Posts Tagged ‘Outsourcing’

Managing Outsourcing Relationships

June 10th, 2021

While virtually every business now relies on information technology (IT) to help provide services or deliver products to the marketplace, things have rarely been more precarious for in-house IT professionals. This is so, despite the conventional wisdom that IT is acknowledged to be more strategic than ever.

Increased market competition, more demanding customers, tighter margins and shorter product life cycles have caused businesses to examine where they may be able to focus better on core competencies, reduce risk and costs, and become more agile and competitive. For many companies and small businesses across all industry segments, outsourcing IT is the only answer.

Outsourcing lowers operating costs, eliminates backlogs, improving data input quality, production and document availability. And, in the end, outsourcing adds profits to the bottom-line.

But outsourcing is far from a panacea. How an outsourcing relationship is managed – internally and externally – is as important to its ultimate success as the execution of the outsourced tasks themselves. Given that industry analyst Gartner recently reported that outsourcing can trigger an employee backlash, what do organizations need to know to make outsourcing a win-win for all concerned? How can a company best manage the firm that it has just retained? What project management issues does outsourcing solve and what challenges does it entail?

Outsourcing on Paper: Cost-Effective, Valuable, Efficient

Outsourcing IT isn’t only (or even primarily) about costs. In terms of hard dollars, outsourcing isn’t always a decisive win over the in-house approach, although it usually is. The real advantages can be seen in the “soft gains” that accrue — the opportunity costs of not having to reinvent the wheel, and the efficiencies that arise when enlisting a company that specializes in doing the heavy lifting of IT.

Quality is an issue as well. In the hosting market, for instance, a company could hire five system administrators to run their network in-house, and find the collective wisdom limited to the specific experiences of that small team. When a third party assumes control of servers and infrastructure, that firm brings real world experience, gleaned from facing an array of problems across a diverse customer base. Dynamic learning occurs more rapidly because the outsourcing firm is simply in a better position to benefit from — and propagate — “best of breed” practices.

Managing and retaining IT staff is challenging enough in prosperous times; in a down economy, the challenges intensify – and the management responsibilities in outsourcing likewise increase. Keeping IT staff motivated, focused and incentivized is perhaps the most formidable challenge. If an organization’s IT returns on investment is on the order of 20-30 percent, reinvention and retraining are apt to be continuous. Accordingly, whether the market is up or down, the case for outsourcing persists. By contrast, if the organization has kept IT entirely in-house, it becomes considerably harder to double, triple or even cut staff, should the need arise. An outsourcing relationship ensures a constant pool of talent.

Outsourcers are occasionally brought in to “clean up” unfinished business left by in-house teams that, for whatever reason, didn’t see a project through to completion. It is always difficult for organizations to have to cut staff or downsize IT operations, especially for professionals who are accustomed to bigger budgets year after year. And when the mandate comes down from the CEO or whomever that IT budgets aren’t going up — and the only way the company is going to make its numbers is to let go of some of its people — doubt looms large. That is the environment in which the quality of the management of outsourced relationships makes all the difference.

Outsourcing tends to occur in waves. Even during those periods when outsourcing is relatively less in vogue, many organizations still elect to outsource non-core functions. The hot topic right now is offshore vs. onshore outsourcing, but overall, the ebb and flow is modest. Outsourcing isn’t trendy; indeed, when factoring in the earnings of public companies engaged in IT sourcing, outsourced IT, represents a highly stable segment of the economy. Against this backdrop – and with an eye toward making the relationship between the outsourcing firm and its client organization productive for all concerned – it’s necessary to lay down a few rules.

Rule #1: Get Internal Buy-In

Let’s face facts: effective IT outsourcing usually means layoffs — and it can change the jobs of some of those who remain. If an outsourcing firm is brought in to displace existing IT staff, internal buy-in must occur well before the decision is made to bring in that third party. Management must know (and intelligently communicate) that headcount will be reduced by so many and that a plan of action exists to ensure that these cuts, however painful to those involved, ultimately boost the organization.

