand” services </li></ul><ul><li>Include unit price reductions in “out years” due to learning curve related performance improvements </li></ul>
  12. 12. Preparing for Service Level Agreement Creation and Contract Negotiation (Cont’d) <ul><li>Determine if out-of scope service costs escalate or de-escalate in the “out years” </li></ul><ul><li>Estimate incremental costs for out-of-scope and premium services on an annual basis </li></ul><ul><li>Obtain a clear understanding of all Outsourcer cost calculations </li></ul><ul><li>All contracted services must have formally documented delivery and quality commitments associated with them. </li></ul><ul><li>Obtain detailed definitions of all service and cost components </li></ul>
  13. 13. Preparing for Service Level Agreement Creation and Contract Negotiation (Cont’d) <ul><li>Determine who will be responsible for IT facility issues and facility related costs </li></ul><ul><li>Determine and document “refresh” responsibilities and schedules </li></ul><ul><li>Determine and document software license management responsibilities and processes </li></ul><ul><li>Determine and document asset management responsibilities and processes </li></ul><ul><li>Identify penalty conditions, penalty amounts, and payment methods for all service level breaches </li></ul>
  14. 14. Preparing for Service Level Agreement Creation and Contract Negotiation (Cont’d) <ul><li>Metrics, Metrics, Metrics!!!!! You must have clear and consistent performance targets and a reliable process to calculate and report performance on a regular basis </li></ul><ul><li>Define service expectations and document all expectations in detailed, legally defensible wording in your Service Level Agreement </li></ul><ul><li>Avoid non-specific terminology </li></ul>
  15. 15. It all comes down to this……. <ul><li>ALL service, quality, and cost issues must be defined in your Service Level Agreement Contract </li></ul><ul><li>What you receive and how much it costs is strictly a function of the contents of your Service Level Agreement and the associated price schedules </li></ul><ul><li>The Service Level Agreement is a direct result of : </li></ul><ul><ul><li>your Due Diligence effort </li></ul></ul><ul><ul><li>your Statement of Work preparation </li></ul></ul><ul><ul><li>the thoroughness, accuracy and content of your contract language </li></ul></ul>
  16. 16. Michael DeMartino Senior Executive I nnovative I nformation T echnology S olutions Michael DeMartino is an innovative senior IS executive with over 35 years of diverse IS experience at the country, regional and global level and a proven track record of optimizing IS environments and services in small, midsized, and Fortune 500 companies. With a documented history of significant contributions in Aerospace & Defense, Consumer Goods, Customer & Field Service, Health Care, Power & Automation Technology, and Computer Hardware, Software & Services industries, Michal possesses over 15 years of in-depth experience in the planning, transitioning and steady state operational management of major IT outsourcing initiatives at the regional and global levels including contract preparation, negotiation, and administration. He not only possesses extensive experience in the entire Outsourcing lifecycle as a customer of Outsourced services, he also functioned as a provider of Outsourced services in his role of Account Manager for IBM Global Services In addition to planning and delivering major IT Infrastructure and Application Systems initiatives and providing superior steady state operational support, he has broad and deep expertise in the areas of IS Mergers, Acquisitions and Divestitures, IT Service Desk Operations, and in turning around and optimizing under-performing IT organizations. Michael is a strong advocate and aggressive practitioner of structured continuous process improvement and formal score carding methodologies to measure and improve IS performance and contribution to the business goals and objectives of his client companies.