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How
to outsource:
4 simple steps to success
By
Vinod Swami
Vice
President
Syntel
Inc.
Troy,
Michigan
There's
no better time to consider offshore outsourcing. The sluggish
economy has made cost cutting a top priority for most organizations,
and IT is no exception. But saving money isn't the only
reason to outsource. According to Gartner, it's not even
the top one these days. The new number one motivation to
outsource is the ability it gives companies to concentrate
on strategic initiatives. Not far behind is the opportunity
it provides to gain operational efficiency through its increased
speed-to-market and leveraging of scarce or expensive IT
resources. All are great reasons to consider outsourcing.
But making the decision to include outsourcing to reach
your tactical goals is the easy part. How to Outsource successfully
is not impossible, but takes dedication to the process.
Part
1: The Application Health Check Choosing the applications
that will benefit most and determining how to get the most
bang foryour buck is the challenging portion of the equation.
Not all applications are viable candidates. A key precursor
to entering an outsourcing arrangement is to analyze and
determine which applications in your portfolio you should
outsource. The criterion include the size and stability
of the application, resource availability and skills, and
investment-to-value ratio. The Health Check Indicator Syntel
recommends using a quantitative approach to determine the
relative ease of outsourcing applications. Our own proprietary
approach — The Health Check Indicator — uses
nine different factors to define the characteristics of
each individual application and its suitability at any given
time. By assigning a numerical score, a subjective average
is derived. This average ranks the application
into a relative position for outsourcing. These criteria
include:
·
Size of the application: Larger applications are more suited
than those that require less than two full-time equivalents.
This is especially true for applications intended for use
in an onsite offshore mix of resources.
·
Technology platform: This element is important when grouping
applications to reach critical mass. Applications that require
a special technology skill or those that stand alone within
a portfolio are harder to outsource because of the high
costs to provide backup resources and the effect on an on-site/offshore
mix.
· Stability of the application: Stable applications
(few software problems) are easier to maintain and support
than those that have a significant amount of problem tickets
over a set period of time. The time to repair, conduct root-cause
analysis, and improve overall performance is directly proportional
to the amount of support time required.
·
Volatility: This defines the amount of change to the application
over a determined time. Those that are highly volatile have
a much greater chance for swings in the number of error
conditions that must be addressed.
·
Candidate for retirement: Applications scheduled for retirement
in the near term (i.e., less than a year) are not good candidates
since the investment in knowledge acquisition and transition
would be high compared to the return value.
·
Required business knowledge: All applications require a
level of business knowledge to ensure high productivity
of support. However, some require a detailed understanding
of the business rules and the complexity of the business
process. This item is one of the most difficult to quantify
because existing owners tend to place a high value on the
requirement.
·
Complexity: This measures the relative complexity of the
application including complexity
in processing logic, a high number of interfaces, multiple
support platforms, etc.
·
Development phase: This metric defines whether the application
is under development or enhancement and whether it is nearing
a milestone or cutover phase. An application in the final
stages of testing would not be a good candidate.
·
Service level requirements: The service level requirement
provides an indication as to the critical nature of the
application for the operations of the business and the impact
a problem to it would cause. Furthermore, very tight service
level agreements would point to mission critical requirements.
The
Scorecard
Based
on the scores, applications are categorized as:
·
Immediate candidate with a 30-day transition.
·
Good candidate with a 60-day transition.
·
Long-term candidate with a 90-day transition.
·
Application not a candidate currently, but can be monitored
to identify changes that may alter its viability for outsourcing.
Based
on this scorecard, further analysis can be conducted by
skilled consultants to advise you on how to group applications
being outsourced — or even those remaining in-house
— to further optimize productivity and resources.
By
assessing each application in your portfolio with this simple
and easy to use tool, you'll increase your chances for a
successful offshore outsourcing arrangement.
Part
2: Cultural Alignment
Cultural
alignment is a critical aspect to consider when selecting
an outsourcing vendor — one most often overlooked.
Typically,
when a company chooses to outsource, it assembles and issues
the infamous RFP (Request for Proposal). Sometimes these
documents aren't daunting. Other times they look like the
IT version of War and Peace. The RFP typically asks all
kinds of questions about the methodologies, technology,
and experience of a potential vendor. The vendor response
should supply answers to these questions and hopefully impart
additional information and insights about their capabilities.
But one aspect that's difficult to gauge from traditional
RFP questions is the nature of a vendor's corporate culture.
You may be wondering what corporate culture is and what
difference it makes in selecting a vendor. First, let's
tackle the definition. Corporate culture is the beliefs,
values, and symbols that a company uses to define itself.
Simply put, it can be boiled down to "how things are
done around here." All companies have a culture and
no two companies have the same culture. It's what makes
working with or for each company unique. Often organizations
will give hints as to what their culture is like in their
vision or mission statement or in their recruitment literature.