The best route to obtaining internal buy-in is to move incrementally. Outsource those projects linked to marginal products, rather than to strategic ones. Create an environment where the third party complements existing staff rather than replacing them outright. Doing so, can help promote in a sense, over time that, internal staff can be deployed somewhere else — or even let go. The more strategic the project is, of course, the greater the political heat; the less strategic, the easier it is to get that buy-in for outsourcing.

Rule #2: Go Beyond Buy-in to General Consensus

“Buy-in” suggests a passive kind of acceptance. Effective management of outsourced relationships strives to go a step or two beyond. When the outsourcer arrives on the scene, a residue of resentment or lack of understanding frequently follows. The key to defusing that resentment is transparency on the outsourcer’s part, in terms of both its operations and the organization’s goals. When all parties can view how the outsourcer works — through a portal product or some other mechanism — it immediately becomes less likely that signals will get crossed and consensus may be within reach.

While it’s helpful for the outsourcer to embrace a new assignment with enthusiasm, that energy isn’t always enough to counter the feeling among some that this new third party poses a threat. If management is savvy enough to know that some resentment is inevitable, gentle prodding of recalcitrant IT staff members toward a positive outcome can be decisive.

Rule #3: Counter Backlash with Education

Employee backlash is often manifested in passive-aggressive ways — not sharing immediate deadlines or the full scope of the assignment with the outsourcer, for example, thereby triggering talk that the outsourcer isn’t delivering on the promise. Education is an effective antidote to situations where the ground hasn’t been cleared as well as it should have been in advance, and can reverse uncertainty, ambivalence and even downright hostility.

Situations occasionally occur when those new to outsourcing approach the outsourcer with assumptions that don’t turn out to be well-grounded. This pattern was chronic during the era, where companies were built overnight and needed to tap a huge skill base at a moment’s notice. In some cases, managers themselves were new to the outsourcing process. Demands for instant response were complicated by requirements that armies of internal IT staff also be involved in the process – hardly a recipe for mutual success.

Education should begin during the sales cycle. Determine how educated the organization is on the outsourcing process and see if they’ve done it before. It always helps make our lives a bit easier in terms of fulfillment of the service later on. The more knowledgeable they are on how to manage this relationship the more successful it is going to be.

Rule #4: Communicate — To Avoid Asserting Control

Companies win with complete communication. In outsourcing, communication’s twin is control – and the perception of control. It is vital that the outsourcer never seizes control from the customer (or appear to do so) because that is when complications arise. Maintaining open lines of communication so that the customer feels he or she is still in control — and having a portal-type product that provides a complete window into the operation — is vital to securing a strong, stable relationship. At the end of the day, a client who feels in the dark may well assume the outsourcer isn’t fully on the case.

Rules #5: Clarify Roles, and Stick to Them

In today’s market, most organizations have tried various outsourcers, with varying degrees of success. Because not every encounter is a positive one, companies often have their defenses up, and it’s not unusual for hurdles to exist at the outset — even in a fresh relationship that isn’t immediately leading to job loss. In that environment, the very best way to overcome these hurdles is to emphasize the (non-threatening) partner role: that the outsourcer is more of an offshoot of the IT department than an adversary or replacement. The consistent goal is to make it easier for IT managers and IT staff to do what they must do to meet the business’s needs. The outsourcer’s key function is not just to affect head count; it’s to help the organization improve upon the services it could obtain internally at a given budget level.

Rule #6: Learn and Apply Patience

It takes typically about three months before both sides in a relationship are fully comfortable with one another and truly understand mutual expectations. Even for outsourcers with well-defined processes, writing that custom playbook takes a bit of time. Patience invariably fosters teamwork, and avoids common laments (e.g., “I’m opening a trouble ticket with so and so, and who knows when they’re going get to it?”) that can afflict outsourcing relationships. Once the mutual discovery phase is over, it’s time to for everyone to get comfortable with how things are going. At that point, however, if the comfort level isn’t there, for any reason, it’s an optimum time for management on both sides to examine why.

