As more companies look to external IT service providers to help them both innovate and optimize, many are initially surprised by the amount of change required for a relationship to work successfully -- issues that extend well beyond onboarding supplemental, temporary staff. Many companies think that the key to outsourcing success is selecting the right partner, but even the best partner will disappoint you if you are not prepared and organized for an outsourcing arrangement.
In Forrester's Services Sourcing Playbook research, my colleagues and I maintain that it is critical for companies embarking on an outsourcing journey or trying to optimize their existing outsourcing relationships to ask themselves the following 10 questions in order to assess maturity and identify weaknesses. Without effective project and program management, internal process consistency, management and change control processes, and a mature vendor management function, it will be difficult -- or nearly impossible -- for organizations to work with external IT services suppliers effectively.
1. Project management track record. What percentage of your large and complex IT projects come in on time and on budget? If the percentage is high, you are ahead of the game. This suggests that you know how to scope and estimate projects, as well as manage internal customers. In an outsourced configuration, project management weakness can cost the client significant money as rework to accommodate functional requirements takes its toll.
2. Project management expertise. What percentage of your staff is PMI- certified or has equivalent certification? Strong project management is required to manage internal IT projects and resources effectively -- and becomes even more critical when you add external IT service resources and components to the mix.
3. Central program management. What percentage of IT projects are managed through a central program management office (PMO)? PMO's are critical for ensuring consistency and quality in IT organizations' programs.
4. Communication and collaboration tools. Do IT and business staff members use real-time communications, workflow, and other content-sharing tools that support distributed projects? Companies that rely on manual collaboration and code management approaches will struggle to work with an external off-site development or maintenance partner.
5. Internal process consistency. Does your organization follow a standardized development and maintenance process? If the answer is yes, it will be easier for an outsourcer to understand and accommodate your process -- even if it's sloppy or suboptimal. Challenges in outsourcing arrangements arise when the outsourcer has to learn and accommodate many different processes across a single organization -- ultimately leading to a tremendous amount of room for error and misinterpretation.
6. Software development process maturity. Does your organization invest in software development process disciplines like the Software Engineering Institute's Capability Maturity Model? While not required to make a relationship work, Forrester sees better results, particularly in the early days of an engagement, if the client and vendor follow a standard and consistent model.
7. Requirements definitions and management capability. Does your organization use a standardized and formal requirements definition and review process that introduces a structure in the way that business users can request new requirements or change them? Getting the requirements phase of the software development life cycle right is a critical success factor. If you can't get this right, outsourcing can provide little value -- regardless of low unit costs.
8. Managing to SLAs. Does your organization rely on service-level agreements (SLAs) to establish a meaningful level of mutual responsibility between IT and business sponsors of internal projects? SLAs are critical to ensuring that outsourcing vendors meet their obligations and service commitments. Clients who already use SLAs will have a much easier time establishing SLA parameters and managing third-party vendors. Companies that are new to SLA performance requirements may be inclined to monitor individual developer performance or level of effort as opposed to an overall service level or outcome.
9. User acceptance testing rigor. Does your organization follow a formal sign-off process between business and IT for final delivery? Do users participate in user acceptance testing? In an outsourced relationship, this is critical. Clients need to accept the system or the change in order for the vendor (or the client) to move into production. Delays can cause cost overruns as outsourcing staff members wait for users to accept their code.
10. Vendor management function. Do you have a formal vendor management function? Today, 47 percent of companies have formal vendor management groups, and an additional 11 percent have plans to develop one. They vary substantially in composition and maturity from client to client, but there are certain responsibilities and roles that most vendor management organizational units share. Having a plan in place automatically gives you a leg up in terms of outsourcing maturity.
The Truth is -- Cheaper Labor is Only Part of the Story
Forrester believes that the value derived from outsourcing is not exclusively from cheaper labor or from an individual vendor's performance, but from improving and streamlining internal IT processes to discover the right engagement models and align with the appropriate providers. Once your weaknesses are understood, steps can be made to increase maturity levels and use outsourcing more effectively.
Stephanie Moore is a Vice President and Principal Analyst at Forrester Research, serving Sourcing & Vendor Management professionals.