Nine Rules for Successful IT Outsourcing

3. Be careful with outsourcing deals intended to transfer knowledge from the

outsourcer to in-house professionals. We learned in the late 1980s and early

1990s that knowledge transfer-based outsourcing deals were difficult to make

work. Why? Because the outsourcer had no incentive to transfer knowledge and

the in-house professionals resented the “training” forced down their throats.

4. If you want to try outsourcing on for size, then partition a big piece of

your IT infrastructure — like your data centers — and outsource them.

Completely. Develop some clear service-level agreements and then monitor the

hell out of the performance to see if (a) the outsourcer can do it more cheaply

and (b) better.

The implied suggestion here is to outsource what you already know how to do and

fully understand, not what you don’t understand. And remember that just because

you understand how to, for example, run a data center, it doesn’t mean that it’s

core to your business.

5. Really think long and hard about using professionals to architect your

outsourcing deals. If you’re a medium-sized organization or one that has had

some extraordinary IT infrastructure or applications problems over the years,

you might want to take a look at using an applications service provider (ASP)

who will “rent” applications to your users (who can access the applications over

the Internet or through a [much more expensive] virtual private

network). This kind of outsourcing is relatively new but already the major

systems integrators have begun to partner with enterprise software vendors like

SAP to provide access to major applications. It’s something to consider.

Other Outsourcing Articles

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Dizzying Days for Security Outsourcers

Outsourcing: The Reluctant Bridegroom

6. The age of non-shared contracting is over. Any outsourcing deal you sign

should have some shared risk built into it. If the outsourcer is unwilling to

put any skin in the game then there may be a problem with the whole deal. A

confident outsourcer should welcome the opportunity to jointly develop some

performance metrics and then hit the metrics to get paid.

These deals can take all kinds of forms. For example, expenses can get paid but

a percentage of profit may go into an escrow account to be paid as milestones

and metrics are achieved. Regardless of the form, the principle is to share the

best and worst aspects of outsourcing by aligning all of the incentives.

7. Strongly consider owning requirements, specifications and designs, but not

implementation or support. This rule of thumb is not inviolate but will serve

you well. In a sense, owning requirements, specification & designs keeps you in

control of the business/IT alignment process while freeing you from (probably)

non-core implementation and support tasks.

8. Make sure that metrics are in place long before you sign any outsourcing

deals (see below).

9. Do not sign any long-term outsourcing deals unless the deals have huge shared

risk features.

Steve Andriole is the Thomas G. Labrecque Professor of Business at Villanova

University, where he conducts applied research in business/technology alignment.

He is also the founder & CTO of TechVestCo, a new economy consortium that

focuses on optimizing investments in information technology. He can be reached

at [email protected].

Editor’s note: This column first appeared on Datamation, an site.