Outsourcing DevOps? Here’s What to Look For – DevOps.com

DevOps synthesizes methods, processes and tools with the goal of improving your company’s velocity at which you deploy applications, which serves your customers better. Teams using DevOps best practices and tools to create production software are much faster than organizations using traditional infrastructure management and software development methods. In 2016, RightScale’s “State of the Cloud Report” estimated that 70 percent of SMBs were adopting DevOps methods. Every indication is that percentage has increased.

For companies that already understand the value of software development outsourcing, partnering with a capable outsourcing vendor for DevOps is a natural next step. For companies who want to embrace the benefits of DevOps but haven’t yet, aligning with a qualified DevOps outsourcing company is really worth considering.

Consideration No. 1: Pick the Right Project

If DevOps is new to your company, or the DevOps partner is new to your company—or both—it’s very important to pick the right project to begin work together. Also, it’s possible that the project you target will influence the selection of your DevOps outsourcing partner.

Here are some questions you may want to use in selecting the right project:

This question…. is important because… Which software, if successful, will show the clearest benefit (i.e.: ROI) to the company? Software with clear business benefit will generally get better buy-in from the user community, and higher quality participation. Which software has the clearest goals and scope of work? It’s always easier to achieve the goal, when the goal is clear. Do any projects require the use of new, unproven technology? Unfamiliar technology can be a dangerous variable in your work and risk estimates. How many other systems will the newly completed software need to integrate with? Integration testing is time-consuming and requires a high levels of coordination. Which projects are expected to have the longest duration? Unforeseen variables naturally occur in long running projects — personnel changes, other business distractions, loss of momentum, etc. Which projects are expected to require the largest number of participants? More people involved equals more complexity. What employees (IT and business stakeholders) will be part of the projects? DevOps requires good collaboration and speed. IT and business area participants must be able to fulfill their roles accordingly.

Consideration No. 2: Vendor Communication

In selecting the right outsourcing DevOps partner, the ability to communicate well is one of the most important considerations. A partner who communicates poorly can derail a relationship that has all the right methods and tools in place for success. design iterations and project sprints simply cannot happen if your outsourcing partner lacks the proper communication skills. Conversely, an outsourcing vendor who is truly acting like a partner in the relationship, communicating well and often, can help you overcome any number of unforeseen issues along the way.

Evaluate how well prospective vendors respond to your due diligence questions. Their responses could tell you a lot about how they’ll interact with you during the project. Are they clear? Do they interact in professional ways, or does it seem a bit random and disorganized? Are they prompt and timely in their interactions, or are there “black holes of silence”?

If you see evidence of poor communication during the due diligence process, you’ll almost certainly have problems when you’re actually engaged in working together. As you check references, try to determine if other customers experienced problems in communication and interaction—those can pose as red flags when it comes to selecting your vendor.

Consideration No. 3: Vendor Location

Global software development outsourcing is a proven success for many companies. However, you must be attuned to the vendor’s geographic location compared to yours. Would time zone differences be an issue? This may affect the geographic location from which you’ll select your outsourced DevOps team. In a recent survey, one-third of U.S. companies that outsourced to India considered the 10-hour (or more) time difference to be a big challenge. DevOps activities cannot be artificially hampered because of time zone issues. The best DevOps outsourcing companies have a business model that allows U.S. time zone companies to interact easily with the vendor’s “A team” supporting your project. Be wary of companies that assume that all Skype and conference calls will be done off-hours to your normal business day—or plan to have secondary members of their team available during your normal work hours.

Consideration No. 4: Vendor Technical Skills

As you examine a prospective outsourcing DevOps partners technical capabilities, consider these questions:

  • Do they have the relevant skills and tools experience I need?
  • Is this a core competency of the company, or the expertise of a small select few inside the company?
  • How does this company go about attracting new talent with these same skills?
  • What certifications do they hold?

Automation of good process makes it possible to eliminate bottlenecks in the software development cycle, so you can truly “sprint through your Sprints.” Automation tools must be used with consistency by you and your outsourcing DevOps partner. Perform an inventory of the available tools:

  • Will you be able to seamlessly (and automatically) promote code?
  • Can you perform test-driven design?
  • Can you perform test-driven development?
  • Can you easily associate features and fixes with promoted code?
  • How will you perform regression testing?

