12.10.03
 By
Basil Tesler
You can outsource almost anything. Maybe you don't know it yet, but
it's true. A couple of days ago, when I was drinking coffee in the
kitchen, my wife pointed at the faucet that was leaking big time.
The good ole faucet was there when we moved in about ten years ago,
and trying to fix it again didn't make sense any more. Since I religiously
believe in DIY, I bought a new faucet and set about working. When
the old faucet was gone, I found out the metal pipe under the sink
had to be replaced, too. There was no way I could do it without recourse
to welding. I realized I was ready to outsource that part of the project,
so I called the plumber.
IT development outsourcing isn't much different than any
other kind of outsourcing. When you face an insistent need to start
a new IT development project, you have to weigh your current in-house
capacity first. If your experience and budget allow you to cope with
the task without resorting to any outside expertise, you should probably
take full advantage of your potential and do it yourself. However,
if there's danger that you'll bite off more than you can chew, it's
about time to consider the advantages and disadvantages of outsourcing.
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Advantages
Basically, outsource service providers offer you higher quality services
at a lower cost. This makes the advantages of IT development outsourcing
obvious, so let's have a look at just a few of them.
Outsourcing IT development is a most effective way to stretch your
budget. When managers plan IT development outsourcing, they usually
make it their aim to cut down the company's expenditures by 30%. This
is a figure that speaks for itself. Of course, there's always the
risk of failure, but if you outsource prudently, you'll afford to
implement projects of such a scale that would be impossible for you
to reach on your own.
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If you need to have state-of-the-art IT solutions worked out and innovations
implemented with small losses, outsourcing may be the only way out.
It will save you from the nightmare of retraining your employees (or
even hiring new ones) and/or paying for re-equipment.
Cutting your costs and upgrading the quality of the services you offer
will allow you to expand the competitive capacity of your business.
I suppose the state the IT market is in today makes this simple argument
a crucial one.
When you outsource IT development to an outside company, you can concentrate
on your core activities. You won't be able to completely forget all
about the project or its part that you have chosen to outsource as
soon as you sign a contract with an outsource service provider, but
you won't have to get scattered, either.
If you deal with an experienced and highly qualified vendor, you'll
be able to gain valuable expertise in support of your IT capacity.
Almost any vendor will surely try to set a dependency trap for you,
but it doesn't mean you have to acquire the dependency pattern instead
of learning everything you can derive from the vendor's expertise.
Disadvantages
So, you have finally decided in favor of outsourcing. Will it automatically
make you wealthy and happy? This is far from true. Various studies
show that 20% to 35% of IT outsourcing contracts are not revived after
they expire. Needless to say that most customers in these cases are
not satisfied with the quality and/or price of the services. Outsourcing
as a nightmare was eloquently illustrated by Beth Cohen, president
of Luth Computer Specialists, Inc., "There was a company in Dayton
that decided to outsource much of its IT and production to a foreign
company about five years ago. After about nine months of outsourcing,
the company realized that there was a huge loss in quality for both
production and IT support. The company decided to cancel the contract
and rehire their old employees. They ended up getting most of their
old employees back but at a higher wage than before. Most people would
think that the story ends there. However, as hard as it is to believe,
the company is actually considering outsourcing again. They think
it will be different this time. It will be interesting to see what
happens."
If you need to have state-of-the-art IT solutions worked out and innovations
implemented with small losses, outsourcing may be the only way out.
It will save you from the nightmare of retraining your employees (or
even hiring new ones) and/or paying for re-equipment.
Cutting your costs and upgrading the quality of the services you offer
will allow you to expand the competitive capacity of your business.
I suppose the state the IT market is in today makes this simple argument
a crucial one.
Forewarned is forearmed. This is why I suggest we discuss the pitfalls
expecting a business that puts out to the sea of outsourcing.
You will lose control over the project or at least over the part that
you have chosen to outsource. This is the problem that frightens almost
any manager who has little or no experience in outsourcing. This is
the challenge any business involved in outsourcing faces. This is
the risk you have to take. It is inevitable that outsource service
providers should take control - at least in part - over outsourcing
projects. However, they are not supposed to abuse the confidence reposed
in them by their customers. In order to minimize the risk, you have
to be extremely careful studying the background of your potential
vendor. Once you decide in favor of this or that company and begin
negotiating the contract, you should try to make the whole process
of the project implementation as transparent for you as it is possible.
It's usually difficult to avoid the inherent problems of communication.
·Telephone conversations are bad enough, but email and communicating
via some instant messaging program online takes even more time. You'll
have to put up with an endless amount of emails to be sent and received.
Besides, if you are dealing with an overseas vendor, the time zone
problem will surely arise - the difference between your vendor and
you may be seven hours or more. Just imagine: you arrive at the office
at the same time when your vendor's employees are going to leave.
