Small and midsize businesses should proceed to IT outsourcing with caution. Here are eight telltale signs that your business isn't ready for outsourcing
Outsourcing some or all of your company's IT functions can jump-start your business, push it to the next level, or just get your systems under control. But for outsourcing to work, you'll have to manage it carefully. Read the eight signs below, as well as Are You Ready to Outsource?, before proceeding.
1. You haven't done due diligence on potential vendors.
That's what got Erin Hurry, founder of Girls with Goals, into trouble. She worked with a series of outsourcers to develop her company's Web site. "I took people's word. The first company we worked with said they had worked for Ford and Bacardi, but I never called those companies to ask how it worked out," she says. And it turned out that that company had been sued by previous clients.
Hurry cautions that you should ask about whether the vendor you contract with will be outsourcing the work to another party -- and if so, you want the details on that third party. That includes background checks on the employees who will actually be doing the work for you, and what the company's turnover rate is, especially in a market like India where job-jumping is the norm.
"They have a huge [application developer] turnover rate in India, so one person starts the code, then goes missing, and then someone else starts again and the whole project is mess," Hurry says. "Then they want to come back at you to get more money. You have to be very careful, and ask questions. Do your research and have a contingency plan."
MyWeather president Kevin Baird has seen a bad outsourcing choice affect one of the partner companies he deals with, because it chose an outsourcing provider without having a good understanding of how that provider was investing in its own resources. "Their business, their ability to grow and deploy new elements inside their business, has been significantly hampered by a partner who simply doesn't have the bandwidth to provide them with the people and resources they need, regardless of how much money they would spend," he says. "That has cost them time to market. Now they're going away from that partner, and it will cost additional incremental funds, because they've got to move everything."
Fast-growing companies don't necessarily know what their future needs will be, so they need to feel confident that the service provider will always be a step ahead.
2. You don't have any plans for managing the relationship on an ongoing basis.
Many IT service providers -- especially the larger ones whose business models justify a year's worth of a team's work courting a $100 million dollar deal -- have yet to figure out the best sales and selling models to make much smaller deals profitable. With a very high cost of sales to the small and midsize business market, one solution some have is to keep account management overhead low. For a small company, that means that your account management team, issue escalation personnel, and the guy managing your project likely will be the same person. "It will be difficult to manage the outsourcing engagement and control the outsourcing engagement," says Ross Tisnovsky, VP of information technology outsourcing research at Everest Research Institute. But necessary. "Relationship management becomes your problem, meaning you have to manage them."
So, whether it's a team, a person, or half a person, someone has to take responsibility for the engagement on your end -- which, by the way, was a lesson learned by big companies when they first got into outsourcing a decade or more ago. "Learn from the mistakes of the Fortune 500, when they first started doing these deals, and after they did the transaction everyone just went back to their day jobs," says Frank Casale, CEO of The Outsourcing Institute. And without oversight and governance, the result often was failure.
At MyWeather, that person charged with day-to-day relationship management is its VP of technology development. "You have to have someone who can manage that part of your business, and depending on how big you are, that person also might be doing other things," says Baird.
3. You don't have your own house in order.
IT is broken at your company and you're hoping an outsourcer will come on board and make everything all better. Wrong. Now you'll just get to pay someone else to run your flawed or ill-defined processes and inefficient systems "You want to avoid what we call the 'Your mess for less scenario,' where your IT dept is in a total sense of chaos and you just hand it off and expect them to fix it," says Casale. " Those scenarios don't play out well."
Same thing with business processes. "Very few companies actually understand what they do. They can't define it or lock it down," says Vic Berger, CDW's manager of business development. To understand processes before you outsource them, give individuals a legal pad and have them write down everything they do each day for a week. "It starts giving you a better picture of where workflow is going," says Berger, and what applications you may not even have accounted for that are pretty well used. "Then you can better see what has a potential for outsourcing."
Next Page: Can't Wait to Get Started? Choose Carefully.
