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Top three outsourcing initiatives for 2009

Scott Staples | Jan. 28, 2009
Given this uncertainty and chaos, it is a good time to look at outsourcing as a means to save money, propel new business ventures, and improve efficiencies.

The vendor and country mix depends greatly on the size of the company seeking services, but in most cases, a multi-vendor mix is appropriate.

As an example:

-- A CIO of a Fortune 1 - 500 company may select one or two or three large players, a good mid-sized firm, and a few boutique shops (typically domain-specific consultancies) for their portfolio of outsourcing partners.

-- A CIO of a Fortune 501 - 1,000 company may select one large player, a good mid-sized firm, and a boutique shop for their outsourcing portfolio.

-- A CIO of a smaller company may only want to partner with a good mid-sized company. They would be "lost" as the client of one of the big outsourcing players.

3. Cost-Cutting

The combination of hard economic times and the maturity of the outsourcing industry will force and enable CIOs to find new ways of cost-cutting. It is important to realize that there is no silver bullet on cost-cutting and it is equally important to understand that the biggest levers for cost-cutting are not the rates themselves.

How can CIOs cut costs with their outsourcing initiatives?

-- Offshore to Onsite Ratios--this is by far the biggest lever in reducing the total cost of ownership of an application or suite of applications. The more roles that can be moved offshore, the more money can be saved. The industry benchmark is 80:20 (80 percent of resources offshore and 20 percent onsite), but most companies flounder with "fat" models and have too many people onsite. With mature processes and governance, there is no reason 90:10 cannot be the new benchmark. Plus, outsourcing companies make more money on offshore resources, so they will be eager to help CIOs reduce costs with better offshore-to-onsite ratios.

-- Time-to-Market--if products and applications can be delivered faster, companies will reap the benefits sooner. To do this, IT organizations must work with their outsourcing partners on better ways to execute projects, leverage reusable components and foster knowledge-sharing.

-- Quality Improvements--if products and applications can be delivered with fewer bugs and defects there will be less time and money spent on re-works. IT organizations must leverage the knowledge, experience, tools and processes of outsourcing companies.

-- Productivity Improvements--productivity is married-at-the-hip to the outsourcing model being deployed between the company and the vendor. If companies embrace the demand-based models depicted earlier, real productivity gains will follow because outsourcing companies will be forced to increase productivity to control costs.

-- Rates--with the rupee depreciating against the dollar and the cost-escalation coming under control in India, rates will become more competitive.

2009 will be both an interesting and challenging year. CIOs and IT organizations will need to find better ways to leverage outsourcing to keep costs down and support business initiatives. To optimize their outsourcing partnerships, companies must review their outsourcing deal structures and models, rationalize their outsourcing portfolios, and find new and better ways to control and decrease costs.

 

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