9 Ways to Save Money on Your Next Outsourcing Contract
By spec-ing out the scope of your outsourcing agreement, streamlining SLAs, and employing new delivery methods such as cloud computing and infrastructure-on-demand, you can cut the cost of your next outsourcing deal without sacrificing service.
CIO — Outsourcing experts, IT analysts (and optimistic vendors) are predicting an increase in IT services deals during the second half of 2009. They foresee an uptick in outsourcing driven by enterprises looking to increase IT efficiency and cut costs.
Unfortunately, some of those organizations signing new outsourcing contracts, so pressured to slash costs, will cut the wrong corners on their new deals and ultimately end up disappointed in the results. "I think when we look back on this period, we'll find that companies' objectives for outsourcing weren't really that different than theyve always been, but their propensity for making bad decisions increased," says Edward J. Hansen, a partner in law firm Morgan, Lewis & Bockius's business and finance practice.
Speeding through the outsourcing selection process or rushing into a deal without an RFP, for example, may save you time and money now, but are more likely to cost you dearly over time. Instead, try these smarter strategies to save money on your next outsourcing deal.
[ For more outsourcing contract negotiation tips, see 9 Ways to Save Money on Your Current Outsourcing Contract, How to Renegotiate an Outsourcing Contract and Negotiating Outsourcing Contracts: Beware Minimum Commitments. ]
1. Be clear about scope.
Before you even think about starting the outsourcing selection process, complete a thorough assessment of your IT portfolio to determine what can be outsourced, what can't be outsourced, and—most importantly—what shouldn't be outsourced.
"Take a minute to step back and talk to your business customer about their needs and compare them to the IT services you currently offer," says Ben Trowbridge, CEO of outsourcing consultancy Alsbridge. "Doing so will provide you with greater insight into what IT services you should be buying from an external service provider."
"Scope creep" during the outsourcing decision making process is a hindrance to finalizing a new deal efficiently and cost effectively, says Atul Vashistha, chairman of offshore outsourcing consultancy neoIT. "A thorough portfolio assessment also provides data that comes in extremely handy [later on], Vashistha adds.
2. Adopt a multi-sourcing strategy.
The competitive leverage you gain by signing on a small stable of preferred providers instead of a single vendor can not only reduce costs overall, it can also help to mitigate risk through redundancy and provide access to a broader or deeper talent pool, says Daniel Masur, a partner in the Washington, D.C. office of law firm Mayer Brown. Such a multi-sourcing strategy may or may not cost more to manage. "But, if done right," Masur says, "it will offer benefits that more than offset any additional cost."