Rule #7: Impose and Enforce Structure

In order to have a successful outsourcing engagement, companies need, clear, concrete goals. A goal shouldn’t be something vague (like, “we want to get our IT outsourced”), it should be as concrete as, “we offered our exchange server hosting to this company and we will make sure that service availability is 99.9 percent or greater.” To hit that goal, organize formal, frequent meetings (even twice a week) until everyone knows what the milestones and the deadlines are. After the first few months, once a decent product or service is up and running, it’s less important to adhere to a rigid structure around deliverables. Weekly meetings, with an overview of outstanding items, new items, upcoming items, etc., should suffice.

Management has a major role to play here. Prior to bringing in an outsourcer, some organizations find that IT staff has been sitting around doing very little, if anything. That isn’t because there is nothing to do — it’s because management hasn’t said, “Here’s the IT project, here are the goals we have, here’s what we have to do, here’s what will help us strategically.” Because these edicts are not handed down, no one has been clear on the mandate. In an outsourcing relationship, by contrast, there tends to be a great deal more specificity because hard dollars are leaving the company. The best discovery meetings address budget issues head on; the charge then becomes to determine exactly what the organization wants from its investment. What is the goal? What is the value to the organization? What’s to come out of this? These are the kinds of questions that make for smoother relationships.

Rule#8: Keep the Humanity in the Equation (then, re-read Rules #1-#7)

In the end, outsourcing is a human-centered business. Emotions do come into play, since jobs are ultimately at stake. Keeping that big picture in mind, have a clear-cut goal for what the relationship is going to be. Identify and maintain a single, designated point of contact as to who is tasked with managing the outsourcer; don’t have six contact people, and don’t let management responsibilities stray from the IT realm to other departments. Have weekly review meetings with the outsourcer to make sure that goals are being hit; don’t assume that the outsourcer is doing its job.

Ask for feedback from the outsourcer; use this seasoned third party as a live, informal auditing arm. Ask for ideas about recommended internal improvements. (Side benefit: if the outsourcer doesn’t offer input, that in itself may be a red flag.) Good outsourcers will always find issues, because the nature of the business is to gain an intricate look into internal operations. If the outsourcing relationship is on a solid footing and the outsourcer is on its game, the firm’s best practices will come into play. That, in turn, should provide ample comfort to everyone involved — and retire the backlash in the process.

IT Outsourcing Reasons For SMBs

February 10th, 2021


· What drives SMBs to IT outsourcing?

· What holds them back?

· Specific benefits for SMBs

· Outsourcing myths among SMBs

· Challenges SMBs face in Outsourcing

· Conclusion


Small businesses have always confronted with addressing their IT necessities. The lack of resources – be it staff, budgets or managing resources – have determined SMBs to start exploring the offshore outsourcing option. But start ups and small enterprises have specific needs that few outsourcers can address correctly. Affordable IT solutions that are easily to install and configure, service/support requirements and, most of all, integrated ready-to-use methodologies and tools are the most critical demands of an SMB willing to outsource its IT department.

What drives SMBs to IT outsourcing?

The SMB market is to eager to find affordable IT solutions that are easy to use. Just as important, however, is are the requirement that address SMB deployment issues, operational challenges and service/support requirements. SMBs want IT solutions that are easy to install and configure, and require minimal customization and integration. More importantly, they demand responsive and reliable after-sales service and support. SMBs don’t take customer service and technical support for granted. For many small companies, a solution provider’s technical support isn’t merely a convenience; it’s a business-critical IT service, because of their resourceconstrained IT staffs.

SMB business specific challenges and “pain points” determine specific needs for small enterprises. Most outsourcing providers are specialized on the early adopters of outsourced software services – large companies multinationals. Therefore there are few specialized providers for SMBs and able to adapt to their business model and needs. Yet small-sized, SMBs are still technology-intensive businesses that require great attention from outsourcing providers. Small businesses should choose outsourcing their IT to those providers with

experience in managing SMB projects.

What holds them back?

