Companies that frequently use IT outsourcing fail to co-ordinate well across multiple contracts, meaning that not all their provider relationships pull in one direction.

The outsourcing world has shifted from off-loading all IT to one service provider to taking a more selective sourcing approach. Businesses often outsource various domains, such as desktop services, data centres, network management or support services, to a range of different specialists.

To add to the complexity, the providers selected may vary, such as an international manufacturer that uses three separate desktop services suppliers just to meet its European requirements.

To address this issue, a recent report from Forrester Research sets out a three-step framework to define a more co-ordinated outsourcing approach. Each step should allow firms to move forward in an organised fashion, in alignment with the realities of the IT department and the company’s outsourcing goals.

Step 1: Shortlist only outsourcing models that align with the current IT realities of your firm. Some outsourcing models simply do not fit with existing IT structures and behaviours.

For example, a centralised, global deal with a single service provider will not fit with a highly decentralised, fragmented IT organisation where powerful local IT directors respond to local business leadership.

Similarly, targeting outsourcing to deliver business transformation is not likely to work if your IT organisation focuses mainly on commodity, low-cost IT operation.

Step 2: Evaluate internal IT staffing issues. A significant outsourcing project brings substantial changes in IT staffing. Planners must be clear which skills must be retained and which can move to an external provider. For example, a company whose custom applications deliver a competitive edge will aim to keep the relevant software development group in-house.

A firm that faces difficulty in recruiting the right IT skills in a given geography may choose a capable local outsourcing partner to address the shortfall. The general principle being: choose outsourcing options that help you invest in and retain the IT skills you need internally.

Step 3: Shape the outsourcing approach to meet your IT spending and maturity issues. An IT organisation that shows best-in-class cost benchmarks and operates mature, robust processes, will require a very different strategy from one that falls short in these areas. For example, companies that have poor process maturity in the application development group often struggle to work well with process-centric Indian service providers.

Outsourcing planners’ expectations of external providers must adjust to the realities of IT spending and financial targets set by the business. Equally, the same planners need to consider the required inputs from the outsourcer in relation to growing the maturity and stability of IT delivery – often working with recognised frameworks such as ITIL or CMMI.

Andrew Parker is vice president and research director at Forrester Research. Computing readers can download the Forrester report “Three pragmatic steps to an outsourcing strategy” at www.forrester.com/computinguk. For information on Forrester’s Sourcing and Services Forum in Nice in November, visit
www.forrester.com/sourcing2007