DevOps teams will have programming language expertise that includes Python, Ruby, PHP and Java. Remember: DevOps means infrastructure as well as applications, so a true DevOps outsourcing company will have employees with expertise in infrastructure-oriented software and tools such as Windows PowerShell, Docker, Puppet, Ansible and SaltStack. You may also want to look for expertise and certifications for networks, databases, and operating systems.

DevOps outsourcing companies should be experienced with the continuous integration (CI) method—the CI tools which support the associated processes. CI tools help merge source code updates from all developers on a specific software build, notifying the team of any failures in the process. Popular CI Tools include CruiseControl, Jenkins, Travis CI, TeamCity and GitLab.

The best partners employ a programming staff that have achieved certifications that are important for your DevOps project needs. In addition to certifications around the tools and language mentioned earlier (such as Puppet Certification, for example), you will want to look for certifications in:

Consideration No. 5: Vendor Commitment to Training

As you evaluate a prospective DevOps outsourcing company, ask yourself: Is continuous training a part of their business model? A good partner invests in their programming staff’s training on a continual basis. We like to see evidence that their programming staff regularly renews their certifications—and the outsourcing company should be actively advocating this.

Consideration No. 6: Vendor Experience and Size

To succeed with DevOps outsourcing, you need a partner who has relevant experience and is a size that complements your company size.

Experience. The ideal DevOps outsourcing team will have experience in your business vertical (example: discrete manufacturing, banking, etc.). It also should have expertise in the system functional area of your target project (e.g. finance, e-business order processing, warehouse management, etc.). Of course, the demonstrable experiences should include work using Agile and DevOps techniques.

Size. The right partner should be neither too large nor too small. The outsourcing company needs a pool of programmers large enough to keep with the intended work pace of your project. Conversely, we caution IT managers to be wary of extremely large outsourcing companies. Your project and company must be “big enough to matter” to the partner you select. If you are seen as too small in terms of the revenue opportunity, the outsourcing company will defer attention and their top talent to larger customers who are more able to influence decision-making.

Source: DevOps.com-Outsourcing DevOps? Here’s What to Look For

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Outsourcing: Do You Need to Hire Help, But Aren’t Sure How

Outsourcing can seem daunting. Research reveals that 80% of the companies state cost-cutting as their primary reason for outsourcing. It cites better customer experience, customer retention and scaling as other pressing reasons to outsource. No matter the reason, if you’ve never done it before, you might be at a loss for where to start.

1. Shadow yourself

If you don’t know where to begin when it comes to outsourcing, record what you do during a typical work week. Act as if you were explaining your job to someone brand new. Look at your calendar and think about what you do every day. Once your week begins, write down tasks as you do them, so you remember every step. You might even want to time how long it takes you too. It will help you realize what you do on a regular basis as if you were giving the tasks to an assistant. You’ll also become more aware of what’s on your plate in the first place. Decide what to outsource and what you believe you should be doing.

2. Make a wish list for outsourcing

Once you identify every little thing that you do, decide what to outsource. Use what you jotted down as a wish list. Sift through what you wrote and ask yourself:

  1. Does this task prevent me from making more money? If yes, it may qualify.
  2. Is this a task that I dislike doing? If yes, it’s something to consider.
  3. Does it just make mathematical sense to outsource? If yes, it’s another item to think about handing off.
  4. Can I afford to outsource this right now? The cost will be a significant factor when deciding.

While there might be other factors that come into play, use these questions to help jumpstart the decision-making process.

3. Get quotes

Use social media to ask around. A Facebook group can be a great resource for getting referrals. Whether you need website development, a graphic designer or someone to handle payments, invoicing or bookkeeping in general, Once you state what you are looking for and get recommendations, ask for quotes. You will have to schedule calls and take time out of your schedule to learn more about their services or review proposals that list deliverables and pricing. It also may take a little time to train them in the beginning.

4. Try it out

After taking quotes and choosing what best suits your needs and budget, hire someone and see how it goes. Just be sure to map out an agreement. If you want to try this out, be sure the contract states the duration of time you’d like to work together. Whether you’re hiring a podcast guest booker to promote your book or a financial writer to create content for your blog, you want to be clear about how you will work together. This way, you can see how it goes and later decide if you will continue. I think it’s easier to start small and then hand over more responsibility down the road if the working relationship is a fit.

The Bottom Line

Time and time again you might hear that you should outsource. Though it might seem overwhelming at first, follow the steps above to get started. If it helps you lower costs, scale your business or improves any other part of your business, then it’s well worth it.

