| 20 Steps to Successful Outsourcing | | | | review of audited financials and footnotes; |
| Objectives | | | | technological status including methodologies, tools, |
| The following 20-Step Program will provide you with a | | | | platforms, expected life of existing hardware; age of |
| guide that would help you achieve the following: | | | | current applications; their own business and systems |
| * properly organize your team; | | | | plan; downtime statistics; results of operational and |
| * achieve necessary management commitment; | | | | security audits; customer surveys and systems |
| * properly define your own corporate needs, | | | | demonstrations (both are critical and must be well |
| objectives, and priorities; | | | | planned); conversion commitment success/history (a |
| * identify appropriate alternatives; | | | | must if you want your business to prosper); such |
| * identify and evaluated your risks and benefits; | | | | intangibles as responsiveness, control, competition for |
| * select the best alternative for each specified service | | | | resources, flexibility, etc. |
| area; | | | | 12. Determine which areas of your company you |
| * developed and negotiated an appropriate and | | | | would like to outsource. Identify a phased-in approach |
| effective outsourcing agreement; and | | | | for outsourcing services if that is the desired method. |
| * provide the mechanisms to administer, maintain, and | | | | Services can be selected for virtually any part of your |
| monitor the contract and to resolve the inevitable | | | | Information System areas including: |
| problems. | | | | * All activities in a specified area (with only listed |
| 20-Step Program | | | | exceptions) vs. defined tasks |
| 1. Organize a top management Steering Committee | | | | * Applications software |
| assigned in planning, monitoring, overseeing and | | | | * Audit trails |
| searching for your transition to outsourcing. These | | | | * Backup procedures for programs, data, etc. |
| includes members from your internal information | | | | * Communications equipment, software, and interfaces |
| systems division, key user groups, and executive | | | | * Compliance with applicable laws |
| management including marketing and/or strategic | | | | * Consulting services |
| management. It is essential to factor the changing | | | | * Daily and periodic processing and reports (accuracy; |
| needs, markets, distribution channels from the beginning | | | | timeliness; formats) |
| resulting to minimal surprises in the succeeding phases. | | | | * Data and program security |
| Management also needs to be informed and be part | | | | * Data conversion |
| of the process to make sure that there is due diligence | | | | * Data entry |
| being performed and to provide appropriate | | | | * Development of new programs and systems |
| stewardship up over these key corporate information | | | | * Disaster recovery capabilities |
| assets. This is to minimize the loss of important | | | | * Equipment |
| information resources, losing effectiveness, or leaving | | | | * Help Desk |
| the company vulnerable to competition due to a screw | | | | * Live system operation, management, and control |
| up in an outsourcing deal which could lead to legal suits | | | | * Maintenance |
| in the future. | | | | * PC installation of hardware, software, and |
| 2. Identify and engage an expert team to be able to | | | | modifications |
| guide you and the organization during the decision, | | | | * PC service |
| selection, and contracting processes for your | | | | * Personnel |
| outsourcing needs. The team should include a small | | | | * Physical security |
| group of independent experts with specialization in | | | | * Pickup and delivery |
| outsourcing such as an information technology | | | | * Provision of facilities, utilities, etc. |
| consulting professional who understands both you and | | | | * Responsibility for troubleshooting |
| your outsourcer in your needs and who is by far | | | | * Systems integration |
| capable in helping you administer the contract over | | | | * Systems software, tools, etc. |
| time, assuring a smooth transition to the systems, and | | | | 13. Develop a rigorous request for proposal (RFP) with |
| resolve problems when the contract is signed. Then, an | | | | a uniform format for you to be able to compare such |
| attorney with specific contracting, business, and | | | | responses from other outsourcers. Their answers to |
| outsourcing expertise to help develop and negotiate | | | | pricing should be simplified so that you can readily |
| and outsourcing that would be beneficial to both parties | | | | understand which are essential or basic services and |
| and make the relationship work. Lastly, an organization | | | | which are add-ons. Pricing can take on many forms |
| development/merger and acquisition professional to | | | | and that the different services may be priced |
| make sure that the transition of staff and relationships | | | | differently or in alternative combinations to your |
| works well. | | | | advantage such as flat monthly fees; transaction |
| This team is also warranted and needed to make | | | | volume-based fees; fees based upon a customer unit |
| tough decisions because perceived or actual | | | | of volume (i.e., number of customers, accounts, credit |
| weaknesses in your current IS team may have | | | | cards); fees based upon CPU usage required to |
| caused the failure of IS within your company in the first | | | | execute your jobs; fees based upon the number of |
