No one asks, "Why outsource?" anymore. Since Kodak signed the first major IT outsourcing contract 12 years ago, even the most skeptical CIOs have come to realize that they can cut costs, improve service levels and gain access to better technology by placing at least some of their IT assets in the hands of a vendor.

But what’s the right way to outsource? That’s the trick. To master it, one must focus on two fundamental challenges: how to get into a good deal and, just as important, how to get out of a bad one.

How to Cut the Best Deal

Larry Godec, newly appointed CIO of Santa Ana, Calif.-based First American Title Insurance, is weighing a decision to outsource First American’s help desk. It’s a big decision, and he’s taking his time. He’s also taking advice from STI, an outside consultant based in League City, Texas. Why hire a vendor to help make a decision about another vendor? Here are three good reasons.

1.When the typical IT shop outsources, it’s often a unique experience for it. But outsourcing attorneys and consultants see these deals every day. "They have experience in best practices," Godec says. "They can compare what you’re doing to what other people have done?what’s succeeded, what’s cost-effective and efficient." When Tom Boardman, CTO of San Diego County, outsourced the county’s entire IT operation in 1999, he hired Gordon & Glickson, a Chicago-based law firm that specializes in IT outsourcing. "They know what everyone else has agreed to in their contracts," Boardman says. "Even if they can’t reveal those figures, they can keep negotiating until they reach the point where the vendor has been willing to go in the past."

2.CIOs know what their IT organization can and can’t do, but typically they don’t understand how the rest of the enterprise perceives their department. An outsourcing consultant interviews the users and helps establish an IT baseline?what are the current service levels and response times, and how do internal IT customers feel they are being served? It could be that your own IT organization is already providing efficient service. Dennis McGuire, chairman and CEO of Houston-based Technology Partners International, one of the first and largest outsourcing consultancies, says 30 percent of his clients choose not to outsource after this initial baseline analysis. Prior to this analysis, "even relatively good IT organizations only know where 60 to 70 percent of their costs are, and there are often no [established] service levels," McGuire says.