As outsourcing takes the center stage as a measure organizations use to cut cost, with it comes deadly risks and rewards if done well. Outsourcing has many benefits that have seen even tech giants such as IBM, Apple Inc., and Microsoft outsource some of their services. This article focuses particularly on IT mistakes that an organization should avoid in order to reap the most from outsourcing.
Outsourcing the Wrong Activities
As the struggle for profits and a place in the competitive business world affects many business the same applied for tech firms. Intense competition is out there and only the most innovative firms are the ones benefiting from contracts.
Outsourcing firms are going overboard to offer extra services beyond their areas of specialization. This may sometimes act as a trap to many business that would prefer to accept extra services which may end up being an essential service/job that would have been better kept in-house. Prior to accepting a service business should do an analysis of the pros and cons of outsourcing the job and a risk assessment.
Transition is a process equally important to the rest of the outsourcing phases. According to Varma from CIO.com, poor transition might lead to loss of stakeholder confidence, delay in go live dates, and disruption of certain business processes. Transition process is one of the phases in outsourcing process that is underestimated but in essence requires effective planning and oversight.
There should be sign off of the transition phase. Business and the contractor should do evaluation of the transition stage to ensure that knowledge transfer has been impacted to the staff. If possible the contractor should develop a portal where business can get learning materials such as videos for demonstration.
Overestimating Cost Savings
Business always find outsourcing to be a cost benefit in many ways. However, many business are caught in the trap of overestimating the cost benefits of outsourcing IT and neglect the nitty-gritty that come with outsourcing IT functions. Unlike other processes that are outsourced, IT outsourcing would mean collaborating with the contractor during different time zones, excessive training of in-house staff if it is a technical activity, involvement of teams during development. Considering these and other inconveniences that may be faced by business then the aspect of cost savings are least reaped and sometimes it would have been better doing the activity in-house rather than outsourcing.
Ignoring Exit Strategy
If outsourcing hasn’t worked there should be an exit strategy in place so that all parties to the contract have no legal disputes to settle. Often this is least remembered and not put in place in the contract. It is not once that business have fallen victim of a contractor failing to deliver all the milestones previously agreed. In such cases, an exit strategy come in handy. An exit strategy saves the company time and money that may arise from legal battles.
Wrong Pricing Model
The pricing model you use is important in determine the quality of job you will have. Different IT projects may require different pricing models. For short-term projects it would be preferable to use fixed milestones.
Managing a dedicated development team, you would better use a time tracker application to track hours worked and pay against the hours. Different projects have different approaches of working and to reap the maximum benefits of a project it would be rational to identify the best approach of compensation prior to starting the project.
Contracting for Innovation
Whereas contractors/vendors might bring in radical changes that might mean an overhaul of the current IT systems in place, it is not sufficient to rely on contractors for your entire IT innovation. Business should employ the right professionals that will steer the organization to the right places technology wise. Having even one manager in place who is knowledgeable on the best IT practices is better since with the manager you expect innovation of business process and possible re-engineering of the current IT systems in use.
Some business will fall short of innovation by having the wrong IT professionals and in turn covering their shortfall by outsourcing a contractor and expect the contractor to be innovative. This is a costly mistake that business should avoid by all means.
Focus on the Solution Instead of the Problem
It is not weird to see organization spending a lot of money to purchase the latest IT gadgets or systems at the expense of addressing the existing problem. Business should try to address the root cause of the problem instead of rushing to fix solutions to the problem. If an organization is not affected by a new technical breakthrough there shouldn’t be any need to invest in the technology.
By focusing on problems organizations are able to solve a lot of hidden problems that may have been piggybacking on the existing problem. Sometimes procuring the least priced IT system/equipment sometimes can get organization out of their existing problems.
Outsourcing a firm that is famous for a certain skill at a premium cost doesn’t mean that existing common organization can fix problems. Therefore it is prudent for organization to draw a clear solution path to their problems at the same time they should clearly identify their problems to avoid scenarios of hopping from one solution to another instead of focusing on the problem.
Different organization have different success paths and stories. While an organization might have an IT outsourcing blueprint for their journey to success, it is not advisable to adopt the same blueprint. Organizations have different challenges and face different problems. One organization reason for outsourcing will be different from another organization.
Therefore, businesses shouldn’t depend on a fixed solution path that might have been offered by a contractor. Organizations should define their risk profile, define their existing challenges and draw a solution path to their problem prior to outsourcing. If your competitors in the same industry are outsourcing, that’s not the reason for you to outsource.