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Outsourcing: how good business technology transforms companies

Outsourcing is traditionally associated with getting help to do things you might not normally associate with your core business. In this paper, I hope to show that a different approach to outsourcing can establish IT excellence and create significant commercial advantages as a result.

Over the last 15 years, I have observed a number of different IT teams and experienced a wide variety of situations where outsourcing has been involved. I believe I can show you how this method of working can help a business accomplish high-performance IT functions, widening and achieving its goals as it does so. I also hope to demonstrate how you can enjoy considerable success by selecting the right outsourced IT provider. And I will explain what I mean by outsourcing: it might be rather different from what you think it is.

Firstly, let’s look at what I call ‘good Business Technology’, in other words what distinguishes a really good IT team from an also-ran.

What is business technology?

Every good business wants IT to make a vital contribution to its success. That’s what IT‘s all about, isn’t it? In my opinion, it is crucial that IT is viewed as covering two very different and important roles as part of a business. These are:

Technology on tap
Technology is a vital utility many organisations depend on. We expect it to be continuously available without interruptions, just like power or water. It should also be available straight away on demand, whatever the demand. If there are problems, they should be resolved quickly and efficiently. And, as with any other utility, value for money is of paramount importance. People don’t want to worry about it, they just want it to work.

Technology that improves bottom lines
Technology develops and changes continuously, as do the resultant opportunities for business. A business’s IT leadership should be able to understand a company’s strategic goals and work towards aligning business technology and systems. It will play a critical role in responding to, enabling, and instigating company-wide change. It must also contribute ideas, innovation and support across the entire organisation, using its depth of knowledge to solve business problems with the creative application of technology*.

What’s this got to do with outsourcing?

Anyone who’s hired a plumber to fix a leak has made use of an outsourced service, although this is hardly the way most people usually think of IT outsourcing. It’s more commonly associated with scary stories of big providers cutting costs and making people redundant. I’m going to show you a completely different, positive picture.

IT outsource can transform business

The ‘utility’ perspective of IT is well-disposed to successful outsourcing. However, as a successful operator in the field, we know that outsourcing can be far broader in its scope and potential. To really make a difference to your organisation, its clear priority must be the second perspective I wrote about earlier: ‘enabling and delivering technology-based innovation’. This is where competitive advantage can be gained and goals materialised.

As an outsourced services provider, we see it as vitally important that IT contributes more than just the running of infrastructure effectively and inexpensively. Two thirds of our organisation is actually dedicated to enabling and continuing business innovation by the use of technology. Indeed, we see our activity with clients in this area as one of the key reasons why we enjoy such strong renewal rates for our outsourced contracts. It clearly works.

Partners

Increasingly, clients view their effective IT outsource providers as strategic partners rather than suppliers. These days, a good outsource partner is expected to provide complimentary skills, knowledge, ideas and creativity to help their client achieve competitive advantage. In fact, even ‘utility’ partners worth their salt should help their clients to recognise business technology as core to an enhanced operation. After all, it’s not as though they don’t know this.

How to outsource successfully

As I’ve hinted earlier, outsourcing doesn’t mean having to move all of your IT functions out to a supplier. Ideally, the first thing you should do is identify the strengths and weaknesses of your business in its ability to deliver quality business technology. Once this is established and you have a better idea of what you want (and what you don’t need), you’re in a position to choose the right supplier to add value.

Good relationships and communications are crucial
Successful IT outsource partnerships are built on strong relationships. Their management is a key process for an outsourced provider. If the customer is to extract maximum performance from its outsourced partner or partners, it must approach the relationship with similar vigour.

As are senior points of contact
A business leader should act as the key point of contact for the outsource provider. In our experience this is likely to be a CIO or IT Director, sometimes an FD or MD. In our experience, communicating at the right level leads to productive and profitable relationships. IT needs to be part of a successful business leadership, not a support function: it should be privy to, and intimately aware of, the organisation’s strategy.

We’ve also found that people who prioritise the business perspective rather than that of technology have the best chance of providing their organisation with a very good IT service.

And don’t forget the engine room!
It cannot be emphasised enough that the efficient execution of the ‘utility’ side of IT outsource is an absolute priority. If it isn’t, then system availability, reliability and support issues will start to impact on the relationship with senior people. This will distract the IT leader, whose time will be spent in fire-fighting and damage control. Both credibility and relationships are almost guaranteed to go downhill as a result.

Cost and efficiency

A perceived benefit of outsourcing is ‘cost and efficiency’. Of course, outsourcing can be associated with cost benefits, although this is not as simple as it at first seems. To achieve cost reductions, an outsourced provider needs to find ways to deliver services for less. The degree to which this is achievable is hugely variable. As I’ve noted already, experience within our predominantly mid-sized customer base is that IT functions are often already fairly lean. The larger the IT function, the greater the potential benefits.

