Small and midsize businesses should proceed to IT outsourcing with caution. Here are eight telltale signs that your business isn't ready for outsourcing

InformationWeek Staff, Contributor

September 24, 2007

4 Min Read

4. You can't compromise on customization.
For very small infrastructure-related projects, suppliers generally cannot provide any kind of customization, Tisnovsky says. Forget about running e-mail your way -- you'll have to follow the supplier's route to running Microsoft Exchange. "They provide highly standardized managed services -- it's the only way they can do it for scale," he says. "You have to be willing to change your processes and the way your end users work. You will use absolutely standard e-mail and scheduling."

5. You can't wait -- literally -- to get to market.
Startups that need to get their applications developed so they can get to market fast may benefit from an outsourcing or off-shoring relationship, but they'll have to choose carefully. "Working with a company that is CMM 5 and has wonderful procedures, will become virtually impossible, because CMM 5 requires significant overhead, documentation overhead, spec changes -- everything is a process under CMM. If your concern is time to market, you don't want that," says Tisnovsky.

Instead, if you're going to outsource or offshore, you need to partner with a company that will give you direct collaboration with the developers over process maturity. That kind of relationship is more likely to be available from a much smaller Tier 2 offshore provider that's hungrier for the business, he says.

6. Your organizational culture is more about confrontation than collaboration.
Even the smoothest outsourcing relationship is going to have a problem now and then. Some companies always will take the view that it's the vendor's fault, and either they fix things or they're gone, rather than work together to figure out how both sides can address the issue.

Companies that take the former approach may be better off not outsourcing at all, because there's no cheap and easy end to the relationship. "Outsourcing costs time and money and commitment to get involved in, so it's expensive and painful to get out of," Casale says.

7. You won't be ready to move forward aggressively on your plans.
You can't just plan for outsourcing -- you've got to be ready to move forward fast, with an aggressive time line that lets your company realize its stated intentions and keeps them from moving to the back-burner. "The hang-time creates morale issues," says Casale. "Cost and risk goes up and your 'A' players are the first to leave if there's uncertainty."

8. Your expectations about cost-savings are unrealistic.
Of course, outsourcing is about saving money, but not necessarily right away. For one thing, suppliers may not be able to price their services as aggressively for smaller contracts as they do for bigger deals. For another, the process of delivering IT and recovering its costs is somewhat informal in some organizations, including large companies, Forrester Research principal analyst Bill Martorelli says. When organizations don't know what their true IT cost base is to start with, they can be in for a shock when a price tag is attached to those services.

It's not wrong to make cost savings a prime consideration -- 90% of the outsourcing deals still being made are about just that, says Casale. But, he says, "if your focus and objective of outsourcing are limited to short-term tactical benefits like expense reductions, so, too ,will your benefits be limited to short-term and tactical. If you're willing to have a grand revision and think of the upside, both long-term and strategic, then you have a wonderful opportunity."

Translation: Conversations with your outsourcer should be about issues such as increasing response time for clients, which boosts your business, rather than about how to save 20% on overhead costs.

For Baird, it's all about understanding the costs up and down the line, rather than taking a narrow view. "You never will convince any business person worth his salt that cost savings shouldn't be up there," he says. "But, competitively, the ability to win is determined by your ability to stay ahead. I think it's impossible to stay ahead unless you can afford to have multiple experts and expertise in all the areas that a partner has experts in." If you don't see your organization as grappling with these issues -- or if you believe you can put in place the mindset, plans, and policies to change perceptions and expectations, and remove roadblocks -- then welcome to the wonderful world of outsourcing.

Jennifer Zaino has served in senior and executive editor roles at publications including InformationWeek, Network Computing, HomePC, and PC Magazine. Currently she is a freelancer covering business-technology issues including IT management and best practice frameworks, IT architectures, and virtualization.

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