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15 Attributes of Leaders in IT Outsourcing

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IT outsourcing has evolved rapidly, especially during the last year. These changes are primarily

due to technological advances, although the increasing globalization of business is also a factor.

The attributes of the best IT outsourcing leaders also are shifting in response to this evolution.

These attributes may generally be classified into personal characteristics and strategies.

Personal characteristics include collaboration

with service providers, rather than the

adversarial approach that has been more

common in the past. IT outsourcing leaders

also are adapting new strategies that often

involve changes in billing terms and service

level agreements (SLAs). Additional changes

include the transition to cloud computing

as a strategic imperative, particularly the

use of software-as-a-service (SAAS).

The attributes shared by the top leaders in IT outsourcing include the following 15 items:

1. Organization

2. Cloud computing

3. Standardization

4. Renegotiation

5. Supplier risk

6. Multi-sourcing

7. Business leadership

8. Procurement

9. Deployment

10. Monitoring

11. Metrics

12. Operations

13. Global considerations

14. Regulatory compliance

15. Outcomes

Introduction

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OrganizationOrganizations typically use outsourcing for business processes that aren’t within

their core competencies. These processes usually include IT support, although

accounting, financial, and customer service also are commonly outsourced by

organizations in all industrial sectors. Some industries also have specific processes

that lend themselves to outsourcing, such as manufacturing and telemarketing.

Offshore outsourcing generally refers to the use of service providers in another country.

The primary benefit in the United States of this type of outsourcing continues to be

significantly reduced costs, which are typically 30 to 70 percent of domestic providers.

Developing countries can now routinely provide highly educated professionals

who speak English and are proficient in a variety of business process.

While cost savings is the traditional reason

for using offshore outsourcing, other factors

have recently started to drive the use of

outsourcing as well. Offshore providers

meet flexible staffing needs. These include

full outsourcing, where the outsourcer

takes complete control over staffing

requirements, and staff augmentation, in

which the outsourcer provides specific

skills required by the client organization.

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The maturation of the global IT market has created competitive pressures resulting in a dramatic increase in the quality of work that outsourcers can provide.

Maturity

The outsourcing market is maturing, especially in IT. The maintenance of legacy

systems has traditionally been a common use of IT outsourcing, but this use is

declining as legacy systems are replaced. However, the support and maintenance

of modern systems remains a strong capability of IT sourcing providers.

The maturation of the global IT market has created competitive pressures resulting in a dramatic

increase in the quality of work that outsourcers can provide. Credentials that attest to a service

provider’s quality include the Capability Maturity Model

Integration (CMMI) certifications from Carnegie Mellon’s

Software Engineering Institute. For example,

India now has as many firms with level 4

and 5 CMMI certifications as the U.S. The

International Organization for Standardization

(ISO) also provides certifications for IT outsourcers.

The development of new applications is another indication of the maturing IT market. Outsourcing

firms are routinely able to develop mission-critical software that requires a high degree of

involvement from the client. These applications typically include customer-relationship management

(CRM), enterprise-resource planning (ERP), and supply-chain management (SCM).

Control

An organization’s structure need not change dramatically to retain effective

control over an outsourced project. However, structural change is more likely to

be necessary when an organization outsources a business process, especially

when this requires improved communications. Organizations often underestimate

the realignment that will be required to support an outsourced process.

A service provider rarely assumes total control over an outsourced process. The client

organization’s own personnel almost always manage the provider, even when the

process is entirely outsourced. These personnel should be directly accountable to

senior management with responsibility for setting directions for the provider, establishing

priorities, and assuring quality of service. Organizational structure must be particularly

robust in the case of co-sourcing, where the client and provider share responsibilities.

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Top IT outsourcing leaders are careful to distinguish high-value activities from commodity

activities when considering outsourcing requirements. The client organization should

generally perform high-value activities while outsourcing commodity activities to providers

that specialize in them. The organization of high-value and commodity activities is

often very different prior to outsourcing, especially when the same people perform

both types of activities. Significant restructuring may therefore be necessary to retain

accountability over high-value services after outsourcing the commodity activities.

