In this slideshow, Fairway Technologies outlines 10 best practices to assist in selecting an information technology outsourcing (ITO) provider. Their analysis is based on research compiled from published literature as well as interviews and surveys of technology professionals possessing ITO experience.
An original survey of U.S.-based technology professionals conducted by Fairway Technologies revealed that smaller companies are more likely to use only onshore ITO providers and larger firms are more likely to enlist a blend of service providers, including more offshore than smaller firms. The survey also revealed that the top three ITO needs were custom software development, analytics/business intelligence and systems integration. Research shows the largest volume of offshore ITO business is serviced from India, with China and Russia far behind in second and third places.
Controlling and reducing costs are primary drivers of outsourcing technology services. Savings are realized by not only lowering overhead and infrastructure expenses, but also capitalizing on specialized expertise to speed time to market and avoid project delays. Before deciding whether to hire an onshore, nearshore or offshore ITO provider, decision makers should first consider the benefits and risks of each model and how those map to their business requirements.
Click through for 10 best practices to follow while selecting an information technology outsourcing (ITO) provider, as outlined by Fairway Technologies.
Think long term and keep your objectives at the forefront. Is your primary goal to lower costs, speed time to market, improve quality, supplement in-house resources, or something else? A good outsourcing strategy is not built entirely from a cost savings perspective.
If you pursue offshore ITO because you want to lower costs, be aware that savings may be less than projected or may take years to materialize. If getting to market quickly is most important, selecting the right ITO provider the first time is key to securing your first-mover advantage. If quality is a priority, no country can compete with the skills offered in the U.S. And if you are seeking a true partner to complement your in-house assets, onshore ITO providers offer increased communication, which reaps savings in many ways — shorter project duration, stronger cross-functional team integration, smaller team size and greater efficiency, to name a few.
Offshoring is neither for the faint of heart nor the impatient. Of Fairway Technologies’ survey respondents, 37 percent reported that their offshore ITO project was “not delivered on time” and 16 percent stated that the “project came in over budget or did not realize anticipated cost savings.” And remember that some conditions increase risk, like loosely defined projects, projects with a large scope, limited face-to-face time, volatile currencies and political instability. If you cannot afford to have anything go wrong, then it may not be the right time to offshore because onshoring is usually the more predictable route.
Are you looking to outsource a commodity or an ambitious new undertaking? Research shows that the most successful offshore IT projects are “black box” type initiatives that are highly defined, well-documented and require little back and forth communication. If you are able to turn over the requirements and stay mostly hands-off, then offshore ITO may be the right choice. Projects that are loosely defined and not well documented, require innovation, or need a broad understanding of your organization will challenge the benefits of offshoring. In fact, a strong onshore ITO provider will better meet your needs if you’re undertaking an ambitious IT project that requires high collaboration and creativity.
Ask questions about who comprises the ITO team. Sometimes ITO providers offer one or two customer-facing team members to woo you, but they push the actual work down to lower-skilled individuals. Don’t get stuck with a layered “team” full of marginal people when all you really need are a couple of highly skilled experts who can make an impact. Watch out for large-scale providers employing an up-sell strategy that could leave you with more than your company needs, wants or can afford.
Identify your outsourcing objectives, comprehensively evaluate providers, realistically project expenses, clearly define success metrics and thoroughly plan the transition. Consider whether meeting face-to-face with the provider and the proposed team before making a commitment is important to you.
Just because it seems that everyone is going to India, for example, doesn’t mean you should limit the scope of your evaluation to that country. An annual research study conducted by AT Kearney provides a great tool for weighing the pros and cons of offshore destinations along three dimensions: financial attractiveness, people skills and availability and business environment.
IT has become a crucial element of most businesses’ operations, so deciding where your resources will come from is an important decision. Don’t let anyone or anything push you into the wrong decision. For example, if your due diligence casts doubt upon offshoring as the answer, letting go is okay. Some of the best business decisions are ones to not go forward.
Whether you onshore, nearshore or offshore ITO, the service level agreement or contract you sign must meet your specific needs while offering flexibility in case your needs or the environment change. Lengthy contracts are becoming less popular for offshore ITO for this very reason.
Outsourcing doesn’t abdicate your responsibility for the project, especially to your customers. Protect your reputation by insisting on active management, quality controls and performance measures for all ITO arrangements, and be prepared to provide more oversight for nearshore and offshore projects.
Strong communication and collaboration are vital for onshore, nearshore and offshore ITO. When offshoring or nearshoring, insist on having a local resource, sometimes called an engagement manager. This is an onsite representative of the offshore team whose job is to increase knowledge transfer, build social capital and serve as the project’s intermediary. If that isn’t possible, opt for English speakers on the offshore team. Both may be more expensive, but can prove worth the added price. The benefit of onshore ITO is having a local resource without the added expense of overseas travel or burden of translation problems.