Three Critical Steps to Determine the Right IT Sourcing Strategy
IT outsourcing is a well-trodden path, and may even be seen as a common approach by many modern firms. Many companies, however, still often lack real insight and/or control when it comes to sourcing their IT.
Sourcing your IT correctly – whether that means insourcing, outsourcing or a combination of both – is an ongoing process that requires a clear understanding of your business goals, accurate measurements of performance and costs, and a structured decision-making cycle.
As such, there are three critical steps involved in assessing your existing sourcing arrangements and building a new sourcing strategy.
Step one: identify business requirement
The first step in establishing a formal sourcing strategy is to identify both the business requirements and the situation as it currently stands. This assumes a certain degree of understanding and connection between the IT function and other lines of business, as this will be essential when considering the current business strategy and taking into account any likely future changes in direction.
The next question is: what are the critical business services that support this strategy, and what IT systems underpin those? In each case, the current sourcing route should be established, whether completely insourced, outsourced as part of a larger contract, or a hybrid of the two. Only by clearly understanding both the current state of play and the firm’s business requirements can a company start to determine the best sourcing routes.
Step two: measure service performance
Once the relevant business services have been identified and aligned with the current and future business objectives, the next step is to accurately measure the service performance. The important parameters to consider are: cost, risk, quality and flexibility.
Few tips to think about when it comes to evaluating the service performance:
Cost assessment should include measures not only of the direct running costs for a particular service delivery option – whether in-house or outsourced – but also of the associated set-up and management costs.
Performance assessments may also include factors such as the perceived quality or speed of the business service, and the level of satisfaction of the business sponsors and users.
Key considerations around flexibility should include the ability to scale services – and the associated costs – up or down as business requirements grow or shrink. Equally, there should be an analysis of the ability to change a particular service, in the event that there is a change in the business strategy or focus.
Step three: evaluate and determine your sourcing strategy
Once you have identified the business services, established the performance baselines and targets, and addressed any perceived deficiencies, you can then make valid decisions about the best sourcing options. Feeding into this stage will be a continual cycle of questioning whether the relevant resources and skill-sets are available in-house. Even if they are not (or no longer) available, outsourcing may not always be the right decision. For example, for some strategic services where the perceived risk is high, companies may prefer to retain or develop the relevant skills.
Finally, few considerations before you outsource…
When weighing up the value of outsourcing, it is vital to consider the potential loss of control, the potential for cost savings, and your company’s ability to handle an outsourced relationship. Some outsourcing arrangements fail to deliver the expected value not because the outsourcer is in any way incompetent or unwilling, but rather because the client has underestimated the importance of setting clear expectations and managing the delivery.
If outsourcing is the chosen route, the key rule is that the responsibility for the service remains in-house. This means that you will need to consider what skills need to be retained or developed internally, especially those concerning the management and orchestration of external delivery partners. Even more importantly, you will need to ensure that you have adequately prepared the groundwork for starting a new outsourced relationship. It may be a hackneyed phrase, but “don’t outsource a problem” is still a valid advice!