So cost is not the whole picture. Contrast the broadness of the demands of IT with the narrow focus often found within the typical IT department. As a general, rather depressing rule, IT, as many have come to know it, is permanently consumed with keeping things going. As a consequence, its value to the organisation is low. When we consider outsourcing, value must be a hugely important equation to consider**.

Let’s look at the principal value equations involved in business technology outsource.

Service quality

There is a perception that outsourcing equates to a lowering of service quality; many will have mixed experiences dealing with outsourced call centres (particularly those overseas). However, these perceptions don’t necessarily transfer to IT outsourcing; certainly they do not correspond well with our experience of delivering this service.

Of course, standards can be variable, and we do come across providers with poor service standards (certain network providers are notorious). However there are providers with good service values and the inevitable competition between the best helps to ensure constant focus on service quality.

As an outsourced service provider, delivering consistently high standards of service is critical to survival: otherwise we risk losing clients who, we never forget, always have the option to change providers. We deliberately structure our contracts so it’s straightforward for our clients to do this without penalty. It keeps us on our toes. Watch out for providers who demand long periods of contractual lock-in, this is rarely to the advantage of the contracting party.

Capabilities

An internal IT department must deliver a considerable number of capabilities to perform well***. In practical terms, this is only possible to achieve by drawing on specialist expertise.

The specialist provider has a natural advantage in that it can recruit and retain the best talent. It’s able to offer its people a steady stream of interesting work, good career opportunities and substantial rewards. By comparison, even the largest internal function has a hard time retaining its most capable talent, and staff turnover can be relatively high.

The ability to draw in expertise and capacity as and when is a very attractive option. An outsourced provider can offer flexibility as well as continuity. If you need a particular expertise every now and again, it can be hugely advantageous to be able to draw on the same team you’ve invested in by building relationships and domain knowledge. A good outsourced provider will provide this sort of flexibility as an implicit part of their contract.

Conclusion

I hope that this paper has given you some indication of the scope and potential that intelligent IT outsourcing can bring to a company. Far from being a tedious necessity, it can be a revelatory and transformative addition to your operation. In an unpredictable world and uncertain times, change is all. And achieving the correct changes to survive and prosper, your business should look to those who understand, and often create, these disruptions.

Afterword

Let’s look briefly at some other components of IT/Business equation. Although they’re common to both in-house and outsourced IT, they’re still relevant and supportive to my case for using IT outsource as an effective business tool.

Alignment
Using strong relationships with other senior management, the IT leadership has to ensure that it implements IT systems and initiatives in order to underpin and support the advancement of the business strategy.

Business strategy, as some of us have discovered, isn’t always clear. For IT to deliver its potential in this area, it must be. External help can be valuable in this field and is something which IT can instigate for the benefit of getting the whole business aware of the stated goals and ‘singing from the same hymn sheet.’

Processes. Where IT systems and business meet
IT, whether outsourced or in-house, can play a key role in helping an organisation ensure a continuous improvement in its business processes. It should actively contribute innovative ideas to improve organisational performance and help it to achieve its objectives. IT must be aware of what is going on ‘outside’, and import ideas and experience from other sources.

Delivery
Ideas have little value if they aren’t realised successfully. Enabling, supporting and leading innovation initiatives are key functions of a good IT team. These are often cross-organisation projects. The team can fulfil a number of roles and should be equally comfortable in each of them.

Project management disciplines must be well developed with well-trained practitioners and good processes. These must be monitored and improved continually.


*Contrast this with the ‘traditional’ IT department. Here, IT responds reactively to the demands made of it. It’s not usually very flexible, or ‘can-do’ and certain problems languish for much too long. Its costs might be low, but so is its value to the organisation. More often an obstacle to change than an enabler, it speaks a different language and doesn’t relate to the leadership of the business. In terms of being strategically aligned, it’s anything but.

** In this instance, I define value as the balance of what’s offered by IT (or outsourced IT) on one hand, and cost on the other.

*** IT roles include: Service availability, Problem management, Operational management, Creative problem solving, Change management, Application support, Technology management, Project management, Systems analysis, Process consulting, Software development, Systems configuration and integration, Technology consulting, Business continuity planning, Security management, Procurement, Supplier management, Brokerage services, Contract negotiation, Asset management, Budgeting and cost, Management, Audit & compliance, Technical recruitment, Skills development, Organisation development, Relationship building and management, Succession planning, Performance appraisal.

Technology in M&A Event

22 January 2020

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