Source: Medium-Outsourcing: Do You Need to Hire Help, But Aren’t Sure How

How to institute an agile IT outsourcing process

Traditionally, IT organizations have spent six months to a year or more on the IT outsourcing transaction process, finding the right providers and negotiating a suitable contract. But as IT services — and, increasingly, as-a-service— deals have gotten shorter, that lengthy process may no longer make sense.

Industry advisors and consultants have debated the potential benefits of speedier sourcing for several years. In today’s rapidly changing business and technology landscape, it may become an imperative. But an effective outsourcing engagement demands more than just an accelerated version of the traditional IT services transaction process.

“Typical attempts to speed up the process include leaving out important activities or rushing to a solution to meet completion dates or budget objectives. In some cases activities that are skipped can be picked up and completed during transition,” says Michele M. Miller, director of KPMG’s Shared Services and Outsourcing Advisory. “However, we find that in most cases these activities are never completed and result in lost value and dissatisfaction in the outcome of the outsourcing project.”

Preparing for an agile approach to outsourcing

CIOs must take four steps to make sure they prepare their organizations for a new, agile approach to outsourcing, Miller says. First, they must define their business strategy, including the future state of IT and business services, in order to accurately asses how outsourcing will impact their companies down the road. Second, they need a clear understanding of their base case — the current cost of doing business today and down the road. Third, they need to define their target operating model (aligned with business strategy) in order to calculate the potential benefits of internal optimization vs. outsourcing or resourcing.

Finally, they must assemble a dedicated and experience outsourcing transaction team that was involved in building the strategy and is empowered to work closely with providers on day-to-day planning, design, and documentation of the solution as well as oversight of desired business outcomes. This preparation takes time an effort. However, “these steps are required for a successful outsourcing engagement,” says Miller, “and most companies are willing to put in the effort.” In fact, part of the reason Miller’s group began to document this agile approach to outsourcing was the fact that some companies had already established these key components.

 

With that foundation in place, IT leaders can attempt a more agile approach to outsourcing. Like its namesake software development approach, an agile outsourcing transaction process involves constant communication and collaboration between the IT organization and its providers throughout the outsourcing lifecycle, adapting as needs change. Unlike the traditional sourcing approach in which IT service customers approach the process in a linear fashion — gathering requirements, creating an RFP, engaging providers, and drawing up a contract — agile outsourcing transactions are more fluid.

Agile outsourcing starts with a series of sprints. “The sprints focus on collaborative ‘solutioning’ vs. the traditional approach, where the client outlines a solution up-front, often excluding other potentially beneficial alternatives from serious consideration,” Miller says. “Via these sprints, the parties consider alternatives together and jointly build a solid, viable solution. This results in a more-accurate RFP response, less time required in the due diligence phase, and more precise pricing during final pricing submissions or best and final offer.”

Because the process is collaborative, with both parties knowledge of requirements and solutions early in the process, timelines can shrink significantly. In fact, business requirements and solutions are so well understood that a traditional 26-week timeline can be condensed to as little as 12 weeks, Miller says. But increased speed is just one of many benefits. Agile outsourcing can sharpen the focus on business outcomes and instill greater collaboration not just between client and provider, but also among a company’s ecosystem of suppliers, in delivering those outcomes, according to KPMG.

Most companies are drawn to the agile outsourcing concept, but not all can make it work. “These projects are not shorter because we leave out critical processes; the client needs to have completed the four key requirements mentioned and be willing to work in the fast-paced iterative environment and make decisions quickly throughout the project,” Miller says. “Similar to many components of outsourcing there isn’t a single approach which works in all situations.”

IT service providers are game for the new approach, according to Miller. “They understand that a collaborative approach to sourcing tends to result in a more successful outcome for both parties because each shares in the responsibility for the design of the solution.” However, it does require that they, too, have done the upfront work of designing and documenting their solutions for ease of integration into the process.

Source: cio.com-How to institute an agile IT outsourcing process

What is outsourcing? Definitions, best practices, challenges and advice

What is outsourcing?

Outsourcing is a business practice in which services or job functions are farmed out to a third party. In information technology, an outsourcing initiative with a technology provider can involve a range of operations, from the entirety of the IT function to discrete, easily defined components, such as disaster recovery, network services, software development or QA testing.