Monitoring

Monitoring is another critical area to consider when

restructuring an organization for outsourcing. The

degree of monitoring required for a purely internal

organization is generally significantly less than that

needed in an outsourcing environment. The primary

reason for this difference is that the internal members

of an organization tend to have more closely aligned

interests since they have the same management

and company culture. The members of an external

service provider should be subject to more intensive

monitoring, even when the provider is highly trusted.

Outsourcing also may require an organization to

change its management. Prior to outsourcing,

direction and priorities can be highly collaborative

due to the close alignment of interests among the contributing parties. This atmosphere is

especially common in a well-managed organization that allows staff members to provide

direction and priorities based on their intimate familiarity with specific tasks. Such a

collaborative atmosphere is rarely the case with outsourcers, which tend to have a more

reactive management. This trend is especially strong with large offshore providers.

IT leaders must therefore drive the outsourcing process instead of simply

coordinating it. A clear understanding of the organizational applications is therefore

essential before committing to any outsourcing relationship. Restructuring

considerations may even affect the choice of outsourcing partner.

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The merging of autonomics and technology is one of the most significant trends in

cloud computing that affect outsourcing. The increasing use of smart robots on cloud

platforms is promoting the view of labor as a service by IT leaders. Service providers are

responding to this trend by implementing virtual agents that a cloud platform can easily

host. This practice will continue to build the momentum of autonomics in the cloud.

Cloud computing

The standardization of cloud-computing technologies, such as virtualization and other

utilities, will minimize the technical differences between sourcing providers in 2016. This

trend toward standardization will provide client organizations with increased efficiency

and reduced costs. The convergence of these technologies will thus create a new

operating model for outsourcing. IT leaders can capitalize on standardization by simplifying

their organization’s IT environment with bespoke outsourcing arrangements.

Standardization

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Outsourcing analysts expect over $100 billion worth of outsourcing contracts to be renegotiated in 2016.

Outsourcing analysts expect over $100 billion worth of outsourcing contracts to be renegotiated

in 2016. The primary reason for this renegotiation is the transition from a tower-based

model with a single provider to a cloud-based model with multiple providers. The workload

for a particular process will be run from the most appropriate cloud platform, rather than

a centralized infrastructure. This trend will provide IT leaders with a greater knowledge

of cloud brokerage software, allowing them

to streamline their outsourcing

operations through the increased

use of automation. Top outsourcing

leaders also will use analytics to obtain greater

visibility into their outsourced supply chains.

Renegotiation

The management of supplier risk is becoming a higher priority for IT outsourcing leaders.

The increased visibility into an organization’s supply chain greatly increases the brand risk of

a supplier failure. IT leaders should therefore strive to integrate supplier risk more closely with

their daily operations. Discussions of supplier risk have traditionally been limited to quarterly

meetings, but supplier risk should become a critical factor in major business decisions.

IT leaders should consider the political and economic climate in a vendor’s geographic

region when making outsourcing decisions. For example, providers in Russia and Ukraine

will generally pose an increased geopolitical risk. Sourcing services teams should bear

the responsibility for location monitoring, since this type of risk has such a direct effect on

outsourcers. This approach to monitoring also will help to minimize disruptions due to other

location-specific issues, including legislative changes, reduced labor pools, and weather.

Supplier risk

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IT sourcing is trending toward a larger number of smaller deals, primarily due to the increased

use of cloud platforms. SaaS in particular will be a driving force behind the growing number

of service providers used by each client organization. IT leaders must respond to this trend

towards multi-sourcing by increasing the governance requirements of their organization.

The management of service providers will begin to resemble the current management of software

due to the increasing commoditization of IT infrastructure and specialization of software. This trend

in outsourcing should result in a more aggressive elimination of unused or duplicated services,

allowing for an overall increase in outsourced services. The integration of multiple outsourcers

will therefore become a critical factor in the success of an organization’s outsourcing efforts.

Multi-sourcing

The purchase of technology services is shifting from IT to business, requiring IT

leaders to take a more active role in the organization’s overall leadership. For

example, product-development teams are more likely to consider IT services to be a

core requirement and handle those purchases directly. This trend will tend to divide

organizations using shared services if they aren’t prepared for this change.

