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1/19/2009
08:25 AM
Bob Evans
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Getting Past Satyam Shock: A CIO's 10 Tips On Outsourcing

Jolted by Satyam's financial scandal, CIOs are scrutinizing their outsourcing policies and fortifying their due-diligence efforts. As a reality check, here's a 10-step plan for creating successful outsourcing engagements, brought to you by Jeff Meier, senior VP and CIO of Fujitsu Network Communications.

Jolted by Satyam's financial scandal, CIOs are scrutinizing their outsourcing policies and fortifying their due-diligence efforts. As a reality check, here's a 10-step plan for creating successful outsourcing engagements, brought to you by Jeff Meier, senior VP and CIO of Fujitsu Network Communications.Meier has overseen numerous outsourcing negotiations and engagements in his tenure as an IT executive, and said the first area of focus should not be the potential outsourcing companies, but rather your own company:

"Know what you want. And know very well your company's business strategy requirements and how they'll be affected by outsourcing either a few or many IT functions. . . Anything less will cause certain disappointment and you could be facing a messy, premature end to an outsourcing partnership which is not good for your company or your career, or for the IT provider's business."

That level or rigor is even more essential in these days after the Satyam bombshell, as companies are resetting how they view outsourcers and the various types of risks involved. Again, Meier urges diligent, thorough, and completely honest communication: "While outsourcing a key function like IT can be a successful and strategic move for your company, it could turn out to be a disaster unless you do an exhaustive, thorough analysis up front."

As part of that conversation, Meier says, while it's certainly helpful to hear outsourcing providers discuss successful engagements they've had, it's even more important to require them to talk about engagements that have not turned out so well. "A potential business partner that you may be in a relationship with for years should not be nervous to talk about experiences that were less than successful," he said. "Particularly if they have nothing to hide."

And before we get to Meier's list of 10 tips for establishing an effective outsourcing policy, consider this checklist he offers for evaluating what you can gain if execute an outsourcing strategy successfully.

"If you find an outsourcing provider that passes your 'partnership' tests, proves it has a great IT services track record, cares about its employees, and strongly values you as a potential customer, outsourcing can add significant value in the areas of:

  • Enabling your company to focus on its core competencies;
  • Providing hard to find IT skills your company needs;
  • Replacing rare but vital IT skills quickly if a key employee leaves;
  • Introducing newer, advanced technology at a faster pace;
  • And, perhaps, lowering IT costs."
  • Against that backdrop, and with many thanks to Fujitsu Network Communications SVP and CIO Jeff Meier for compiling and sharing this list, here are Jeff's 10 tips for establishing an outsourcing policy that will let you sleep at night.

    10 Tips for Establishing An Effective IT Outsourcing Policy

    1) Perform due diligence on determining whether outsourcing is right for your company. Tie your sourcing strategy to the company's business strategy. Make sure your IT organization has a sourcing plan.

    2) Fully understand how outsourcing will affect the current IT organization's employee morale and productivity. Also, will a potential outsourcing relationship impact current customer relationships?

    3) Obtain upper management support by creating a decision-making framework based on your sourcing strategy. This is achieved by having an accurate understanding of your IT organization's total costs, your IT service levels that need to be attained, and what IT functional areas would be best considered for outsourcing.

    4) Always conduct a full-scale RFP process in selecting an IT outsourcing provider. If your company has business units that provide IT services, stand firm on insisting that these business units participate in the RFP process just like an external organization.

    5) Ensure that a clear, detailed understanding exists between your company and the IT sourcing provider on the total responsibilities of each party in the partnership. Ensure the responsibilities of each party are thoroughly defined in the forthcoming legal agreement governing the IT outsourcing relationship.

    6) Maintain a line of strong internal IT Leaders responsible for setting IT strategy and managing the day to day activities of the IT outsourcing relationships. The IT leaders should report directly into the CIO office.

    7) If the deal involves the transfer of internal employees to the external IT outsourcing provider, identify and document in the contract agreement "key personnel" who will continuously remain active on the your account unless otherwise specified. If key personnel terminate employment with the IT outsourcing partner, clearly lay out the steps required to replace the departed key personnel with the IT outsourcing partner.

    8) Clearly define and document your security and intellectual property protection requirements with the IT outsourcing partner.

    9) Specify that the internal IT organization is responsible for the management of all services provided by the IT outsourcing partner. Your CIO should be the primary point of contact for all current or potential activities of the IT outsourcing provider.

    10) Once an IT outsourcing partnership begins, be diligent in monitoring the performance of the IT outsourcing partner. Ensure that agreed-to service levels are being achieved and insist that the provider submits improvement plans for service levels not being met.


    Please join us for InformationWeek's Editorial Webcast: "Offshore In India: What's Next?" on Thursday, Jan. 22, at 11 a.m. EST. Editor In Chief Rob Preston and a panel of top executives including Som Mittal, president, India's National Association of Software and Services Companies (Nasscom); Kiran Karnik, new Satyam board member and former president of Nasscom; and Kris Gopalakrishnan, co-founder and CEO, Infosys Technologies; Pradeep Kar, founder and chairman, Microland will discuss these and other issues. Go here to register.

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