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What is outsourcing? Definitions, best practices, challenges and advice

Stephanie Overby | Nov. 8, 2017
Outsourcing can bring big benefits to your business, but there are significant risks and challenges when negotiating and managing outsourcing relationships. Here, we break down everything you need to know to ensure your IT outsourcing initiatives succeed.

For a more in-depth discussion of SLAs, see “What is an SLA? Definition, best practices and FAQs.”

 

Outsourcing deal lengths

What’s the best length for a skirt? While the outsourcing industry is not quite as fickle as fashion, the prevailing wisdom about the best length for an outsourcing contract has changed over the years. When outsourcing first emerged as a viable option, long contracts — as many as 10 years in length — were the norm. As some of those initial deals lost their shine, clients and vendors moved to shorter contracts.

As with most questions about outsourcing, the optimal answer depends on what’s being outsourced and why. While decade-long deals have largely gone by the wayside, a transformational outsourcing deal may require more time to reap benefits for both client and vendor. But when outsourcing desktop maintenance or data center support, a shorter relationship may work better. Generally speaking, overly long contracts (more than seven years) should be avoided unless there is a great deal of flexibility built into the contract.

 

Choosing the right outsourcing provider portfolio

Many years ago, the multi-billion-dollar megadeal for one vendor hit an all-time high, and the big IT service providers of the world couldn’t have been happier. But wholesale outsourcing has proved difficult to manage for many companies. These days, CIOs have embraced the multi-vendor approach, incorporating services from several best-of-breed vendors to meet IT demands. Most major IT services players have done their best to adjust to this trend. In fact, some leading CIOs not only work with a cadre of competing outsourcers, but expect them to meet joint deliverables.

Multisourcing, however, is not without great challenges. The customer must have mature governance and vendor management practices in place. In contract negotiations, CIOs need to spell out that vendors should cooperate and refrain from blaming each other, or else risk losing the job. CIOs need to find qualified staff with financial as well as technical skills to help run a project management office or some other body that can manage the outsourcing portfolio.

The rise of digital transformation has initiated a shift not back to megadeals but away from siloed IT services. As companies embrace new development methodologies and infrastructure choices, many standalone IT service areas no longer make sense. Some IT service providers seek to become one-stop shops for clients through brokerage services or partnership agreements, offering clients a full spectrum of services from best-in-class providers.

 

How to select a service provider

Selecting a service provider is a difficult decision. But start by realizing that no one outsourcer is going to be an exact fit for your needs. Trade-offs will be necessary.

 

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