Outsourcing Matters
Introduction
Outsourcing is the use of another entity to perform a specific function in a business.
The desired end result is increased productivity. The economic rationale for outsourcing
is that there are gains in efficiency if tasks are modularised and performed by
a specialist.
According to CIO Insight magazine (December 2003), 70% of companies outsource some
of their IT function. The average cost saving is estimated at 6%.
There are winners and losers in the outsourcing game. The benefits and disadvantages
depend on the project, the companies involved and the management strategies put
in place. There are companies entirely satisfied with their outsourcing partners
and there are others reeling from huge cost overruns and non-performing software.
So how do you harness the potential offered by outsourcing? How do you ensure that
you outsource in the right way, and for the right reasons?
The benefits of outsourcing software development
Skillset
The ability to draw on the resources of an established development team means there
is no need to recruit – and retain – staff. This alone can significantly
cut the ramp up time of a project. When skills are in demand, keeping a team of
disparate contractors intact for the life of a project presents something of a challenge
in itself.
Experience
A good software service supplier will have sound project management skills and a
comprehensive knowledge of development life-cycles. They'll also be fully conversant
with the relevant technologies and methodologies. Their specialisation ensures a
broader base of experience and therefore a greater awareness of the pitfalls. This
increases the likelihood of a successful project.
Focus on Your Core Business
The principal company does not need to commit resources in an area where it does
not have expertise. Consequently it can concentrate on its core business functions.
Simplified Structure
The project structure imposed by outsourcing reduces the likelihood of a poorly
defined and seemingly endless development project with budget overruns.
Pitfalls to look out for
Security
Security is a concern. Any relationship with a supplier requires sharing knowledge
of the business. There may be intellectual property that needs to remain secure.
Quality
Any new business relationship is dependent on the skills and the professionalism
of the companies involved. There is no guarantee that the service provider will
meet the necessary standards or even be able to deliver.
Knowledge Transfer
Outsourcing any function ultimately means a loss of in-house knowledge. To some
extent this is a potential loss of control that could weaken a business.
Over-reliance
Opening a business to an outsider can introduce vulnerability. Businesses can find
themselves unwittingly tied to one supplier because the cost of swapping to an alternative
is too great. At the outset of the relationship the potential cost of swapping and
the leverage the supplier may gain is not always immediately evident.
How to reap the benefits of outsourcing
Know your provider
A company should diligently research the abilities of the service provider, checking
their performance on previous projects, assessing the quality and ability of their
staff and reviewing their processes, standards and methodologies.
Mutually beneficial
The company should create a symbiotic relationship with the provider as a healthy
partnership is beneficial to both parties.
Detailed agreement
It is essential to ensure that all parties' expectations are clearly understood.
To promote a sound relationship a framework should be developed. The framework should
address service level agreements, documentation of the agreed practices, the management
of contracts, the management of the relationship and the control of performance.
It should also detail processes for issue resolution and the transfer of assets
and knowledge. Prior to any work commencing all contractual arrangements should
be in place. These should also provide for the areas of warranty periods, intellectual
property, non disclosure, incentives and penalties.
Pilot project
If practical, it is advisable to start small with a pilot project and allow trust
to develop between the two businesses. A mature service provider is interested in
the principal's long term business and the principal is interested in the provider's
long term availability.
Stay in control
It is necessary not to lose control of the process. The relationship requires continual
work from both sides. The company must maintain a strong management role in the
project. To aid the management, the project should be well structured with well
defined scope and deliverables.
Conclusion
Managed wisely, outsourcing will reduce costs and improve productivity. If you're
aware of your situation, know what you wish to achieve, and develop a partnership
with a professional supplier, the benefits are there for the taking.
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