Outsourcing or

Jeff Palm, CIO, Allianz Life

Jeff Palm, CIO, Allianz Life

Organizations often leverage vendor partners in different ways. This includes some that provide end-to-end solutions while others provide more “vertical” capabilities–geared toward a particular function(s). If done correctly, these relationships can yield great results, both in terms of capabilities as well as costs. However, many organizations still struggle with how to optimize these relationships and as a result, often fall victim to a trap I like to think of as “SortaSourcing.”

Here, I’d like to talk a little bit about some of the common pitfalls that exist when it comes to effectively implementing these arrangements, and highlight a few useful ideas to help maintain effective and valuable outsourcing relationships.

Micromanagement “SortaSourcing”

Often, an IT organization will farm out a set of activities, but despite best intentions, will ultimately manage at a micro level of detail, reviewing and verifying every single change, the execution of all items, and generally not ceding any level of real responsibility to the provider. To use an analogy, they simply place their hand on the handlebars, directly on top of the provider’s hands.

There are obvious shortfalls associated with this level of micromanagement.

First, and foremost, this represents a situation of dual costs. You are paying that provider, but also continuing to pay your own people to oversee them at an unrealistic level of detail.

Second, since the provider takes explicit instructions from you at every turn, they do not grow their own capabilities. Rather, they end up being an executioner of specifically-defined tasks and don’t pursue independent thought or take responsibility. Rarely is this type of “SortaSourcing” effective.

Hands-off “SortaSourcing”

By contrast, in many organizations, a problem area is more or less handed to the provider with little to no oversight. While it may in the short-term feel somewhat of a relief to rid yourself of a problem, it generally is not advantageous. The implications here are also quite obvious.

In the first place, you are somewhat “tied in” with that specific vendor since you have nearly nothing remaining in terms of specific expertise related to the area you have just handed over. In addition, going forward, this becomes an increasing “black hole,” since most, if not all, of the expertise eventually is housed with the provider, creating an unhealthy dependency. This “SortaSourcing” is also rarely effective.

There are clearly shades of gray in between the two, each with its own set of problems, and there is no one “one-size-fits-all” to optimize this.

Having said that, there are some guidelines I would suggest for healthy and effective implementation of true outsourcing arrangements.

1. Problem definition

This first item is perhaps the most important, and is often overlooked. Take time upfront to define the problem you are trying to solve. Include the rationale for why this is to be outsourced, and scope it in a fair amount of detail, highlighting what is to be included, and more importantly, what is not.

2. Service descriptions

It is also important to insist on well-written service descriptions. While a “science fair project” is not required, basic components of a description including the service name, its definition, a price, the quantity (if necessary) and specific SLA’s associated with the service are imperative. While this is intuitively obvious, I am continually amazed at how often this step appears to be short-changed.

3. Recourse

As with all arrangements, there needs to be some level of recourse if the service delivery is not meeting expectations. This needs to include a very clear escalation path for raising issues and ultimately financial implications associated with non-performance. Of course, during negotiations, providers will try to limit this, which makes a certain amount of sense from their side. Having said that, a good common-sense argument of having “skin in the game” is something that most rational people would believe to be appropriate.

4. Ownership

Here, the emphasis is on you as the purchaser, and it is important to define who owns and has ultimate responsibility for the service delivered. Coaching for these people in terms of how to manage the relationship is key. Making sure service owners understand they are not to have two hands on the handlebars, or be completely hands off, is paramount.

I also suggest a top level view from the CIO’s standpoint of the basic overall service that is being delivered, along with the one or two key metrics that define success. In addition to this being a good piece of data for the CIO to have, it also lets both the team and the vendor know that you, as a CIO, are watching this and are ready to get involved – either to address a problem, or more hopefully, to praise good progress.

The notion of working with vendor partners and outsourcing functions to various providers is a reality of the current technology landscape, and will only increase over time. Driven by a combination of technical advancements, and the ever-increasing need to do more with less, successful CIOs will look toward partners who can specialize in particular areas to help them in this journey. Keeping the above in mind should help you distinguish between “outsourcing” and “SortaSourcing” and ultimately help yield better results.

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