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7 more IT outsourcing lessons from offshoring pioneers

Stephanie Overby | April 24, 2013
In part 2 of our two-part series on IT offshoring lessions, we look at seven more examples of successful IT outsourcing offshoring best practices.

4. Managed Services is the Future

Offhsoring customers have moved through various offshoring models over the years--from simple pay-by-the-hour contracting to skills-based captives, which they then sold off. Today they're entering what can best be described as a managed services phase, says Michael Engel, partner with outsourcing consultancy Sylvan Advisory.

"They've built up enough trust with their providers and competence in their management teams to move to an outcomes-based relationship." Such deals make costs more predictable and shift cost management to the suppliers. "Suppliers like this type of arrangement because it allows them to be more flexible in their staffing, and it encourages them to be more innovative with their tools and techniques," Engel says.

Mature customers are looking to managed services for data center and storage services. "This outcome-based method of outsourcing leverages not just the labor arbitrage of an offshore model but also the standardization, process optimization, expertise and economies of scale that offshore providers have been able to achieve," says Craig Wright, principal with outsourcing consultancy Pace Harmon.

5. Portfolio Management Isn't Just for Projects

Offshoring veterans have begun to apply the practice of portfolio management to their outsourcing relationships. "The portfolio based approach affords the buyer of IT services an algorithmic means of determining the best placement of services," says Engel of Sylvan Advisory.

"By inputting the key project requirements around timing, language, complexity, proximity, etc. project assignment suggestions are generated. This allows buyers to procure services up and down the stack from the right providers in the right locations," Sylvan says.

The portfolio management approach enables offshore buyers to make more informed decisions about the true costs of rural sourcing and captive centers, for example. It has also given rise to an emerging delivery model around rural sourcing and captive centers.

6. Reinvest Your Savings

Offshoring still saves money, but forward thinking customers set aside some of that savings to increase internal strength. "Reinvest some of those savings in improving the value and relevance of your IT leadership," advises Phil Fersht, CEO of outsourcing analyst firm HfS Research. "Surround yourself with a great team of technology innovators and use IT outsourcing to create flexibility and execute on the vision."

7. A Good Offshore Deal is Never Done

The offshore pioneers have grown adept at regular evaluation and adjustment of their offshore relationships. "Seldom does anyone get it exactly right the first time," says Brown of Mayer Brown. "Adjustments in procedures, people, and perhaps even parts of functions chosen for offshoring are inevitable."

As the market for offshore services has grown and changed over the years, so have the strategies of the most successful customers.

"Many of the offshoring pioneers have recognized the significance of the changes in offshore value drivers over time, acknowledging outsourcing as an indispensable part of their organizational capabilities, and have been prepared to adjust the outsourcing model to improve the overall value proposition for an outsourced service based on the current market state," says Wright of Pace Harmon. Service-level agreements--and the behaviors and performance trends they drive, will require regular tune-ups.


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