The direct purchase of IT services by business leaders will result in a short-term shift of negotiating

power to services providers as they target new buyers. This shift will be accompanied by a

streamlined procurement process, as IT outsourcing migrates to a service-brokerage model. It

will involve IT leaders taking more direct control over IP services from separate business units,

which often deploy their own applications rather than provisioning infrastructure through the IT

department. This practice, commonly known as shadow IT, will become less prevalent under a

service-brokerage model. Top IT leaders will make compelling business cases that they can deliver

savings in IT outsourcing through superior service selection, integration, and measurement.

Business leadership

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The traditional IT procurement process is characterized by requests for proposal (RFP),

which generally involves a burdensome bidding process. This process is too expensive

and time-consuming in the current environment of rapid technological change.

Furthermore, business requirements frequently change by the time organizations begin

receiving RFPs. Emerging technologies such as wearables and Google Glass are a particularly

poor fit for procurement with RFPs, since enterprises may not understand new technology. IT

leaders in these organizations need to collaborate with service providers to determine how to

use new technologies most effectively. An enterprise marketplace, which IT leaders are now

using instead of RFPs, is a more effective purchase process in today’s dynamic business

environment. Such a marketplace serves as a broker that connects customers with providers.

Procurement8

The deployment of an extensive outsourcing

project is not a trivial process, so IT leaders need

to approach it cautiously. This is especially true in

the case of offshore outsourcing, where the service

provider may have a different language and culture.

IT leaders must identify the primary risks with

offshore outsourcing and manage them effectively.

Proceeding into a commitment too quickly is one

of the biggest risks with outsourcing. Familiarity

with an outsourcing partner requires time, but

it’s necessary to avoid misunderstandings and

ensure that the project isn’t too complex for the provider to handle. A pilot project is often

helpful to determine if outsourcing is mutually beneficial to both the client and the provider. It

should be relatively easy to manage and carry a low risk in the event of failure if the purpose

of the main outsourcing project is to accomplish a specific task. If the main project is for

ongoing outsourcing, the pilot project should not be mission-critical or overly complex.

Deployment9

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Effective monitoring of outsourcing projects requires IT leaders to choose the right

metrics to measure performance. The best metrics vary among organizations,

although some general rules apply. For example, the metrics used in monitoring

must be defined in a way that motivates the desired behavior.

The number of metrics must be limited so that they don’t add significantly to the

provider’s costs, which will eventually be passed on to the client organization.

Furthermore, the measurement environment shouldn’t become overly complex due

to a large quantity of data collection and analysis. IT leaders also must prioritize

performance factors when developing metrics. These factors typically include cost

reduction, defect reduction, productivity increases, and shorter time-to-market.

Monitoring10

A pilot project provides an opportunity to refine the processes of interaction between client

and provider. It also should build familiarity between these two organizations, especially

when they have different cultures and business process. These benefits are often essential

for the success of the primary project, when the price of failure is much higher.

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IT leaders must choose metrics carefully so that they encourage desirable behavior while

discouraging undesired behavior. For example, if one of the metrics in a software-development

project measures the number of lines of code produced by the programmers, it will certainly

motivate programmers to generate code. It will also discourage them from generating elegant

code that will be easy to modify.

Defining the specific methods by which

metrics must be met is a mistake

that IT leaders often make. They

should focus on developing objective

measurements for the desired results

rather than requiring the service

provider to meet them in a certain way. The provider is already motivated to

establish methods that will optimize performance in an achievable manner, since

this result is necessary to establish a long-term relationship with the client.

IT leaders should choose metrics that they can easily measure. For example, a metric to

determine whether a program meets a particular set of software standards would certainly

be desirable, but it wouldn’t be easy to implement since it would require an extensive

manual review. On the other hand, metric analysis tools that can automate this process

are readily available and can obtain the desired behavior at a fraction of the cost.

Metrics

IT leaders should focus on developing objective measurements for the desired results – rather than requiring the service provider to meet them in a certain way.

Establish baselines

The next step after defining metrics is to establish baselines for the metrics. These benchmarks

must be achievable from the very beginning of the project, although an SLA often requires

a significant improvement from the baseline performance over time. This strategy assumes

that performance will improve due to increased familiarity with the metrics. However, the

use of SLAs to improve performance may not be sufficient by itself unless a large quantity

of empirical data is available to support these metrics. Top IT leaders are prepared to make

frequent adjustments to a metric’s baseline to ensure that it’s aggressive but achievable.

