7 Major Considerations When Outsourcing IT

With many organizations stepping into the digital age, the demand for back office outsourcing and IT outsourcing has increased drastically. Outsourcing brings cost savings, effectively addresses talent gaps and shortage, etc. It also helps to improve the productivity and efficiency of an organization. According to the consulting firm Deloitte, most companies outsource their activities with the aim of cost savings, and quick transitioning to the digital level. However, many companies often forget to consider the impact of outsourcing on the company’s recruiting efforts, corporate image and culture.

Think before You Outsource

Outsourcing various processes may have considerable impacts across the organization, and therefore requires serious consideration. According to a survey of senior business and IT executives by consulting firms McKinsey & Company, organizations plan to increase their investment in new technologies from 32% in 2016 to 40% in 2019. Let us look at some major considerations when outsourcing your IT requirements.

1. Considering human capital is vital especially when domestic jobs are lost;the remaining in-house personnel may question the company’s commitment to its employees. It is important for the management to explain the reasons for outsourcing certain activities. They can consider deploying the displaced employees to other areas of the business or provide them training that would stand them in good stead when searching for a new job. A poor outsourcing transition can cause loss of productivity. So, employees should be trained, and allowed to interact with overseas employees though there may be cultural and language challenges to overcome. Proper communication can help employees understand the challenges and enable companies to move forward.
2. It is important to have a clear understanding regarding the limitations of IT outsourcing, especially software outsourcing. Investors may prefer that you maintain technical expertise in-house. This means that you may be able to outsource only when you have a core technical team in-house. Ideally, you can have one chief technology officer (CTO) and one or two skilled developers. While meeting investors’ requirements, you also get to enjoy more control over development processes within and outside the company. It also gives you the opportunity to outsource larger chunks of your programming work.
3. Being unorganized is one of the reasons for outsourcing failure. Keep all aspects of software development organized. This allows you to describe the task clearly and maintain clear documentation. Along with being organized, make sure that you have relevant processes in place to ensure that everyone stays engaged and productive. Remote developers should have a proper understanding about where to deploy their code, who will test and accept it, and how it can all be merged in production.
4. Do not stick to a fixed cost model. A fixed cost model may work well for developing minimum viable products or those products limited in scope. In a fixed cost model, delays caused by the need to provide and approve estimates destroy the advantages of outsourcing and this leads to failure of the project. Difficulties may arise such as changes in requirements after the estimates are approved. So, using a dedicated team model is a better option. In this model, you treat your remote employees as part of your own development team. In case you are not happy with the remote employees’ performance, you can always request your outsourcing partner for a discount or replace them eventually.
5. Shortage of technology talents in IT functions is another major concern. McKinsey & Company says that IT expertise is essential in the present digital scenario for data analytics. IT initiatives are also important for cloud computing, cyber security and mobile app development. This problem can be resolved by outsourcing to vendors that have skills and other advanced technologies for a quick digital transformation.
6. Once you are confident about the chosen outsourcing vendor, carry out a small experiment like interviewing or conducting a small sample test to know if they are reliable. Ask the agency to sign an NDA and provide a trial run. The ideal method is to give a month trial period, this will help you to determine, without much financial risk, whether to hire them.
7. Cloud computing is another development in this IT era. Cloud servers are accessible through the Internet and can be concentrated in fewer locations. The cloud helps to have a closer proximity to a company’s home operations and requires fewer skilled technicians to monitor systems.

Outsourcing is beneficial and there are examples such as the following in the real world to illustrate this.

Proctor & Gamble Outsourced Its Functions Creating a Collaborative and Win -Win Relationship with Its Partners

P&G has always been on the frontline when it comes to innovation. The company took a ground-breaking approach to innovation and collaboration by realizing the power a supplier can offer for innovation. In 2003 P&G developed a strategic facility management outsourcing relationship with their outsourcing partners and entered into a $4.2 billion worth outsourcing partnership in IT infrastructure, finance and accounting, HR and facilities management. It was a pioneering deal that spanned more than 60 countries. The strategic partnership between P&G and its partners HP, IBM, and JLL has consistently delivered results for the long term.

Back office outsourcing is always a good idea for companies to reduce costs and improve productivity, but it is also important to choose the right vendor thatcan assure quality output which is the highest priority for almost all companies.