CSC's Top Outsourcing Tips
Be sure to check out this story in August's issue of Supply Chain Digital. Trust us, it's way cooler!
No longer a new or unknown phenomenon, outsourcing has become a normal part of any organization’s sourcing strategy and a key tool for the supply chain team.
While outsourcing provides considerable benefits, such as lower total costs of ownership, ability to focus on core value-adding activities and exploitation of key providers’ skills and resources, there are pitfalls, including overlapping responsibilities, confusing objectives, strained customer/provider relationships and organizational resistance to change.
Since its first commercial outsourcing agreement in 1990, CSC has continually refined its best practices. Walt Howell, CSC’s president of Global Business Development, shares his top five outsourcing tips:
5. Incent and reward the right behaviors
Every outsourcing agreement has performance credits to incent the provider to focus on activities that are most important to the customer. Not every agreement, though, has “earn back” provisions, whereby the provider can recover a portion of the credit for successfully correcting the problems that were impacting performance. Earn backs create a carrot-on-a-stick to drive the provider to meet and exceed the customer’s business objectives. For each Service Level Agreement (SLA) that has a default, if the succeeding four months of performance meet or exceed the SLA’s target, the provider could earn back 75 percent of the assessed default amount, thereby positively incenting the provider to continually improve service.
4. Apply a ‘reasonableness’ test to SLAs
Every buyer wants exceptional service at the lowest cost and uses SLAs to create metrics that measure their provider’s performance. IT services are complex, and that complexity is magnified when multiple services are provided within a single outsourcing agreement. It is a challenge to design the SLA schedule to ensure all activities are adequately measured without creating so many individual metrics that effective management becomes nearly impossible. Applying a “test of reasonableness,” and eliminating SLAs that do not add real value in achieving the customer’s business objectives, enable both the customer and provider to focus on value creation.
3. Create a governance structure that will succeed
Many have compared outsourcing to marriage, an apt analogy to describe the relationship between provider and customer, especially when many of the provider’s employees have transitioned from the customer. Clearly defined rules and boundaries within a comprehensive governance structure create a positive environment to resolve conflicts and address confusion. Successful governance structures have multiple layers where each joint committee has defined roles and responsibilities, memberships and decision-making authority. Make certain there is a clear escalation path from one layer to the next.
2. Eliminate barriers to success resulting from “Selective Implementation”
Successful outsourcing usually requires the adoption of the provider’s standard service model. That model will have been developed over years of experience with multiple customers, and will reflect the highest common factor of the provider’s experience. It will also, almost always, differ from the model used by the internal IT prior to outsourcing, inevitably resulting in resistance to the transformation. While bringing concerns about security and risk to the forefront can be healthy, it can also amplify a fear of change. What results is selective implementation of the proposal whereby those elements, without challenge, are introduced quickly while others are left for later.
Selective implementation creates undesired conditions such as overlapping customer and provider delivery teams, delayed implementation of new technologies and tools and redundant systems. It causes confusion, added cost, increased administrative overhead, frustration within the ranks of the customer’s employees and, ultimately, IT loses credibility when the organization’s business objectives are not achieved. Creating and agreeing to a joint technology and process transformation schedule at the very beginning of the relationship – reinforced with executive support from both the customer and provider leadership – can help eliminate these barriers.
1. Focus on business strategy and not technology
Outsourcing is a business tool that enables strategies to succeed, objectives to be met and value to be added. It transforms the IT department from doers to managers. Success comes when decisions are made and conflicts are resolved with a clear business objective in mind. Failure to focus on the business first leads to commoditization, and IT is too critical a function to allow its value to become commoditized. The most successful outsourcing relationships are those where the customer and provider share a common vision of the future and role of IT in attaining the customer’s business strategy and objectives.
Walt Howell is an industry veteran with more than 35 years experience as a CIO, operational provider and executive in the IT industry. He is currently the president of Global Business Development for CSC.