10 Rules for successful outsourcing

10 Rules for successful outsourcing

The term outsourcing doesn’t exactly make people scream their support from the rooftops. At best in many organizations, it has been seen as a ‘necessary evil’ rather than a strategic partnership designed to strengthen the overall business. The current shift towards digitalization and the shortage of key skills is central to the continued development of the global IT Outsourcing market (worth $62 billion in 2018).

So what does it take to make successful outsourcing engagements? Based on my experience on both the client and vendor side of the fence, I thought about 10 rules that will support your outsourcing journey. 

Rule 1: Know what you want to outsource

Your core competencies are a unique set of skills, knowledge and expertise that allow the organization to remain competitive and provide value to customers. Make a heatmap analysis of your product and project portfolio and ensure the right balance to keep core competencies in-house.

Rule 2: Create a centralized structure

A central vendor management team should be on a mission to create the right internal conditions to facilitate the success of the outsourcing initiative while ensuring that vendors deliver the expected quality in a secure and well-managed environment. The real work starts once contracts are signed.  

Rule 3: Use KPIs as a management tool

KPIs are a great monitoring tool to keep things on track and allow the vendor to shine and show progress. Aspects such as code quality, velocity, and milestone observation can motivate both parties if managed correctly.

Rule 4: Get the right infrastructure and toolset

Communication tools such as Slack and Skype and collaboration platforms such as Jira are obvious. Less so is access to the relevant environments and test data that may be necessary. If you are working on a virtual infrastructure, MPLS connectivity might be relevant and of course, security standards and data protection processes are critical.

Rule 5: Create a sense of community

To kill the ‘us’ and ‘them’ mentality, particularly in challenging periods, make sure a sense of community is promoted from the outset with relevant opportunities for physical meetings and team celebrations for project successes. 

Rule 6: Be honest with your Business Case

Some outsourcing initiatives have been too aggressive or fanciful in terms of the ROI/Business Case. Make realistic assumptions regarding the outcomes and don’t forget to factor in aspects such as infrastructure costs, internal support, travel, etc. You can use your business case in vendor negotiations to ensure that the vendor understands your objectives. 

Rule 7: Be prepared to learn from your vendors

Innovation and IT Architecture are areas where out-of-the-box thinking can be helpful. The vendor may have worked on or learned from similar projects in the past so leverage this to your advantage. Vendors may also be willing to co-invest in new technologies that support their own growth.

Rule 8: Don’t underestimate transition

The initial transition phase is perhaps the most critical in any outsourcing engagement. Ensure that the transition plan is well documented and that all stakeholders including those on the business side are available to support it. Be sure the vendor understands the tasks and can document knowledge and understanding by way of reverse presentations.

Rule 9: Use Agile to your common advantage

Agile development methods facilitate daily communication, continuous iterative delivery, planning and retrospective meetings. All of these are extremely powerful tools to promote successful cooperation in an outsourcing context so use Agile to your advantage.

Rule 10: Build a relationship on trust

Ernest Hemmingway famously said that ‘the best way to find out if you can trust somebody is to trust them’. Trust is critical to the success of any outsourcing engagement. In fact, a study by Warrick Business School found that executives managing their outsourcing contracts in a traditional penalties-based manner are missing out on a ‘trust-dividend’ worth up to 40% of the contract value.  

I hope that these rules are helpful in supporting you and your organization in getting the most out of your outsourcing journey while fostering a collaborative and enjoyable spirit on your projects. Wishing you all the very best of luck.

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