Outsourcing isn’t new, but, by now, many IT shops have accumulated enough experience to use this service more effectively. According to Houston-based consultancy TPI, even though the overall outsourcing market is down 13 percent from last year, growth remains strong for U.S.-based contracts.
Certainly, the cost-saving motivation is still significant: The cost for programmers and support services overseas can be less than half of what their domestic equivalents can be. Nevertheless, to achieve those savings, you have to know how to work with the outsourcing vendor.
We spoke with several managers who have used outsourcers to build and augment their systems, and we came away with eight suggestions to help ensure that your next outsourcing contact—and contract—will be successful.
1. Make sure there is a strong cultural fit between your two organizations. This involves both the country of origin of the outsourcer and your own corporate culture. “The Dutch are very direct at telling you when you have done something wrong, but in India, that can backfire and shut things down immediately” says Scott McDonald, the CTO of FCI USA, in Etters, Pa., a manufacturing company with French headquarters that has used a number of outsourcers all over the world.
“The French like to have a lot more interaction than we do, and in Asia they like more structure and to understand the various components of a process. We hired an external consulting firm to help us understand the differences among the various cultures and how we operate.”
Google calls this culture fit “Googleyness,” offering “an environment that inspires original thinking, encourages people to take the initiative, is guided by data and user experience, has a flat management hierarchy, and is willing to take risks and be innovative,” says Patrick Chanezon, a Google developer relations manager in charge of outsourcing initiatives, who has worked with Globant in Argentina.
“We interviewed Globant as if they were going to be hired by Google internally,” says Chanezon. “We tried to understand not just if they had the right knowledge level, but also how they worked—such as their use of agile programming methodologies and if they knew how to do appropriate software testing. We wanted an outsourcer that works on open-source projects in their daily practice.”
2. Top-to-top commitment. Senior-level management at both organizations should meet regularly and understand what success means in each other’s terms. “We have a joint innovation council with the CTO of Xerox and our management,” says Kim Kehling, the director of global business services for Procter & Gamble (P&G), in Cincinnati, who manages an outsourcing relationship with Xerox. “We meet quarterly to review our business needs and look each other in the face. We review our key projects and any outstanding operational issues together.”
Just because your top execs meet, don’t expect them to be mind readers. “Don’t expect that your outsourcer has intimate business knowledge about your own operations,” says FCI USA’s McDonald. Spell it out in terms they can understand.
3. One plan, one goal. Make sure that your outsourcer has the same measurements for success that you do. And make these assessments honestly and with full disclosure. Be open with the outsourcer if the arrangement isn’t working out, and figure out what is needed to fix things.
“The quality of the software code that our outsourcer produces depends greatly on the quality of the specs and requirements that we supply to them,” says McDonald. “We began by being much too casual about the requirements, and we suffered as a result. If you don’t have clear specs, you aren’t going to get good code.”
4. Putting the right work with the right partners. “When we first started outsourcing, we thought we’d have one partner for everything we outsourced, but we learned that wasn’t a recipe for success,” says P&G’s Kehling. “Now we find a best-in-class provider for a particular project—facilities is different from print management and so forth—and hire our outsourcer accordingly.”
Part of this effort involves rightsizing your outsourcing needs, which means making adjustments when it’s time to add or subtract resources as your business grows or contracts. “We wanted a more flexible solution than Oracle on Demand offered us,” says Larry Campbell, vice president of information management and technology for Development Alternatives Inc., in Washington, D.C. DAI has used Navisite for its outsourced hosted Oracle applications and Virtustream for outsourced data center business-continuity purposes. The company picked Navisite and initially cut its costs in half.
Part of rightsizing is understanding what your actual needs are—whether you are outsourcing your infrastructure or your technical skills. “Some managers find it difficult to delegate anything to somebody down the hall, let alone in another state or overseas,” says Campbell. “These probably aren’t the right people to manage projects, especially projects that use outsourced offshore technical resources.
“Outsourcing a custom application development project, for example, can be challenging. You need clear instructions throughout, and you must have developers with more than just the ability to code.
“We have found that DBAs [database administrators] and consultants who support our Oracle EBS [E-Business Suite] applications have worked very well when outsourced overseas. I believe it’s the result of the defined set of tasks required to support those systems and technologies. When we need creativity and flexibility, that’s when we run into problems.”
5. Allow your outsourcer to fail often and quickly. Part of this process involves putting in place checkpoints that are frequent enough to evaluate progress, and ensuring that the outsourcing team is on the right track. “Make sure you can learn from your failures, too,” says Google’s Chanezon.
“When we were building the test for our Checkout API with Globant, they could have done a very lengthy design process of a few months. Instead, we had daily discussions, and it took them just a week to put together a basic prototype of the testing framework that we could build every day. Since we could detect failures early, we got further ahead and were able to explore a lot of different areas.”
When P&G hired Xerox to manage its enterprise printers, Xerox was in the process of building its Enterprise Print Services management tool so that any employee could print a document to any printer across the enterprise. “Xerox assumed that all our printers had to be on the same physical network, but we pushed them to make their tool work across multiple networks,” says Kehling. Since implementing this tool, P&G has printed 8 million fewer pages and cut costs by 21 percent by replacing desktop printers with more efficient workgroup printers.
DAI also has frequent checkpoints with its outsourcer, Navisite. “My team does weekly status meetings with them to make sure that the right things are happening, and there are daily e-mails and phone calls,” says Campbell.
6. Find the win-win. “We have to make the entire pie bigger, but not at the expense of my outsourcing partner,” says P&G’s Kehling. “You don’t get a win-win without thinking of your outsourcer as a partner.”
7. Is the A-team in place? Do you have your best people managing the outsourcer, and do they have the outsourcer’s best team working on your project? “Four years ago, we had some issues with our outsourcer,” says FCI USA’s McDonald. “They were losing about a third of the team supporting us each year.
“We couldn’t attract and keep the talent. We kept 10 or so from the beginning, but the rest of the organization was turning over rapidly. We couldn’t develop them quickly enough, and, by the time we finally did, they would leave and go elsewhere.”
8. Don’t choose an offshore outsourcer that is too far or too many time zones away. One of the issues with having Oracle On Demand as an outsourcer for DAI was that the company offered a “follow the sun strategy for their support,” Campbell recalls. “We were never talking to the same person twice when we called with a problem.
“Now, with Navisite, we deal with the same people, and they know our history, so we have a lot of continuity. We save a lot of time by not having to repeatedly review our situation.”
One of the reasons Google went with Globant was because it was in South America and had working hours that coincided better with Google’s headquarters staff.
Managing outsourcing involves a delicate balance among various factors, including personnel, costs, geography and culture. By using some of these suggestions, you should be able to avoid the pitfalls and enjoy the benefits of outsourcing.