Finally, payment must be worked out, bearing in mind the importance of tying it to performance and service levels. In the early stages, both parties tend to prefer time and materials, since they both are dealing with an unknown partner. However, "at some time, this approach should convert to a fixed price based on knowledge gained from the early time-and-materials billing period," Recca says. "The payment scheme should be spelled out clearly in the contract."

Efforts to forge a strong partnership persist even after the contract is signed. First, the company must work quickly to overcome IT's natural resistance to the outsiders. If senior management isn't clear on communicating the company's commitment to the outsourcing project and its benefits to the company, managers and employees won't cooperate and may even actively work against the project. If these efforts to undermine the project are not addressed immediately, its success will be jeopardized.

This approach encourages the outsourcing partner to increase profits by being efficient, and it lets the hiring company know how much to budget for a specific piece of work. However, for the fixed-price model to work, both sides must keep careful track of changes in scope and environment. When these changes come up, both sides must work together to amend the schedule and compensation appropriately.

In addition, the project must have good sponsorship within the firm, says Intelicent's Krishna. "Executive management must be completely committed to the success of the project," he says. "Otherwise, internal inertia and resistance will doom the project."

The consulting partner typically will appoint a project leader who reports to the client company. Daily communications should be encouraged and expected. Moreover, in-house technical experts should participate in any meetings where more than simple project management is discussed. The project must indeed be viewed as a partnership.

Once this relationship is in place, the process should start to run by itself. The key document is the schedule and the statement of work. The project leaders of both parties should constantly monitor progress, discuss unforeseen issues, and stay in touch with the project's progress.

"You must be constantly reviewing progress reports and metrics to make sure all is happening as expected--on schedule and on budget," says Mario Sagaria, NCR's Y2K program director, who headed an outsourcing project involving more than 3 million lines of NCR code that needed to be checked and corrected for Y2K compliance.

Be sure to quantify the cost of managing the project, cautions Burris. "This is an expense that can offset savings the project might confer," he says, adding that the relationship will succeed if the work can be specified in detail. If the project is difficult to define in detail, it probably won't lend itself well to outsourcing.

Even successful projects can turn unsuccessful over the long term, especially those where the outsourcing deal was entered into because the in-house staff lacked skills. If a company outsources a technically difficult project and doesn't train its developers to have the necessary skills to support the project once it's complete, "then the application development becomes the front end to a much larger and much longer relationship with the outsourcing outfit than was originally contemplated," says Allie Young, an analyst at Dataquest, an IT market research firm. "IT managers should be vigilant to avoid this problem."

However, if outsourcing is contracted correctly, run properly, and maintained as a partnership, it will prove consistently successful and economically rewarding.

return to page 1, 2, 3

Illustration by Matt Foster