Taking the Long View: Holistic Outsourcing

When a company is looking to outsource or review its sourcing decisions, traditional portfolio analysis may not provide the complete solution. It can miss some key inputs that may require additional homework.

A holistic approach that includes an architecture road map or direction, structure, competency hierarchy and a mapping of current and future application characteristics will provide longer lasting benefits, and help avoid some of the long-term, ill effects of outsourcing and offshoring.

Most engagements for offshoring and outsourcing start of with the first question: what to offshore? A vendor (or an internal team) is chosen to detail the portfolio characteristics. The criteria is chosen and its risk to outsourcing and offshoring is tabulated. Voilà, you have the portfolio that is to be outsourced.

Most often, the constraints evaluated include people issues, knowledge retention needs and organizational considerations. However, these constraints are sometimes missed in the overall weighting scheme and worse, these become a gate that keeps out potential candidates for outsourcing.

The major disadvantages of the traditional approach are:

1. The current portfolio, not the portfolio of the future becomes the basis for offshoring. Thus, the current evaluation will lose its relevance over time.

2. Future competency needs are not taken into consideration leading to a gap in competency development and, therefore, the ability to quickly respond to changing business needs.

3. The need for restructuring the organization to one that will map to both the outsourced context and the future competency hierarchy is missed. Typically, vendors adjust their structures to map to current organizational silos. This results in sub-optimal use of resources, and lack of speed in decision making, setting up the portfolio to become increasingly diversified with creeping redundancies.

4. In the case of inorganic growth, the problem worsens as shifting priorities necessitate compromises in staffing, architecture, processes and standards.

To avoid these pitfalls, consider including these three factors, apart from the traditional portfolio analysis approach: Road Map, IT Organization Structure, and Competency Hierarchy.

Road Map

Knowledge of a company’s journey from its current application portfolio to the intended portfolio is essential in the selection of appropriate vendors. They need to show expertise in both the current and future skill sets; and perhaps also have the experience of executing migration projects that have traversed similar technologies.

Expertise in the current skill set is not as important as skills in the end-state technology as there will be enough people and vendors who support current portfolio needs.

Ease of migration (usually ignored in traditional portfolio analysis) now becomes an important factor in deciding whether to outsource an application. Validation needs, infrastructure needs and the ability to control changes (a volatile application is not the best choice for migration until the volatility is controlled) are the other factors that affect the sourcing decision.

Understanding your road map, and the applications that will be most affected by the change will provide critical insight in deciding the sourcing strategy for those parts of the portfolio.