Traditional outsourcing is not delivering on its promises. But with IT departments failing to step up to the plate and meet the real needs of the business, many organisations are plunging headlong into outsourcing as a last resort – and losing business control in the process.
There seems little point in reliving the disappointment experienced by organisations that have followed the traditional outsource route across the globe: time and time again people have had their fingers burnt from engaging in an outsource arrangement with one of the major players.
Poor performance, low quality service, higher than expected costs – the list is endless. Indeed, a recent Gartner survey pronounced that European businesses wasted Ђ6 billion on poorly managed outsourcing contracts in 2003, with as many as 80 per cent of deals deemed unsuccessful.
And yet – organisations are still opting to outsource. The market for traditional outsourcing is not suffering the decline that should go hand in hand with such poor performance and dissatisfied customers.
What does that say about the quality of the in house IT department? In reality, many organisations perceive they have no choice but to outsource. With IT departments persistently failing to deliver a timely, quality service that meets either business needs or expectations, traditional outsourcing has been gaining ground by default.
IT is now recognised to be core to the success of any business. But delivering IT solutions and systems is an operational and resource intensive task with which too many organisations still struggle. It is this persistent failure of IT departments that is boosting the coffers of the large outsource providers – not the quality of service those companies provide.
However poor the resultant service, traditional outsourcing is the last resort to meet the challenge of continuing IT under performance. Business confidence is low: IT is an on going problem; if it can’t be fixed in house, hand the problem over to someone else.
And the outsource vendors make the decision easy to justify – from the perspective of clever financing at least. Despite the problems, the basic principles of outsourcing are compelling: using experts to deliver a service is standard practice in all walks of life. Add in the promise of a service that purports to minimise the price spikes associated with all IT implementations, and the appeal is clear.
The problem with traditional outsourcing is that businesses don’t just hand over the IT infrastructure and staff to a third party – they hand over complete control. Abdicating responsibility over all aspects of IT is simply reprehensible in an economic environment where IT excellence delivers measurable success and competitive advantage.
In reality, however detailed the contract may be, a traditional outsourcing agreement is simply too large to manage. Where they exist, Service Level Agreements (SLAs) are based upon technology issues, rather than mapping the real concerns of the business. Is it any surprise, therefore, that business users are top of the list of those complaining about the outsource provider?
Furthermore, who is taking control of on going strategic direction? Without constant innovation, an organisation will get to the end of a five or ten-year contract to find the world has moved on and competitive position has been usurped.
However bad the quality of service delivered by the IT department, no business can afford to abdicate the entire IT responsibility. Indeed, it is unlikely that the IT department is struggling with every aspect of the infrastructure. Rather than washing their hands of the whole IT set up, organisations should focus on specific business or application areas.
Outsourcing these to a third party is manageable. Real expectations can be defined based upon the needs of specific business user groups – and appropriate SLAs set; while contracts can be negotiated that enable rather than constrain business agility and innovation. Regular, independent customer satisfaction surveys underpin the on going quality of the service, while Release Upgrade Protection ensures the organisation keeps up to date with innovations.
Once the trust and effectiveness of the relationship is proven in one business area, an organisation can progressively outsource other applications or IT components such as infrastructure, security and business intelligence. Unlike traditional outsourcing the risk is low; performance is measured on real business metrics and the business options remain open.
This progressive outsourcing enables organisations to leverage the skills and expertise of a third party without losing business control. It also negates the technology argument. Realistically, if Oracle Financials for example, or any other business application, works well in implementations across the globe, its failure in one specific organisation is due to people not product.
IT must deliver innovation. Organisations – both private and public sector – face huge challenges today in monitoring and measuring business performance. From local authorities required to provide best value indicators to financial services companies needing to provide in depth analysis of profitability by product or branch, IT systems are required to deliver the information that will drive strategic business direction.
Yet the in house IT department can manage only fire fighting and excuses, while the traditional outsourcer views any innovation plans as an opportunity to make margin on the contract. By delivering both excellent performance and enabling the business to retain control, the progressive approach enables businesses to refocus attention away from IT fire fighting towards leveraging a huge IT investment to deliver real business benefit.
As the realisation of IT’s value to the business increases, expectations of service delivery will grow in tandem. Today, few software development contracts are awarded without considering an offshore option. Tomorrow, few software applications will be purchased without considering a managed service delivery model. Indeed, already 20% of software sales request the option of having the solution delivered as a service.
Outsourcing does have a role to play in enabling IT innovation. But jumping in at the deep end is a high-risk strategy. Progressive outsourcing allows organisations to dabble a toe in the water, take measured, controlled steps into outsourcing to achieve specific business objectives.