For example, Syntel often describes the company as follows:
Syntel's
entrepreneurial culture encourages employees to think and
act like company owners, delivering a culture of Opportunity,
Choice, and Ownership.
When
choosing an outsourcing vendor, the chances of a successful
engagement are greater if each participating company has
compatible cultures. How do you know if a particular vendor's
culture is analogous to your own? Unfortunately for IT managers,
its not about technology. It's a process of making intuitive,
emotional appraisals about a company — the sort of
criteria that zooms most techies out of their comfort zone.
It's about people and how they go about doing their work
and relating with each other. The look and feel of an office
and the dress and attitude of employees are non-verbal clues
that may reveal some information.
A
key standard for determining corporate culture includes
assessing who makes the decisions within a company. Is management
making all decisions or are lower-level employees empowered
to make day-to-day ones? Is risk-taking encouraged or does
a "don't rock the boat" mentality exist? Is the
company extremely focused on high quality or just getting
the job done? Does the company make each employee feel they
are a valued part of the corporation or does it concentrate
on the bottom-line and profits? Does it reward innovators
who think outside the box? Or are employees expected to
do things a certain way because "that's how we've always
done it?" Is there a formal atmosphere or are relationships
more casual? A vendor's style needn't be a perfect match.
As long as the two cultures aren't at opposite ends of the
spectrum, the client/vendor relationship will most likely
go smoothly. Often the vendor's employees can adapt to the
client's culture during the transition phase. The importance
of this is all too clear in the following example. For instance,
if the vendor's style is to encourage innovation and thinking
"out of the box" and the client expects a conservative
approach, a potentially serious conflict could result. This
could jeopardize the client's faith in the vendor. On the
other hand, a vendor whose employees routinely are very
conservative, rather than seeking original or unconventional
solutions may find the client distressed with the proposed
solutions.
In
an outsourcing arrangement, the vendor employees will work
closely with members of your IT staff. Associates from both
companies need to work collaboratively and effectively as
a team.
Even
if the vendor's corporate culture seems quite different
from your own, don't count them out. An experienced outsourcing
vendor will adapt its team to fit your culture. With a proven
process for integrating a new team into your workplace and
culture, the arrangement will most likely be successful.
It is important to take the cultures of the two organizations
into consideration when structuring the relationship and
defining work guidelines. Both the customer and the vendor
should agree in advance on the communication channels, escalation
processes, responsibilities, and authorities to ensure success.
How
does one evaluate the corporate culture? Asking questions
relative to decision-making, problem solving, documentation,
and the transitioning process is the first course of action.
Site visits are another great way to get a first-hand look
at how a vendor works.
Part 3: A Smooth Transition
Ask
any IT manager the keys to successful outsourcing and they
are sure to mention at one point or another the importance
of a smooth transition. The transition phase involves multiple
stakeholders and a number of dynamics that come into play.
How successfully your organization and the vendor handle
these dynamics plays a major role in the outcome of the
outsourcing arrangement.
The
new service delivery paradigm that outsourcing brings to
an organization impacts all of your takeholders—employees,
users, and support groups. Many employees will be concerned
about the implication of this change to their jobs and to
their futures. For some employees, a clear understanding
of the required changes and their rationale will foster
immediate buy-in and support. Other employees will express
their concern by asking questions, challenging rationales,
and finding holes in the implementation plan and process.
And still other employees may
resist the change by either avoiding involvement or causing
real or potential disruption.
Understanding
the Stages of Resistance
A
key step in a smooth transition is understanding the three
stages of behavioral patterns as it relates to organizational
resistance. The three basic stages that have been identified
by organizational management professionals are Holding On,
Letting Go, and Moving On. Holding On is the initial the
resistance to change that occurs when individuals "hold
on" to that with which they are most familiar and comfortable.
Many users are used to getting served in a particular way
from a team. There is mutual trust as well as fear of the
unknown. In the case of offshore outsourcing, their team
may now be thousands of miles away instead of just down
the hall. This naturally causes concerns such as:
How do I know what my team is doing offshore?
How
do I speak to my team during my workday?
Where is everybody?
Signs of this stage include "forgetting" to attend
meetings about the change, coming into work late, an increase
in employees calling in sick, or when people become irritable
or withdrawn from others with whom they have previously
had good working relations. The second phase individuals
typically experience when confronted with change is Letting
Go. You may start hearing people say things like It just
might work if management will let it happen. I'll do it
once I see others do it without any backlash. It might work
somewhere else, but I don't know how it would work here.
Letting
Go is visible when people start attending meetings and either
don't contribute or take opposing perspectives or when individuals
question the issues associated with the change and start
challenging thinking. They begin spending more of their
personal time discussing how it "might just work if
only..."