| place. Also, engaging with independent experts to | | | | input or output transactions or both; fees based upon |
| assist your IS managers will be wise because they | | | | the amount of disk storage or other storage |
| themselves would probably be most directly affected | | | | requirements; programming fees. Those may be |
| by moving to outsourcing and the resulting contracts | | | | different from enhancements, new developments, |
| that goes with it. | | | | special reports, or rush jobs; data communication line |
| 3. Identify critical internal resources, such as a | | | | charges; disaster recovery rates; training and seminar |
| particularly competent data processing director or chief | | | | fees; consulting fees; documentation charges; |
| information officer, who will stay on your company's | | | | conversion fees; etc. |
| staff internally assigned in managing and administering | | | | Identify some key clauses that you would like to be |
| the relationship between the outsourcer and your | | | | integrated in the contract so that you may be able to |
| company. Determine which staff, and software and | | | | win some concessions on these during the bidding |
| hardware licenses and resources should/must go to | | | | phase and so that you can determine the sticking |
| the outsourcer for the relationship to be mutually | | | | points early. |
| successful. | | | | Identify Acceptance Criteria for outsourcer bids and |
| 4. Identify what is good and bad about your current | | | | for systems and service acceptance throughout the |
| installation in terms of: | | | | validity of the contract: the accuracy, frequency, and |
| * service | | | | timing of reports and information; response time for |
| * capability | | | | on-line transactions; uptime of the systems or the |
| * performance | | | | various components; emergency procedures in the |
| * uptime | | | | event of downtime or other disruption of services; |
| * costs | | | | responsiveness of outsourcer personnel in the event |
| * user satisfaction | | | | of problems or errors; data archiving; access security; |
| * backlog | | | | ease of use; unit, string, systems, and acceptance |
| * on-time | | | | testing methodologies to be used; systems |
| * on-target systems delivery | | | | development methodologies and user participation and |
| * controls, etc. | | | | signoff points; usage of data query, parameter-driven, |
| Then assess each strength and weaknesses such as | | | | fourth and fifth generation languages in programs; user |
| budget constraints, changing needs of internal users, | | | | of upper- and lower-CASE tools, client-server |
| top management commitment, resistance to change, | | | | architecture, and object oriented approaches; etc. |
| lack of tools and human resources, staff development | | | | 14. Invite bidders to a bidders' conference at your site |
| and ability to attract and retain quality staff, lack of | | | | and individually take the bidders into a tour of your site. |
| methodology, hardware technology limitations, platform | | | | Let your top management and the Steering |
| limitations, etc. Quantify and identify which are essential | | | | Committee meet with the outsourcing representatives |
| items and service levels and which components should | | | | for at least an hour during the tour. This should set the |
| be added, improved and attained in the outsourcing | | | | tone and demonstrate the importance and visibility of |
| arrangement. Go for the "good enough" systems and | | | | the study and resulting relationship. This can be very |
| targets that are attainable, affordable and of | | | | important if your top management would need to |
| necessary quality. | | | | meet the outsourcer's top management in the future. |
| 5. Update the company's strategic business plan. The | | | | 15. Evaluate proposals against your pre-established, |
| typical outsourcing agreement would cover a period of | | | | and fully documented, criteria. Identify different |
| 7-10 years. You should make it a point that you know | | | | approaches recommended by the outsourcer and |
| where your company is going locally and globally in | | | | compare it from your own research and preliminary |
| terms of products, markets, manufacturing, sources of | | | | conclusions. Be receptive to suggestions but be careful |
| supply, distribution arrangements, labor sources, etc., | | | | in analyzing the differences. Have a debriefing with the |
| before you develop the systems plan to be able to | | | | outsourcers for you to be able to discuss alternatives |
| support such direction and needs. | | | | and to clarify proposals. |
| 6. Develop a 7 to 10-year strategic systems plan to | | | | 16. Rank proposals so that you have a backup vendor. |
| identify the long-term needs of the company that | | | | This is essential in case negotiations break down with |
| translate into the strategic business plan. Also, | | | | your preferred vendor. This can also give you the |
| ascertain the new applications that will be required | | | | confidence to negotiate with the vendors in a tough |
| such as electronic data interchange, integrated | | | | but fair manner. Identify absolutely necessary criteria |
| manufacturing and production control using robots and | | | | early. If the outsourcer does not meet the minimum |
| automated "smart" buildings, international | | | | criteria they should be asked to clarify their proposal or |
| telecommunication networks, "intranets", etc., which | | | | drop them from the list. |
