Staying in control over an outsourced delivery

Governance, Risk Management, Sourcing

An outsourced delivery of a function, process or portion of work from your business can be a suitable solution for many reasons, such as focusing on the development of core business areas, cost-saving, capacity expansion or competitiveness. There are many benefits to be gained but there are also risks involved. Many risks originate from the belief that once the transition has been made, the outsourcing project is completed. This is a widespread misconception and the reason why many outsourcing projects fail – no matter how well prepared they are. By keeping in mind that an outsourcing agreement is an ongoing relationship even after the transition, you can take actions to manage the risks and assure the success of your outsourced delivery.

An outsourcing process should start with a thorough analysis and documentation of your organisation’s outsourcing scope as well as future needs and requirements. This needs to be done in consultation with key stakeholders across the organisation. When deciding on service provider and entering into an agreement, it is well advised to see the negotiation process and contract drafting as valuable activities for getting to know your service provider and your organisation better. This facilitates the understanding of when and where risks – anticipated or actual – may surface once the delivery has been outsourced, and how these can be managed.

Both informal and formal governance are needed to manage IT outsourcing risks

The creation of a formal steering committee comprising relevant representatives from the service provider and the outsourcing organisation should be stipulated in every outsourcing agreement. Formalised co-operation takes place and is documented within this committee. However, to optimise delivery and improve communications, informal governance is also important. Such informal groups stay in tune by involving users and stakeholders across the organisation on a more informal basis. This can be done by creating recurring contact points where information, expectations, experiences and suggestions about the outsourced delivery can be reciprocally shared on an ongoing basis – e.g. open Q&A-sessions, temporary groups or a project email account.

Use an inclusive, holistic approach to ensure that different organisational needs are met

Within an organisation, there are different requirements from business units and functions (management, IT, finance, legal etc.) that must be taken into account and be met to secure success and minimise the risks with the outsourcing project. The needs of these groups may differ over time but to minimise the risk of non-participation and dissatisfaction in different parts of your organisation, these needs must be assessed and addressed during the term of the agreement.

Service-level agreements (SLAs) are not only the essence of an ongoing outsourcing relationship, they are also a measurement of your service provider’s historical performance. Over the course of an outsourcing agreement’s life cycle, there may be changes in business needs, work load or the technical environment. SLAs must therefore be reviewed periodically to mirror changes in your specific service requirements. By doing this review, the risk of stakeholders’ dissatisfaction, disputes or even termination can be avoided.

To ensure value realisation during the IT sourcing lifecycle – consider involving a third party to evaluate

Involving an external party in evaluating an ongoing outsourcing project can provide significant benefits, especially since many companies lack the necessary experience of outsourcing projects. In addition, it is not uncommon that the parties involved in the outsourcing agreement have different perceptions and goals for a project, e.g. cost cutting and service quality increase versus revenue increase and cost decrease. An independent advisor can – through dialogue with representatives from your organisation and your service provider – bring valuable and impartial advice on how to avoid common risks and unwanted results due to discrepancies in perception.

Measures for early risk management are key to IT outsourcing success

Outsourcing a business support function by definition means that while gaining certain advantages, your organisation will in fact lose the actual control of the delivery of this function. Contractual commitments by the service provider can and should be used to cover such loss of control. Furthermore, by realising that an outsourcing agreement is an ongoing and changing relationship, and by working proactively with stakeholders, your organisation will have a solid basis for monitoring and at an early stage managing risks that may occur due to the loss of control. Such measures are imperative in securing the success of an outsourced delivery.

About the author

Tove Flodgren Isakson

Managing Director
Fondia Legal Services

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