At first glance, this key issue can seem redundant with the ones in the previous paragraph. However, we often see a contradiction between SMB IT requirements and how SMBs buy technology. For example, SMBs cite tight IT budgets as an inhibitor for adopting technology, but yet they choose not to use vehicles such as “leasing” to work around limited IT budgets. Creating the right IT solution for SMBs requires a clear understanding of their technology and business needs.



· Cost Reduction

· Access to better skill sets, depth of experience

· Access to the best / most current technologies

· Minimizing downtown

· Increasing user productivity

· Reallocating personnel to more strategic activities

· Convenience

SMBs prefer IT solutions that have simple and straightforward pricing (the requirement), but they need the flexibility to consume technology in modular components that can be extended when required (the behavior).

It is also important to understand SMB preferences including, but not limited to, brand loyalty, bundling and packaging, and service delivery options, such as outsourcing and software as a service, as SMBs upgrade and expand their IT environments. Yet, there are still issues that have prevented SMBs to start outsourcing their IT department until recently. And these are:

Affordability: Recent market figures point out that still 40% of SMBs state cost as still the strongest reason preventing them from outsourcing. But offshoring proved that in most cases the outsourcing option will be significantly cheaper than hiring in-house staff – since manpower or infrastructure costs are lower at the vendor’s location.

Trust: Lack of clearly defined methodologies and contracts, quality certifications, security assurance and even cultural issues can contribute to low trust levels among SMBs when engaging in an outsourcing relationship. The vendor must be able to place confidence, expect with assurance, agree to the contract, and act predictably and fairly in order to obtain trust from their clients.

Intellectual Property and Data Security: One of the major drawbacks for outsourcing adoption among SMBs is related to protection of intellectual property and information in general. Especially for technology-intensive start ups that rely on innovation, these are business-critical issues, and not all providers have yet in place the procedures for ensuring all these.


· Network Connectivity:

Monitoring and Management of WAN, Routers,

Internet Connections, VPN

· Security:

Monitoring and Management of Firewall, Virus

Protection, Spam Prevention, IDS / IPS

· Data Backup / Archiving:

Offsite Storage, Shared SAN, Data Centers,

Archiving Services

· Messaging and Collaboration:

Email, Web Conferencing

· Software Applications:

Licensing Management, ASP

· Desktop Management:

Helpdesk, Break/Fix

· Server Management:

Monitoring Health and Performance Thresholds,

Break/Fix, Administration

· Web Development / E-Commerce

· Database Administration

Understanding: A clear understanding about the outsourcing process and benefits is minimal among small companies. Offshore software services vendors are more interested in adding Fortune 500 names to their client lists and hence have failed to educate small businesses about the benefits of outsourcing.

Volume of work: Large service providers would rather work with large corporations that can outsource large volumes of work. The volume of work outsourced by SMBs may not be feasible for large vendors. This trend seems to be reversing, but slowly.

Management experience: Small and medium businesses do not have the “management experience” required to work with an outsourcing project. Large corporations, for instance, have dedicated specialized resources to manage vendors.

Benefits of IT Outsourcing for SMBs

Process Maturity

Perhaps the main reason companies want to outsource is to engage a mature team for its development tasks.

Types of processes, the investments being made in services, the infrastructure and the level of communication, trust and understanding that exists between the vendor and client’s company all influence the quality, results and outcomes of the process. The maturity process should be adapted and flexible not static, developing in scale, scope and framework as the relationship evolves and business results need to be maximized. Process maturity is effective when it improves costs, efficiency and productivity in a total quality control approach.

Cost Savings

Lower cost is one of the primary reasons for outsourcing. The cost savings are commonly based on the wage difference between the Western world and offshore destinations. Other factors such as economies of scale and specialization could also have a considerable impact.

Knowledge & Expertise

Outsourcing gives you access to knowledge pools that you might not have inside your own company. Outsourcing also enables you to focus on your company’s core business and competences.

Risk & Quality Control

Outsourcing agreements can be structured in a way that the responsibility to produce a certain quantity/quality of output is placed at the outsourcing provider, thereby giving you a better way of managing risk. The responsibility of the provider can be defined in so-called Service Level Agreements


Capacity Management

Outsourcing gives you a tool to manage your output or production capacity in a flexible way.