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For example, function-point analysis is often used to determine a task’s complexity in software

development. This metric requires the creation of function points such that each point is

associated with a set of attributes that are required to complete the task. These attributes include

requirements like cost, work hours, and total time. The values of each attribute in the function

points can be added together to determine an estimate of that attribute for the entire task.

The problem with obtaining estimates from a function-point analysis is that it typically requires

many assumptions that are only true for a stable organization. Function-point analyses

are therefore almost never valid for organizations with a high turnover of personnel or

systems that change dramatically. Measuring an outsourcer’s performance based on invalid

assumptions can create unreasonable expectations. On the other hand, it can cause the

outsourcer to greatly exceed the client’s expectation. However, this result can create its own

set of problems by failing to provide the outsourcer with any incentive for improvement.

Categories of metrics

The performance metrics that may be specified in an SLA can fall

into several categories. The most common types include:

• Efficiency

• Quality

• Volume

• Responsiveness

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Efficiency metrics measure an outsourcer’s ability to provide a service at a reasonable cost.

IT leaders must use caution to ensure that these metrics will increase delivery effectiveness

or the volume of work. Assume that an outsourcer has committed to processing 100 customer

support calls at a cost of $1,000 per day. An efficiency metric that simply measures the

average cost per call won’t show an increase in efficiency if the outsourcer cuts the average

duration of the calls, since the outsourcer will still be handling 100 calls per day for $1,000.

On the other hand, a metric that measures the average cost per minute of call time would

show an increase in efficiency, which could then be tied to a performance incentive.

Efficiency metrics may be further classified into several subcategories:

• Rework levels. These metrics measure the percentage of work product that is

returned to a previous step. They help to identify patterns that lead to wasted effort.

• Cost efficiency. These metrics include the average cost of a support call. They help

to identify cost reductions and productivity increases.

• Team utilization. These metrics measure the individual workload of the individuals

on a team. They help to increase the efficiency of resource utilization.

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Quality metrics measure a deliverable’s conformance to a set of specifications.

These metrics are very diverse, since quality covers a wide range of characteristics.

The primary purpose of quality metrics is to determine when deliverables fail to

meet the specified criteria. The specific types of quality metrics include:

• Standards compliance. These metrics typically measure the adherence to

internal standards for deliverables, such as source code and documentation.

These metrics include the percentage of programs passing the standards review

and the number of documented programs.

• Technical quality. These metrics measure the quality of the code. This type of

metric includes the number of coding defects, degree of complexity, degree of

structure, and program size.

• Service availability. These metrics measure the time during which the

outsourcer’s managed services are available. This type of metric typically refers

to the percentage of business hours during which the service is available.

• Service satisfaction. These metrics typically rely on surveys to determine the

degree of customer satisfaction.

Volume metrics measure the level of effort that the outsourcer provides within the scope

of the contract. This quantity is generally measured as the number of deliverables that

are produced within a given unit of time. Volume metrics are typically the most common

metric in outsourcing, since any expended effort that falls outside this scope requires

separate billing or a renegotiation of the SLA. IT leaders should specify these metrics

for each major deliverable in the SLA. Common examples of volume metrics include the

number of maintenance requests per month and the number of outbound calls per day.

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Responsive metrics measure the time needed to handle customer requests and

are highly important in outsourcing. Some examples of these metrics include:

• Backlog size. This metric includes the number of customer requests awaiting

service over a given time and the number of work hours required to process

those requests.

• Time-to-acknowledgement. This metric typically measures the time that an

outsourcer requires to acknowledge a customer request. It also measures the

time required for the request status to become available.

• Time-to-market. This metric measures the elapsed time from the receipt of

the initial request until its resolution.

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IT leaders are often challenged by operational factors, and the effectiveness with which they

address these challenges has a profound effect on their organization’s ability to serve its

clients. General operational challenges include data transfer rates, disaster recovery, personnel

attrition and security policies. Operational factors that are specific to outsourcing include

the degree of synchronization between the client’s infrastructure and that of the outsourcer.

A major time difference between client and outsourcer can pose a major operational factor

that must be carefully considered before entering into a commitment with an outsourcer.

IT leaders should thoroughly discuss operational factors with their prospective outsourcing

partners to arrive at mutual agreements on these issues. These understandings may then be

formalized into contracts and SLAs at a later time. Top IT leaders visit their outsourcer’s facilities

as needed to monitor compliance. Furthermore, contracts and SLAs should always contain

an exit clause and specify remedial actions in the event of unsatisfactory performance.

Operations12

The effectiveness with which IT leaders address operational challenges has a profound effect on their organization’s ability to serve its clients.

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Geographic location is often an important consideration when selecting an outsourcer,

since many potential partners live in politically unstable regions. The best strategies for

mitigating this risk include selecting partners with some domestic facilities. The client

can then secure a commitment from the outsourcer to move key personnel to these

facilities, if necessary, to maintain continuity of service as much as possible.

Top IT leaders also protect their organizations from

adverse action by foreign legal systems, which can result

from disagreements between client and outsourcer. Many

countries, such as India, have mature legal systems

that resemble those in the United States. Nevertheless,

outsourcing contracts should contain a provision that any

disputes must be adjudicated in a domestic court or at least

mediated by domestic authorities. An organization’s legal

representatives should also ensure that an outsourcing

partner can be challenged in a domestic court.

Western cultures tend to value candor in communication, especially in technical

professions. However, other cultures are more likely to use less direct communication.

This difference carries a risk of misunderstanding that can jeopardize a business

relationship. Even when both parties speak English, a language barrier can present

a major challenge when an outsourcer speaks English as a second language.

A clear understanding of contractual details by all parties requires particular attention to detail to

minimize the risk of misunderstandings. Details such as requirements and deliverables must be

thoroughly discussed and placed in their proper context to avoid confusion based on different

perspectives. This level of rigor is particularly important when language and culture are different.

Global considerations13

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The displacement of domestic workers continues to be a subject of increased scrutiny in the

United States. This trend is unlikely to change in the foreseeable future, and other Western

countries are also increasing the regulation of employment. However, regulatory requirements

are more likely to affect the manner in which outsourced services are delivered, rather

than causing an overall reduction in the use of outsourcing. For example, outsourcers that

largely rely on staff members who require long-term work visas may be at considerable risk

from new legislation designed to protect domestic workers. IT leaders should therefore give

preference to outsourcers that use a more even mix of foreign and domestic workers.

The increase in employment regulations is encouraging the use of an outsourcing model known as

mediated outsourcing services. This model involves the use of a third party to mediate the relationship

between client and outsourcer. This third party also provides management consulting services,

allowing the outsourcer to focus on performing commodity services. IT leaders should make greater

use of mediated outsourcing services to avoid regulatory issues when using off-shore outsourcing.

Regulatory compliance14

IT leaders should make greater use of outcome-based pricing to address some of the problems

associated with the upfront investment, which is the traditional method of contracting with a third

party. Market-facing outsourcing solutions, such as campaign management and inside sales, will

continue to increase in 2016. These solutions will allow providers to more easily align compensation

and other incentives with the intended business outcome of their clients. Market-facing solutions also

will change the manner in which outsourcers engage their clients. For example, outsourcers will use

cloud platforms more often as a means of differentiating themselves based on their unique services.

Outcomes15

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ConclusionOutsourcing will remain a viable means of obtaining specific IT services and general support

for organizations of all sizes in 2016. Large, complex organizations will be particularly

dependent upon outsourcing, which will allow them to focus on their core competencies.

Leaders must restructure their organization to leverage outsourcing opportunities and manage

them more effectively, if they are to remain competitive in an increasingly dynamic operating

environment. Defining an outsourcing strategy and applying it is an effective way for IT leaders

to improve their organization’s bottom line. It will also help protect their organization and its

stakeholders from global instability and increasing regulatory scrutiny of foreign workers.

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Sources

http://ww2.cfo.com/it-value/2013/03/seven-keys-to-successful-it-outsourcing/

http://www.cio.com/article/2381555/careers-staffing/16-traits-of-great-it-leaders.html

http://www.cio.com/article/2864429/outsourcing/10-outsourcing-trends-to-watch-in-2015.html

http://www.distilnfo.com/itadvisory/2015/11/11/5-key-qualities-it-leaders-should-cultivate/

http://www.informationweek.com/strategic-cio/enterprise-agility/4-

it-outsourcing-trends-to-watch/a/d-id/1297736

http://www.tbicentral.com/our-white-papers/shore-outsourcing-best-practices/

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