The
third phase is called Moving On. At this stage, you'll hear
comments like: When am I going to learn how to do this?
How can I get this going already? This isn't so bad after
all. Moving On is visible when individuals spend time planning
how to make things work or make an effort to keep them going
when problems occur. When individuals appear energized about
the change or speak with optimism about how things are really
getting better around the office, they are in this stage.
Overcoming
Resistance: Communication is Key
A
communication plan and implementation plan assists in moving
people through these stages as quickly. According to Gartner,
many companies outsourcing for the first time make the mistake
of not communicating, despite the fact that open and honest
communication actuallylessens employee fear and increases
acceptance. Gartner recommends using various forms of communication—Web
pages, meetings, collateral—and to begin the communication
process as early as possible. Gartner further suggests identifying
"leaders" in the client who can be recruited to
help educate and boost the confidence in others in the organization
who may be "holding on."
The
vendor team plays an important role in overcoming resistance.
Your selected partner for any outsourcing arrangement should
offer a systematic approach to aid your team with assessing
the risks of change as well as the responsibility of communication
and change management. Attention must be paid to the processes,
people, technology, and, most importantly, the culture during
every step of the transition and knowledge transfer process,
from planning through steady state/delivery. Syntel's IntelliTransfer
process delivers this along with a solid
knowledge transfer approach.
The
Importance of Planning
Another
barrier that can impact the transition is an unclear or
incomplete strategy for a change implementation plan, including
who in the organization is responsible for what. Christopher
Ambrose, Gartner research director recommends developing
a transition plan, not only at the point of the initial
event, but also during the life cycle of the contract. This
detailed project plan created by both the vendor and your
organization should identify the transition objectives,
a list of assumptions, a list of known issues, constraints
and risk factors, detailed tasks and transition schedule,
required resources, identification of personnel, hardware
and software.
Another
problem often encountered is the lack of an internal infrastructure
that demonstrates commitment to the service delivery paradigm
shift. This is often caused by the outsourcing arrangement
being considered a low priority or the lack of role planning
for impacted and displaced staff. Analyzing a company's
readiness for change and developing an action plan aimed
at taking stakeholders from the Holding On stage to the
Moving On stage is an effective way to combat this problem.
To
Train or Not to Train
Often
there is the expectation that individuals will be able to
perform new functions or responsibilities with minimal training
or development. This is especially true in cases when the
existing workforce has a false sense of security about performance
capability during or after a change. Creating and executing
a training plan allows impacted employees to operate in
the new paradigm of service delivery. During the training
program the new roles of the employees and the new model
for their performance evaluation should be thoroughly explained.
Talking Back Lastly, companies need to provide evaluation
or feedback about the effectiveness of efforts to move to
new service delivery paradigm. Keeping an open two-way communication
pipeline is critical. Quantitative benchmarks should be
established and several checkpoints identified to review
the actual performance against the benchmarks. A formal
process to provide continuous feedback on the performance
to stakeholders is also critical. As you can see, a smooth
transition is the result of a complex process that involves
detailed planning on the part of both organizations. Understanding
the dynamics involved and ommunicating with stakeholders
regularly are essential to make the shift to an outsourcing
model. Unfortunately, there is no shortcut. But, the efforts
are well worth the rewards.
Part
4: Measuring Success and Maximizing ROI
We've
covered how to determine applications and operations best
suited for outsourcing. We've also examined the desirable
traits in an outsourcing vendor and how to make a smooth
outsourcing transition. Now we turn to one of outsourcing's
most challenging components — measuring success and
determining return-on-investment or ROI. Many organizations
skip this step altogether because of the difficulty in making
assessments. What makes measuring success
so complicated?
The
ROI Pitfall
Different
organizations have disparate reasons for outsourcing, and
oftentimes these reasons don't easily lend themselves to
calculating ROI. One of the most popular decision drivers
is to reduce IT costs — a fairly straightforward measurement
standard. But what about other motivations for outsourcing,
such as focusing on core competencies or developing advanced
technologies that an in-house team lacks the skills to build?
These cases make calculating a return more problematic.
Outsourcing may result in an IT budget increase, yet provide
advantages not immediately evident. In short, the bottom-line
may not capture the full value of an IT outsourcing project
and should be the definitive measure of success only if
decreasing IT costs is the sole project objective. CEOs
and accountants relish ROI measurement because it more easily
quantifies the value IT outsourcing brings to the table.
Unfortunately, it may not always capture IT outsourcing's
true merit. An outsourcing project may have wide-reaching
effects in areas not immediately evident. For example, an
application maintenance project may be outsourced to enable
internal teams to focus on an advanced application such
as the launch of an e-commerce site.
