by Paul Roehrig, Forrester Research

4 Tips for Better Outsourcing Deals

Mar 30, 20093 mins

Economic downturn has outsourcing pros under the gun to deliver quick cost savings. For firms that must execute or renegotiate an outsourcing deal, there are some steps that improve the chances of success.

Nothing says “cost cutting” like a big outsourcing deal. Some firms will either panic or simply be forced to pull the trigger on outsourcing deals without laying the foundation for success with effective internal preparation. Some of these deals will work based on brute force and luck, but luck is not a good business strategy, and many deals will not meet expectations. For firms that must execute or renegotiate an outsourcing deal, there are some steps that improve the chances of success.

Today’s economic headlines have put IT outsourcing decision-makers under pressure to deliver near-term cost savings while simultaneously improving support for the business.

However, sourcing and vendor management professionals should see the current U.S. economic turbulence as an opportunity to ensure that sourcing strategy and tactics are value differentiators for the firm’s end clients.

The trick to coming through this recession is balancing the intense pressures to use outsourcing to cut costs quickly with the responsibility for building a solid foundation for the future.

Sourcing professionals can take steps to help balance the pressure for near-term cost savings with all the same risks and rewards associated with outsourcing that are still in play by doing the following:

Don’t shortcut internal preparation and strategy setting. Savvy sourcing decision makers should strongly resist the temptation to shortcut internal preparation. Although some deals certainly can be “fast-tracked” and still succeed, there is a lower probability of achieving strategic business objectives. The connection between internal preparation and sourcing outcomes has been claimed before, but Forrester data shows that outsourcing decision makers find it beneficial to devote even more effort to internal preparation and strategy setting.

Don’t put the move from IT to business technology (BT) on hold. Regardless of current weaknesses in the broader economic market, an upturn will come, and the smartest businesses will continue to aggressively leverage technology as a business accelerator rather than as a sunk cost. The evolution from IT to BT—including pervasive technology use that boosts business results and in which the business becomes deeply embedded in technology—should not be put on hold. Laggards will be under even more pressure. Exercising some caution is just smart business, but self-imposed paralysis could be as damaging as a thoughtless lurch toward outsourcing for a quick cost reduction. Working with CIOs and IT management, smart sourcing decision-makers can implement solid outsourcing relationships to help drive this change.

Ride the turbulence to your business’ advantage. Forrester often sees real-world examples where firms view IT service outsourcing primarily as a cost reduction mechanism around what they perceive to be commoditized work. That may be partly true, but outsourcing creates a remarkably effective opportunity for large-scale change in an organization. Visionary IT and sourcing leaders will position a slowdown, or even a recession, as a driver for cost reduction, productivity improvement, and the shedding of business processes that don’t add to brand equity.

Leverage your existing outsourcing ecosystem. Firms that have good existing outsourcing relationships are much better positioned to grow their deals and accrue near-term savings. Now is the time to consider aggressively expanding existing healthy relationships with service providers. Firms should also drive hard for additional pricing and service concessions from providers.

Paul Roehrig, Ph.D., is a Principal Analyst at Forrester Research. He is a recognized expert on a broad range of outsourcing topics, including outsourcing strategy and execution, IT services and contract negotiations. For related, complimentary research from Forrester, please visit: