9 Ways to Save Money on Your Current Outsourcing Contract
IT executives in outsourcing relationships need to cut IT services costs now. We've got the nine best methods for making that happen.
CIO — You may not have signed a contract with your third-party IT services provider solely to cut costs. Maybe you were seeking specific skills or farming out non-core work to focus on strategic initiatives, or looking for a back door into an emerging economy.
But now, in these tough economic times, you're searching for savings under every rock. The good news is, whether you signed your current outsourcing contract three months ago or three years ago, there are plenty of ways to trim your IT services costs today. Here are nine techniques that can yield significant savings.
[See also, Outsourcing Prices: Why the Recession Isn't Really Driving Them Down.]
1. Enlist your service provider to identify cost-cutting opportunities.
"Depending on how long your deal has been in place, you are more than likely in a situation where some of the employees of the outsourcer are more familiar with your technology environment and processes than internal enterprise employees," says Frances Karamouzis, research vice president for Gartner Research and Advisory Services.
Ask your vendor to make it job one to mine account personnel for their best ideas for process and productivity improvements. Ask them to prioritize the plans that will produce savings in the current fiscal year, advises Karamouzis.
The best outsourcing contracts contain provisions that require providers to work with customers to accomplish cost reduction, says Daniel Masur, a partner in the Washington, D.C. office of law firm Mayer Brown. If your contract does not include such provisions, create incentives, such as a formal agreement offering employees with the best ideas a bonus or a small percentage of the savings, a credit for the outsourcer on the next invoice, or a gain sharing deal that will reward your provider with a portion of the savings achieved.
"Even if not provided for in the original agreement, gainsharing may be agreed to by the parties to fund projects, transformational activities, or cost saving initiatives that both parties are interested in, but that the customer is not willing or able to fund [on its own]," explains Masur.
2. Negotiate gold, silver and bronze service levels.
Work with your outsourcing provider to create a tiered IT service offering, advises Masur. Then allow your internal customers to select the appropriate level of support and cost for their business units' needs.
3. Reap the benefits of standardization and process maturity.
Remember those painful years your IT group spent toiling over process improvements so that you could work more effectively with your IT services provider? Well, put that CMM maturity level to good use. You may be able to move some work to a new, more cost-effective provider in an emerging offshore location with limited service level interruption.