For the sake of argument,
assume that the project doesn't provide as large a decrease
in maintenance costs as anticipated. However, the new e-commerce
application helps increase sales and enhance corporate standing
and industry image. This boost to credibility may lead to
an easier time recruiting new employees, increased interest
from investors, and a jump in stock price. The ROI may not
be directly attributable to IT outsourcing. However, without
it the e-commerce project may have been put on hold indefinitely
depriving the company of its benefits. In the example above,
looking strictly at the bottom line on this maintenance
project could lead to disappointment. However, when intangible
outsourcing benefits begin to appear as a ripple effect
throughout an organization, advantages become apparent.
This can make determining metrics tricky. When simply looking
at IT as a cost center with outsourcing as a single component,
much of the value it can bring is missed. So while cost
reduction is an important factor, what are the other key
drivers? Fewer defects? Speed to market? Tangible quality
improvements? Service Levels Agreements: An Important Tool
If ROI is not a completely accurate measure of outsourcing
arrangement success, what criterion is trustworthy? The
first step is to consider an organization's baseline starting
point before outsourcing. This should be done early in the
process when examining outsourcing. This will set the tone
for determining project success. Next, determine and establish
project goals and define metrics for calculating project
progress from point A to B. These metrics may include standards
including number of internal resources, claims processed
daily, or the ever-popular dollar figures.
While it can
be difficult to determine metrics that accurately represent
the value and align with business strategy, it's important
to develop this method of measuring success, at the beginning
of the process. Assigned metrics should then be built into
service level agreements (or SLAs) with any outsourcing
vendor. Service level agreements validate expectations of
the respective parties and set parameters for measuring
project success. This important tool helps determine value
and define success and discourages potential disagreements.
Some vendors may oppose the metric and service level agreement
process; nevertheless it's wise to insist on this step.
According to Peter Bendor-Samuel, author of Turning Lead
into Gold: The Demystification of Outsourcing, many vendors
attempt to avoid accountability in service level agreements
"Nonetheless, I believe that outsourcing relationships
without metrics are doomed to end in conflict," he
states.
A word of caution: agreements shouldn't be so specific
that they over-complicate the outsourcing process. Micro-managing
a vendor can lead to conflict. A vendor should be given
a degree of latitude to determine best practices that will
result in a desirable end result for both parties. Otherwise,
setting service levels that simply mandate meeting certain
contractual obligations can be risky. The focus shouldn't
be on how to outsource, but on its favorable outcome. The
service level agreements should then be reviewed to determine
if the outcome is consistent with expectations. Were objectives
met? If not, why? If so, how can the process be improved
so results continue to be favorable? This process should
be revisited throughout the lifecycle of the outsourcing
agreement. Syntel suggests quarterly Steering Committee
meetings with its clients to stay on track in this area.
Determining the success and value of an outsourcing arrangement
can be a labor-intensive process. It's an area where many
IT organizations fall down on the job since it involves
more than a simple ROI calculation. When outsourcing's value
is accurately measured, it makes future project fund allocation
easier to obtain and justifies the means to its end. Do
it right and you'll be sure to reap the rewards.
Conclusion
Carefully
following these four steps will help you sanguinely sidestep
the current economic woes plaguing so many companies. The
cost-saving benefits of offshore outsourcing have been apparent
for quite some time. But when you compound this benefit
with increased operational efficiency via faster speed-to-market,
and better leveraging of expensive IT resources, the decision
to outsource becomes a more like a moment of clarity. And
through dedication and careful planning, it can become a
reality. Syntel (NASDAQ: SYNT) is a leading global provider
of custom outsourcing solutions in a broad spectrum of information
technology and information technology-enabled services.
The Company's vertical practices support the entire Design-Build-Operate-Optimize
lifecycle of systems and processes for corporations in the
Financial Services, Insurance, Retail, Health Care and Automotive
industries. The first US-based firm to launch a Global Delivery
Service to drive speed-to-market and quality advantages
for its customers, Syntel now leverages this efficient model
for the majority of its Global 2000 customers. Named one
of Forbes Magazine's "Best 200 Small Companies in America,"
Syntel has over 3,000 employees worldwide, is assessed at
Level 5 of the SEI's CMM and is ISO 9001:2000 certified.
We maximize outsourcing investments through an onsite/offshore
Global Delivery Service, increasing the efficiency of how
complex IT projects are delivered. Syntel's global approach
also makes a significant and positive impact on speed-to-market,
budgets, and quality. We deploy a custom delivery model
that is a seamless extension of your IT organization to
fit your business goals and a proprietary knowledge transfer
methodology to guarantee knowledge continuity. To learn
more, visit us at: www.syntelinc.com.
For more information, contact Syntel Inc.'s global headquarters
at
525 E. Big Beaver Rd
Suite 300
Troy, MI 48083
Ph: 248-619-2800
Fax: 248-619-2888
E-mail: info@syntelinc.com
Visit Syntel's website at: www.syntelinc.com |
