Friday, November 19, 2004

is Contracting an answer to outsourcing woes..!?

Recently come across interesting article- is Contracting is really an answer to outsourcing woes..!?

Credits: Silicon.com

A lack of suitable skills internally and the need to drive costs lower continue to tempt all manner of organizations to seek outside help - whether it's the best option long term or not. Stewart Baines explains how to make sure these projects work out for the best.

Most IT directors, in the ideal scenario, would prefer to manager everything in-house. In-house programmers, administrators, project managers and strategic directors can ensure more control, better communication and closer ties to business goals than working with an outsourcer.

Even Martin Hart, the chair of the National Outsourcing Association (NOA), admits this: "Our research shows the best way of doing things is probably in-house. But in-house has very high start-up costs and benefits take a long time to come in. Often too long. On the other hand outsourcers have a very quick set up time - they've done this stuff before - but you lose a lot of control. They want scale so they want to do the same for you as they've done for someone else. They will give you want they think you should have not what you think you should get."

But sometimes there may be no other way to grow or meet business goals than to look outside the company's boundaries for help, particularly for smaller organizations.

Dan May, operations director at mid-sized outsourcing firm Ramsac, is adamant that firms, particularly small and mid-sized, are relying too much on in-house skills and that they must look to outside practitioners.

"Most SMEs only have a small in-house IT team or a lone ranger," he says. "They struggle to keep on top of new technology and developments. You can't learn the job from a trade magazine. They'll recommend stuff that they want to play with or feel is within their knowledge. There's too much complacency from in house IT. How do you know you're getting value for money?"

May argues that, contrary to accepted wisdom, you get a higher standard of work with more openness from an outside party than you ever could with an internal team. "You get more transparency from an outsourcer. You get regular reporting of response times, resilience, security, data protection and so on; you get a service level agreement (SLA); you get experience. Can you say the same of an in-house team?"

What worries most managers and bosses about outsourcing is the lack of control they fear will ensue. Moving operational costs and capital expenditure off the balance sheet is good but risk rises as more and more complex business processes are left to outsiders whose loyalties lie elsewhere.

But there are ways to improve the chances of having a good outsourcing experience.

According to Martin Hart of the NOA, whether a successful relationship with an outsourcer or consultancy is possible is down to the preparedness of the client. He says: "You always need an intelligent customer within your organization. They have to be honest with the outsourcer about the task in hand and exactly what they expect back from the process, not some idealized goal. I think some companies are just not honest with their supplier. And you've got to get the basics right too - agree on handover processes or fault escalation policies. If you don't there's no foundation for a successful working process."

Hart believes many organizations would be best served by hiring a consultant or consultancy to manage the hire of an outsourcer - someone who can help set expectations and knows how to manage a supplier. One of the first steps they should take is to rid the deal of SLAs.

"The SLA is far too geared to the supplier. We recommend a business level agreement (BLA). A lot of the technical details in an SLA are too technical for a client and can't be translated into useful business intelligence so we advocate addressing that at the start," says Hart. "There's a real skill in converting technical data into business requirements. And it needs to be in a way that it can continue to be managed over the life of the deal."

Roger Rawlinson, head of consultancy at the NCC Group, agrees: "An exit strategy needs to be understood - asset transfer, performance bonds, SLA penalties etc all need to be firmly established at contract. Organizations should not fall into the trap of seeing in-house IT as a problem and then outsourcing the problem without first establishing what IT should be delivering in terms of business outcomes. This challenge can be particularly pronounced in smaller companies where board-level representation of IT is non-existent."

At the SME level, Ramsac's Dan May says: "SMEs need much more than outsourcing their IT staff or basic functions. We think they really need strategic IT direction, an outsourced IT director to sit on the board, help guide IT policy and connect it to business goals."

For the risk-averse, bringing in contractors and managing them in-house is the ideal half-way house between re-skilling their own IT department or opting for the full monty outsource.

Murmurs from the recruitment market indicate contracting is back in vogue. Joe Kelly, managing director of networking solutions at recruitment company Parity, says: "We've had a few years where contractors have desperately been looking for permanent work but now many ex-contractors are looking to get back into contracting. Clients are happy because it's a flexible employment model. In fact, the growth in outsourcing is not reducing the demand for contracting, it's probably the reverse. Many of the outsourcing companies are taking on contractors; it's the only way they can get the relevant skills."

One reason both clients and contractors are having a new love-in: Many outsourcing deals have failed because too much knowledge was retained solely in outsourcing and never communicated clearly to the client. Contractors don't operate like that.

NOA's Hart says: "If you move supplier, how does the knowledge of the process get transferred to the new supplier? The likelihood is that it will be lost. This is where contractors come into their own. They're on the client site, easily assimilated in the processes and culture of the client, and typically offer a skills transfer. They can also be 50 per cent cheaper than a consultancy."

And there's the rub. Full-time jobs disappear to contractors, consultants and outsourcers because of skills gap, a lack of experience, cost saving and, often, too tight a deadline to complete projects in-house. Thus in one form or another, getting IT staff off the payroll is an inevitable trend.

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