| applications will be updated, which and when it will be | | | | 17. Checking references is a critical part of the |
| discontinued, and which will be developed from the | | | | evaluation and comparison of outsourcers. This is very |
| modified new applications software. | | | | important. You should visit their other customers as |
| 7. Identify the alternative hardware and operating | | | | well. Review their status reports on key projects and |
| systems alternatives and find out the recommended | | | | contracts if possible. Don't underestimate the |
| new architecture(s) needed to develop and support | | | | experiences of the other customers and assume that |
| the new systems plan. This includes satellite | | | | you will gain a different result. |
| communications, wide area networks, wireless | | | | 18. Negotiate the contract using your expert team and |
| communications, mainframe and client-server usage | | | | using pre-determined target clauses, criteria, and |
| and inter-connect, specific operating systems, | | | | escalating alternative dispute resolution (ADR) options |
| open-architecture decisions, database and | | | | to keep the outsourcing agreement and relationship in |
| programming language decisions, special development | | | | line with your mutual objectives and be beneficial to |
| and maintenance tools, etc. | | | | both parties. |
| 8. Understand your cost structure and determine | | | | Consider and develop a strategy for at least each of |
| estimate future costs to build the projects outlined in | | | | the following contract areas: |
| the strategic systems and architecture plans | | | | * scope of responsibilities and services; |
| developed mentioned in steps 6 and 7 above, including | | | | * third-party services; |
| estimates of manpower and supporting hardware and | | | | * project managers; |
| software and equipment to aid you in building, | | | | * project development standards and acceptance; |
| upgrading, maintaining, operating, and controlling such | | | | * project timetables and milestones; |
| systems. You should also recognize that over the next | | | | * progress reports and meetings; |
| 5-10 years there is a need to estimate all relevant | | | | * problem resolution and escalation of differences; |
| capital as well as operating costs; costs of supervising | | | | * acquisition of systems and facilities; |
| the outsourcer, likely increases in costs for salaries, | | | | * interim acceptance testing; |
| benefits, service contracts, etc.; "cost of money"; | | | | * final acceptance testing; |
| interest costs; residual value of equipment and facilities; | | | | * service warranty; |
| cost of transition, including personnel; cost of changes | | | | * proprietary rights cross indemnity; |
| in direction and level of resources; cost of contract | | | | * documentation; |
| modification, etc. it is important to note that this is the | | | | * training; |
| most difficult task so you should be able to utilize your | | | | * fees; |
| expert team for guidance and confirmation. | | | | * change orders; |
| 9. Identify your current and anticipated usage: normal | | | | * personnel; |
| operations, expanded operations over time, peak | | | | * company's proprietary rights; |
| periods, off-site processing, storage, archive, | | | | * exceptions; |
| integrations requirements, back up and disaster | | | | * physical security and backup; |
| recovery requirements, etc. | | | | * customer access and copying rights; |
| 10. Review the strengths and weaknesses of the | | | | * termination; |
| outsourcing alternative. Establish how the outsourcing | | | | * general provisions including taxes, insurance, most |
| alternative will aid your company meet its long term | | | | favored provisions; |
| goals and why it is a better alternative than staying | | | | * force majeure, severability, right to offset, transfer of |
| in-house or partial outsourcing or working with multiple | | | | software licenses; |
| outsourcers. Determine which applications and | | | | * ownership of developed software; |
| resources should be outsourced and which to pursue | | | | * specific concrete definitions and scenarios for those |
| using a different approach. Update this information and | | | | things with multiple interpretations |
| re-evaluate the decision throughout the entire | | | | 19. Monitor, manage, modify, and steer the outsourcer |
| decision-making process as new or better information | | | | and the contract as required over time. Give |
| is gained. | | | | three-month report cards to the management of the |
| 11. Using your expert team, identify several outsourcing | | | | outsourcer. Update and change the contract over time |
| alternatives. Get hold of the appropriate literature of | | | | to continue to assure that your needs and, hopefully, |
| relevant information from the team's pre-selected | | | | the mutual needs of the outsourcer continuously being |
| short list of outsourcers. This should cover all of the | | | | met. |
| technical and administrative things you will need to | | | | 20. Be Lucky: Ben Rosen, a legendary high-tech |
| know about your outsourcer, you will also need to | | | | venture capitalist who invested almost first in Apple |
| know in depth: corporate history and stability; current, | | | | and in Compaq and made it big, said in a speech a |
| new and lost customers; employee numbers, turnover, | | | | few years back that you must "be lucky" in these |
| and experience levels; financial stability through a | | | | kinds of long term relationships in uncertain times. |