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How to get a better outsourcing deal

Bart Perkins | April 29, 2015
The trick is to recognize how IT outsourcers reduce costs and then find ways to share in those savings

Embracing the outsourcer's practices and tools promotes efficiency in both the outsourcer and the client. If you are unwilling to adopt the outsourcer's practices, you are unlikely to get all of the hoped-for benefits from outsourcing. Discuss process standardization before signing the contract. If your processes need revamping, work with the outsourcer to decide if it will be cheaper for you or the outsourcer to do the work. There is no point in redesigning your processes twice.

  • Facility costs. Some outsourcers allocate insurance, taxes and other facility costs proportionally across current customers. This works well when the data center, service desk or repair center is operating at capacity but can result in higher costs when customers leave or contracts are completed.

Evaluate the cost of doing business in the area in which your services will be performed. Labor, power, land, and other costs vary widely. And be careful to limit pass-through cost increases during negotiations.

  • Technical resource leverage. IT organizations require a variety of specialized skills such as architects, database analysts and network analysts. Technical tools required may include perimeter security, communications equipment and network discovery appliances. Very large organizations can justify the cost of both the staff and the tools. Small and mid-tier organizations, often struggle with both. Since most employees prefer full-time employment, demand for technical skills rarely matches the exact capacity of staff. As a result, technical specialists are frequently either overworked or searching for projects to avoid boredom. Similarly, even if specialized technical tools are available, they are often used infrequently or significantly below full capacity.

Outsourcers spread people and tools across multiple clients, better matching capacity to demand. In addition, since outsourcing is the business, technical staffers are offered more diverse career opportunities. Unless you are large enough to justify a deep technical bench, consider insourcing the design of your technical environment but outsourcing the day-to-day operation and maintenance of that environment.

  • Salary arbitrage. Many outsourcers staff positions not requiring face-to-face interaction in low-cost parts of the world. Typically this works best with well-structured processes requiring interaction with other technical staff (e.g. CMM Level 4-5 or Service Desk Level 2-3 support.) It is minimally beneficial with less structured processes or when the outsourcer must communicate regularly with nontechnical staff. Before accepting support from a low-cost part of the world, make sure your processes are well structured and ascertain that no language, time zone or cultural differences will hinder performance.

Clearly, lowered cost is only one consideration in an outsourcing decision. But if you pursue outsourcing, you obviously want to negotiate the best price possible. Don't mindlessly beat your outsourcers to lower their prices! Allow them to assume responsibility for parts of your operation that enable them to leverage their scale, expertise and cost structure. Doing so can ultimately reduce costs for both of you, and your outsourcer will be grateful for being able to negotiate win-win pricing. Don't start your long-term relationship as adversaries; show from the beginning that you intend to be collaborative partners.

 

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