Best practices for IT outsourcing: 5 Ways you can do it right!
Talking about numbers here, IT is one the largest consumers of the outsourcing industry with 94% organizations using it for both applications management and infrastructure. A Deloitte Global Outsourcing Survey in 2016 reported cost cutting being a major factor that encourages businesses to outsource.
In fact, outsourcing is expected to save customer costs by a minimum of 30% depending upon how they strategize the overall utility.
“When an outsourcing initiative has a clear, well-understood goal and it serves a strategic purpose, then it has a good chance of succeeding.”
– Will Weider, CIO, PeaceHealth
The question is: How is this good chance and real value accomplished?
And that’s where the confusion lies. While cost saving, and other strategic goals are critical to all businesses who outsource, they have mostly reported to miss the mark.
To solve the conundrum and derive the best results from IT outsourcing, there are ways that businesses can adopt and reap the benefits of this system.
Here are the 5 best practices for IT outsourcing that will be helpful for your organization:
1. Analyze competency and project execution methodology
When it comes to choosing 3rd party service providers for development and maintenance of software applications and executing other IT intensive tasks, the stakes are high. The key to making the right choice is to determine the following qualities in your potential provider/partner:
- Strong demonstrated and differentiated expertise matching your needs
- Quick turnaround time
- Agile technical approach
- Adaptable to state-of-the-art technologies
- Solution-driven processes
A reliable project execution methodology focusses on the customer needs first. And to find out that one winner amongst the competition, IT executives should look out for a methodology that encompasses a process driven approach and open, transparent communication. At Kays Harbor too, a strict project execution methodology is followed that includes:
- Preliminary Discussions: High calling frequency for the initial 2-4 weeks.
- Regular Ongoing Communication: As per the requirements of a project.
- Strong Project Management: Experienced project managers to take care of your project.
- Transparent Pricing: As per the burned efforts and future estimates.
- Iterative Development: Agile approach to the engineer impressive software solutions.
- Source Control: Strict policies to secure source code versions and track changes.
- Thorough Testing: Quality assurance before every milestone delivery, with client access to all test cases.
Most importantly, technology developers these days should be strong relationship builders, which takes us to our next best practice –
2. Forge relationships with a growth mindset
Create a partnership that focuses on growth of all the parties in the outsourcing agreement. Research reveals that besides other factors that contribute to the success of a project, it is more important how you manage the relationship. Governing a business relationship like this involves a sufficient amount of investment and participation in steering the way to its success.
These days businesses are not just a generic model for relationship management in place, but also a partnering mindset. A smooth way to forge such partnerships is by:
- Beginning each relationship with a clear understanding of key objectives, operations and deadlines.
- Bringing clarity in communication that is both verbal and on paper.
- Respecting each other’s commitments and understanding capability thresholds.
- Staying true and consistent to your contractual terms.
- Asking the right questions to the right people.
- Being transparent with your plan of action and roles and responsibilities within the project.
- Scheduling regular progress meetings to stay on the same page.
- Encouraging and appreciating successful completion of critical milestones.
3. Structure a feasible outsourcing model
Though outsourcing solves a lot of business roadblocks, it can also become a barrier for an organization. So, before you rope in third parties for different functions critical to the organization, make sure you assess the scope of each function first. Your business should have an initial understanding of the technical aspects that might require in-house attention while assigning the less critical tasks to your outsourcing partners.
If your company has not outsourced any project before, certain processes need to be implemented to keep a check on the existing ones that affect client and vendor relationship within your organization.
Structure a business case around the process you want to outsource and start with defining the following:
- Size of the project
- Key stakeholders
- Project Owners
- Scope of change
- Overall budget
- Key KPIs to measure project success
The ground reality is, this wouldn’t work if there is no adequate planning and distribution of responsibilities amongst the third party and your internal organization.
Depending on the above factors, there are some standard IT outsourcing pricing models for your business to choose from:
- Fixed Price Model
- Time & Material Model
- Mixed Mode Model
- Staff Augmentation
4. Undertake effective data security and management
Maintaining confidentiality of information is critical to any business process. And when outsourcing, ensure all proprietary and private data is under protection. To keep a check on the operations and management of the project, establish strict service level agreements in place.
Also, if your project constitutes of any data security regulatory requirement for the market you are targeting, choose a service provider that has a good proficiency and a portfolio that showcases the same. For instance, if you have outsourced healthcare app development, your app should be HIPAA compliant for the US market and be in line with the GDPR data security regulations if your potential market is in the European Union. A technology provider having experts to guide a development process that conforms to these norms would be the best fit for your project.
Additionally, to deal with country specific requirements, you must make sure whether a potential service provider has all the infrastructure to support the network.
5. Assume your risks well
To be able to smoothly manage an outsourced project, you must assume the level of risk involved at every phase. Some of the risks include:
- Management risk: Make sure you are hiring/partnering with experienced managers for your project. There is a higher risk of poor performance attributed to the IT management involved.
- Hidden Costs: To manage the costs, foresee and be prepared for any hidden costs that can be bump in any function critical to the project.
- Lack of Focus: Most service providers are too overworked with other projects and fail to assign dedicated resources which leads to divided attention and efforts. Make sure your provider has full time dedicated experts to deliver the best results.
- Project Uncertainty: For startups, business is uncertain during the initial stages. Therefore, they should come to terms with the gravity of situation and product launch deadlines as early as possible. On the other hand, an enterprise project that has been assigned for outsourcing might be taken in-house due to management limitations. All these possibilities should be clearly understood beforehand.
The stereotypes and myths around outsourcing are long gone as businesses have now managed a better way to deal with it altogether and are increasingly becoming positive towards it. In fact, Statista reports certain market segments like healthcare IT is projected to grow up to 50 billion US dollars at a CAGR of 7.6% by 2018.
To enable a smooth overall software development process at Kays Harbor, we have managed to follow these best practices for outsourced projects. This has helped clients achieve their technology goals and overcome the challenges around IT outsourcing that generates around 65 billion $ revenue annually alone.