By using external resources, you can overcome possible shortages on the job market. This is especially the case for highly specialized roles in, such as the information technology industry.

Despite the proven benefits of outsourcing – shown below – SMB managers still seem to be reluctant when it comes to IT outsourcing. Many of them share so-called “myth” beliefs which we would like to address as follows.

Outsourcing Myths among SMBs

Some of the deterrents mentioned before are only misconceptions. Some of the most common things an SMB manager will say when approached for offering offshore software services are:


The real thing: It is very difficult to define the size of an organization that is ready to outsource. There are “virtual companies” that outsource all their development requirements and handle only marketing and branding.

In short, if you can see a need for software development, you can outsource.


The real thing: Core product development can be outsourced and there are several success stories. However, it is absolutely essential to do a thorough background check on the vendor and ensure that the vendor has a good track record in protecting IP before outsourcing core product development.


The real thing: The underlying meaning of this statement again reflects the perceived difference in outsourcing core and non-core areas. You don’t have to outsource for the sake of outsourcing! Engaging an offshore partner is usually cheaper by 30 to 40%, as manpower, infrastructure costs are far lower at the vendor’s location.


The real thing: On the contrary, the ROI component of outsourcing has been shown time and time again. In fact, the greatest arbiter, the marketplace, seems to give outsourcing a resounding thumbs up. Beyond reducing head count and employee overhead, additional benefits such as faster time to market and improved quality of the finished product can achieve an ROI of over 400% in some cases. Today, the question is not if you will outsource, but when and how.



Like most services related to IT, choosing the right provider can make all the difference. In addition to SLAs, SMBs considering outsourcing IT tasks should look for providers with specific and proven experience in

appropriate industries. Outside providers can also offer solutions that are vertically aligned.

Challenges SMBs face in outsourcing

SMBs that have identified vendors for outsourcing development / maintenance or looking for a vendor, should consider certain aspects that can easily ground the outsourcing initiative. Some of the factors that SMBs should consider before signing on the dotted line are as follows.

Alignment of focus: Vendors too come in different sizes with different priorities! Some of them are large

operators and some of them are small. SMBs should choose a vendor most aligned to the company’s needs.

Some of the vendors have of late spread too thin by getting into non-development outsourcing services resulting in lack of focus. In determining the ideal fit, alignment of focus is a key parameter apart from several other factors like culture, competence etc.

Lack of well-defined processes: In most of the small companies, a bunch of motivated tech team manages software development. Small companies and start-ups do not always have defined processes for managing outsourced software development. Many of the vendors find it difficult to deal with such a setup. Vendors are more comfortable dealing with companies with clearly defined processes. Companies looking to outsource should spend time in defining the roles and responsibilities of their internal team and the vendors’ team. Most of the vendors have mature development processes in place and companies can adopt them.

Commitment to a relationship: All major vendors work with multinational companies and a small client may not be considered as important as a fortune 500 client. In other words, a large vendor would most likely focus on serving large clients with large business volumes rather than serving small clients. Small companies should choose a vendor who values the relationship and hence has a stake in the success of the engagement.

Track record and experience: Companies should look at the vendor’s track record and experience in working with small companies. Vendors are comfortable working with large companies may not understand the nuances of working with smaller companies. Small companies may not have proper documentation or hardware/software infrastructure for testing, version control etc. A vendor with a track record of dealing with small companies should be in a position to expect such situations.

Risk Management: SMBs should seriously evaluate risk management processes adopted by the vendor. The recent trend among offshore software services vendors is the adoption of a business continuity plan (BCP). Vendors with a clear BCP stand a better chance of providing uninterrupted services in the face of contingencies.


Offshore outsourcing has been discovered for quite some time by large corporations but has barely attracted the attention of SMBs. Still, there are many proven benefits that should encourage SMBs to outsource their IT function. And, more important, there are providers of outsourcing services that accommodate on a small business’ model and already have experience in dealing with this kind of projects. As we mentioned before, it’s not a question of whether to outsource but mo