Unless your organisation operates in the financial services or hi-tech industries, technology is unlikely to be classed as core activity and often it makes sense to outsource it to an organisation which is more specialised.
But how can CPOs ensure that they get value for money and the service they were first promised?
“It is easy for suppliers to promise a one stop shop and because the client company does not fully understand what it is outsourcing, it is not equipped to judge,” says Melaye Ras-Work, a vice president of Efficio.
So, rule number one: define what you are outsourcing, the baseline cost, the services and the specification of those services and decide what the solution might look like. Then you can approach suppliers and say, this is what I need, can you deliver it?
Having assimilated this data, “Go out to a full RFP process to be able to test the market for value for money and see where vendors are on prices,” says director and head of IT sourcing capability at Deloitte Lisa Henneghan. “And a UK business can do this by introducing off-shore vendors as well as big names.”
Telecommunications, hardware, software – IT is a broad area and contracts can be spread among several providers; and as technology or the marketplace changes, a company may decide to pull something back in house.
The next stage is to make sure the contract is abundantly clear. It should include the agreed service levels, key performances and the penalties applicable if the supplier does not deliver. And write in an exit clause. “The existing vendor may have taken a number of your people and after a contract of five, six, seven years, the knowledge in the business of how the system works has declined. If you then want Hewlett Packard to replace IBM, the only contractual requirement to IBM will be to charge you to transfer the knowledge and expertise to Hewlett Packard. And those charges are always big,” says Henneghan.
Good contract management is also crucial but this does not mean shadowing what the supplier is doing. “Some of these arrangements are sub-optimal because the contract is too complex and too difficult to monitor,” says Ras-Work.
“It is also important to recognise that the skills people had before are not necessarily the ones they need to manage the third party,” says Deloitte’s Henneghan. “They are doing a different job and may need training and their job defined in a different way.”
You are paying suppliers to come up with creative solutions, so give them enough information and time to build a robust business case, to show how they are taking cost out. They may also visit your facilities and staff – they will need to work out how many of your staff and what kind of assets they can take on.
Finally, flexibility and good communication are key throughout. “People don’t plan growth and demand management well and when those arise, costs in contracts change and that is when vendors will start applying higher margins,” says Henneghan. “Change starts on day one of the contract.” Take heed.
Source:http://www.procurementleaders.com/news/latestnews/1011-successful-it-outsourcing/
