How to develop a sound outsourcing strategy?
July 3, 2020
Outsourcing has become a critical strategic decision for organizations. In order to reap the benefits of it, your organization needs to develop a solid strategy to guide your team’s decisions. In this blogpost, we will explain why it’s important to develop an outsourcing strategy, go over things that should be considered before creating one, and finally outline what to include in such plan of action.
Why is it important to develop an IT outsourcing strategy?
In order to get the most out of your near shoring or offshoring, your organization needs a strategy. Despite the tremendous potential benefit to cooperation with a tech partner, it is still possible to mess it up. Sometimes businesses pick the wrong processes to outsource, the wrong team to replace with outsourcers or even the wrong service provider to hire. These are just some of the detrimental issues that can arise when outsourcing without a solid strategy.
Outsourcing without a strategy is a recipe for disaster and could end up costing your organization more in the long run.
The main goal of an outsourcing plan is to make it coherent with the business strategy. When an organization’s IT strategy is aligned with its company strategy, all outsourcing processes and activities benefit the organization’s core goals.
Things to consider before creating an outsourcing strategy
In order to craft the best possible nearshoring or offshoring plan of action, you need to first understand your company, its capabilities, and goals better. Such strategies should be tailor-made to fit the unique needs of your organization.
There should be considerable time and effort spent on crafting such scheme. Finally, once it is defined, it should be revisited and updated on an annual basis.
More importantly, it is best to create organization-wide plan. Doing things this way helps set direction and supplies guiding principles for individual lines of business to plan and execute their own outsourcing activities.
5 questions to ask before you begin to develop an nearshoirng or offshoring strategy
1. What are the business imperatives for IT outsourcing?
If you thinking about creating a stellar strategies for outsourcing you should start by asking yourself: what are the business imperatives for outsourcing? Find out the core business reasons behind why you are looking to outsource.
Your organization may be looking to:
- cut costs,
- increase speed,
- develop a new project.
Maybe the organization doesn’t care about cutting costs as much as tapping into top talent. Understanding what the business imperative for outsourcing is, will help guide your strategy in the right direction.
2. What are the company’s outsourcing goals & objectives?
Find out the overarching goals and objectives for your outsourcing strategies. What are you looking to achieve by working with technology partner? What do you want to accomplish? Make sure to set quantifiable, measurable goals, and objectives. Doing so will allow you to check-in and gauge progress as time goes on.
3. What is your organization’s core and non-core business?
To build an outsourcing strategy you need to know what can be outsourced and what should not be outsourced. Doing so can prevent massive headaches down the road and prevent you from entering redundant contracts with IT partners.
4. What are your company in-house skills/capabilities?
Understanding your organization’s in-house capabilities and skills is tremendously important. Often these are intangible assets like the collective skills, abilities, and expertise of an organization. Get to understand what your company is great at doing, good at doing, and not very good at doing.
5. What type of outsourcing models/relationship should be used?
Well before you start looking for IT partners and before you even draft an IT strategy, you should find out what type of outsourcing model you want to use: near shoring or offshoring. This model will dictate the type of relationship you have with your outsourcer.
What to include in an outsourcing strategy?
A great deal of research and information is incorporated into a well-prepared plan of action. There are three main components to an outsourcing strategy:
Management is responsible for setting the vision, guiding principles, and direction of the outsourcing plan. The information gathered about your organization by asking the questions laid out in the Things to Consider section above will help management set the guiding principles, vision, and direction of the IT strategy.
Your master plan should include which areas you want to outsource and which you do not. Seek out and identify areas of your business that have the potential to be outsourced. Understanding your organization’s strengths and weaknesses, and core business will help you to determine which areas of your business could possibly be outsourced and which should not be.
A solid strategy always includes outsourcing objectives that are laid out in a measurable way. The objectives should be quantifiable. For example, one possible objective might be to reduce the cost of maintenance by 10%. Make sure you record them in a measurable way, this allows you to check the progress and efficiency of your cooperation with IT partner.
Turning strategy into operation
After you have everything defined, the next step is execution. There are three main components that help organizations smoothly operation their outsourcing engagements.
One is outsourcing policies and procedures. Its purpose is to get the IT objectives and strategy up and running. The policies should set guidelines for lines of business on how to conduct relationships with technology partner. It should include information on how to manage risk, initiate procurement, draft a contract, and identify an outsourcing opportunity. In addition, it should include communication guidelines.
The second component to turning strategy into operation is the Outsourcing Life Cycle Framework. It is a process for managing vendors and executing IT strategy engagements.
The third and final piece is a Governance Structure. Governance assists management to make better tactical, operational, and strategic decisions. These improved decisions often enlarge the business value obtained from the organization’s outsourcing relationships. In addition, they reduce the risk that comes with using a global team.
If you want to learn more about outsourcing and how it can help your business, subscribe to receive a free informative ebook.