The best way around this problem is to set the mutually acceptable
time for online meetings and to require that your vendor should stick
to the schedule. In fact, you can even benefit from the difference
in time zones between your overseas vendor and you. For instance,
you transmit a rush order to the vendor at the end of your working
day, the vendor receives it in the morning (their morning) having
those seven or more hours behind, and by the time you arrive at the
office, a considerable amount of work will have been done.
·Standards of correspondence may be different to the extent of misunderstanding.
If you are having any problems like that while corresponding with
your potential outsource service provider, you should try to work
out some standards that both of you will find easy to follow, or you'd
better start looking for another vendor.
·Language and/or cultural problems might contribute to all kinds of
mix-up. For instance, a lot of people knowing some fundamentals of
English are sure that when they ask your opinion about something and
you say, "It's okay," it means you like it a lot. Don't waste your
time on foreign vendors communicating in something like "Pidgin English,"
and even if the person you're contacting has a fairly good command
of English, ask for the resumes of those employees who are going to
be responsible for each part/stage of the project to make sure they
are fluent in English.
An outsource service provider might be trying to diversify the business
so zealously that achieving progress in one particular area becomes
questionable. The solution to this problem lies in the company's portfolio.
Examine the relevant case studies and success stories, ask the vendor
for references, and, if you are still uncertain, do not hesitate to
check these references.
Some vendors advertise services and even take up projects having little
or no experience in the corresponding areas. Apparently, they intend
to farm out at least some parts of such projects to subcontractors
- which certainly doesn't look very attractive to the customer. This
problem resembles the previous one, and the recommended solution is
the same.
Almost all outsource service providers place the highest emphasis
on the most advantageous projects. It's only natural, but it surely
doesn't make the life of the customers with lower profit potential
easy. In order not to become a neglected customer, you should:
·insist on appending to the contract a project implementation schedule
that includes as many milestones and deadlines as you find it necessary;
·stipulate for tough financial sanctions in case the vendor fails
to meet any of the deadlines;
·agree on some incentive payments for completing the project on schedule
(or even ahead of schedule);
·last but not least, build partnership relations with the vendor whose
work you are satisfied with and whose high-value customer you want
to become.
Most vendors try to accumulate as many projects as they can. It's
also easy to understand. However, the burden might appear to be beyond
the vendor's strength, and this will most likely wreck the project
schedule, if not the whole project. If you don't want it to happen
to you, you can:
·find out the scale of the vendor's operations including the approximate
number of employees and customers - of course, if it's possible;
·request the resumes of all the vendor's employees that are going
to be involved in the project implementation;
·ask the vendor to describe in detail these employees' responsibilities;
·follow the advice given in the previous paragraph.
An unscrupulous vendor may be simply unqualified for the project that
an imprudent customer have chosen to outsource. One of the ways to
solve this problem is to focus your attention on the expertise of
your potential outsource service provider at the selection stage.
A number of problems may arise due to the incompetence of a customer
who is a novice in outsourcing. That's right, you don't have to think
that an outsource service provider is the root of all evil. Incompetent
customers tend to make modifications in standards and procedures that
have been long established. A vendor who knows that the customer is
always right tries to implement the project the way the customer wants
it, which finally leads to a total mess-up. In order to avoid this
kind of situation, try to find out as much as you can about IT development
outsourcing from your contacts and… from articles like this.
Conclusion
Will outsourcing IT development really profit your business? Uh, maybe yes, or maybe no. In other words, it depends.
If you don't possess in-house expertise and/or budget necessary to implement a vital IT development project, outsourcing it - in full or in part - to an outside company seems to be the best solution you can find.
However, you should be discreet selecting the vendor, examining the vendor's expertise, negotiating the contract, and monitoring the project implementation. In this case, outsourcing IT development will be rewarding, and the return on investment might be the greatest you have ever had.
Then again, if you are not cautious and thorough enough, you might end up paying through the nose for much worse service than you expected to get. This is what I'm thinking of right now, when the plumber's bill is laying before me.
Copyright © 1999-2003 by Web Space Station®. All rights reserved.
About the Author:
Basil Tesler is an Editor-in-Chief for Web Space Station®, an Illinois based software company. Web Space Station provides total IT solutions covering your most demanding technical needs. Our innovative approach works for you to increase productivity, improve customer service and reduce costs. And, we are dedicated to continually serving your needs through our outstanding and ongoing commitment to quality and support. See more information at http://www.WebSpaceStation.com.
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| From the Forum: | | IT Future |  After reading this article, I initially felt a little disappointed about what may lay ahead for IT. But then I started thinking that maybe the trend for outsourcing will be to us little companies. What are your thoughts on this? ...
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