Outsourcing information technology, infrastructure and desktop support are common practices, and outsourcing data center hosting, e-commerce systems, security or software development are becoming the norm. By outsourcing functions, companies can divert would-be IT budget requirements to improvements in production lines, a larger sales staff and other factors that contribute to company growth and profitability. But the risks of outsourcing are considerable, and mistakes such as insufficient management oversight can be costly and lead to project failure, as well as a company’s demise.
1. Failure to Train Managers to Oversee Internal and External Processes
Ideally, an IT service provider manages projects in ways that satisfy customer requirements, if for no other reason than to ensure a steady stream of business. But the interests of the companies that hire IT service providers are not foremost in the minds of the service provider’s leadership. Unless a company assigns a manager to an outsourced project, therefore, who is adept at simultaneously managing both an internal and external team, the project may not be successful. To best ensure a company’s managers can properly oversee internal and external processes, it’s best to hire leaders with managerial expertise, then train them in leading an IT outsourcing project.
2. Focus Is Cost, Not Cultural Fit
A primary reason a company outsources some projects is to lower the cost of a full-time staff. In some cases, the wages of an outsourcing company’s personnel who reside in a foreign country are significantly less than the wages of a company’s own personnel. But bringing a project in “on budget” is only one determinant of an IT outsourcing project’s success. Other success factors include access to needed skills, team productivity and end product quality, each of which can be negatively affected by multicultural or language issues. Consequently, it’s smart to confirm that a service provider can provide workers with the needed functional skill set, as well as a cultural bias similar to that of your company’s employees.
3. Fall Victim to Extreme Outsourcing
It’s tempting to view every item in your company’s IT project portfolio as a possible outsourcing target. But just because you can hire a contributor from an outsourcing company at half the cost of a full-time employee doesn’t mean you should do so. Outsourcing too many projects robs your company of the opportunity to grow much needed in-house expertise and makes day-to-day operations too dependent on the whims of service providers. Instead, outsource only those projects that require an expertise that is outside your department’s core competencies. And then, outsource only those projects for which you can write detailed specifications and manage with well-quantified deliverables and checkpoints.
4. Demand a Fixed-Price Bid for Any and All Projects
There’s comfort in knowing where your IT department stands in terms of adhering to its budget and you best support that objective with a fixed price bid. But while a fixed price contract may work well for a blogging, programming and other short-term project, it’s not the be-all, end-all for all projects. For instance, a fixed-price bid isn’t a good outsourcing model for a call center or data entry project. Rather than automatically push for this pricing model, it’s best to talk your project needs over with your peers to learn of effective pricing options they’ve used and be flexible in your negotiations with your selected bidders.
5. Pay Less than Fair Compensation
You may get a low-cost bid for a project. But in terms of work quality, you typically get what you pay for. A service provider that under bids other companies may be a start-up that lacks the cash to pay skilled workers. Consequently, the service the company provides may not meet your company’s standards. In addition, low-paid workers are often unhappy workers who don’t provide a service of the same quality as that provided by those who are fairly compensated. For this reason, it will be to your advantage to pay a service fee that allows the IT service provider to fairly compensate employees for their work. This rate might be lower than what you would pay a direct employer, but above the market rate in a particular geographical location.
Companies can save staffing and other costs by outsourcing IT functions. But funding an outsourced project is futile if the project proves to be a company’s undoing. The risks of that happening are considerable if a company fails to hire and train exceptional managers, chooses to pay less than an honest wage for outsourced work, or makes other self-defeating mistakes.