Companies may choose to outsource IT services onshore (within their own country), nearshore (to a neighboring country or one in the same time zone), or offshore (to a more distant country). Nearshore and offshore outsourcing have traditionally been pursued to save costs.

Outsourcing benefits and costs

The business case for outsourcing varies by situation, but the benefits of outsourcing often include one or more of the following:

  • lower costs (due to economies of scale or lower labor rates)
  • increased efficiency
  • variable capacity
  • increased focus on strategy/core competencies
  • access to skills or resources
  • increased flexibility to meet changing business and commercial conditions
  • accelerated time to market
  • lower ongoing investment in internal infrastructure
  • access to innovation, intellectual property, and thought leadership
  • possible cash influx resulting from transfer of assets to the new provider

Some of the risks of outsourcing include:

  • slower turnaround time
  • lack of business or domain knowledge
  • language and cultural barriers
  • time zone differences
  • lack of control

Outsourcing services

Business process outsourcing (BPO) is an overarching term for the outsourcing of a specific business process task, such as payroll. BPO is often divided into two categories: back-office BPO, which includes internal business functions such as billing or purchasing, and front-office BPO, which includes customer-related services such as marketing or tech support. Information technology outsourcing (ITO), therefore, is a subset of business process outsourcing.

While most business process outsourcing involves executing standardized processes for a company, knowledge process outsourcing (KPO) involves processes that demand advanced research and analytical, technical and decision-making skills such as pharmaceutical R&D or patent research.

IT outsourcing clearly falls under the domain of the CIO. However, CIOs often will be asked to be involved in — or even oversee — non-ITO business process and knowledge process outsourcing efforts as well. CIOs are tapped not only because they often have developed skill in outsourcing, but also because business and knowledge process work being outsourced often goes hand in hand with IT systems and support.

Outsourcing IT functions

Traditionally, outsourced IT functions have fallen into one of two categories: infrastructure outsourcing and application outsourcing. Infrastructure outsourcing can include service desk capabilities, data center outsourcing, network services, managed security operations, or overall infrastructure management. Application outsourcing may include new application development, legacy system maintenance, testing and QA services, and packaged software implementation and management.

In today’s cloud-enabled world, however, IT outsourcing can also include relationships with providers of software-, infrastructure-, and platforms-as-a-service. In fact, cloud services account for as much as one third of the outsourcing market, a share that is destined to grow. These services are increasingly offered not only by traditional outsourcing providers but by global and niche software vendors or even industrial companies offering technology-enabled services.

IT outsourcing models and pricing

The appropriate model for an IT service is typically determined by the type of service provided. Traditionally, most outsourcing contracts have been billed on a time and materials or fixed price basis. But as outsourcing services have matured from simply basic needs and services to more complex partnerships capable of producing transformation and innovation, contractual approaches have evolved to include managed services and more outcome-based arrangements.

The most common ways to structure an outsourcing engagement include:

Time and materials: As the name suggests, the clients pays the provider based on the time and material used to complete the work. Historically, this approach has been used in long-term application development and maintenance contracts. This model can be appropriate in situations where scope and specifications are difficult to estimate or needs evolve rapidly.

Unit/on-demand pricing: The vendor determines a set rate for a particular level of service, and the client pays based on its usage of that service. For instance, if you’re outsourcing desktop maintenance, the customer might pay a fixed amount per number of desktop users supported. Pay-per-use pricing can deliver productivity gains from day one and makes component cost analysis and adjustments easy. However, it requires an accurate estimate of the demand volume and a commitment for certain minimum transaction volume.

Fixed pricing: The deal price is determined at the start. This model can work well when there are stable and clear requirements, objectives, and scope. Paying a fixed priced for outsourced services can be appealing because it makes costs predictable. It can work out well, but when market pricing goes down over time (as it often does), a fixed price stays fixed. Fixed pricing is also hard on the vendor, which has to meet service levels at a certain price no matter how many resources those services end up requiring.

Variable pricing: The customer pays a fixed price at the low end of a supplier’s provided service, but this method allows for some variance in pricing based on providing higher levels of services.

Cost-plus: The contract is written so that the client pays the supplier for its actual costs, plus a predetermined percentage for profit. Such a pricing plan does not allow for flexibility as business objectives or technologies change, and it provides little incentive for a supplier to perform effectively.

Performance-based pricing: The buyer provides financial incentives that encourage the supplier to perform optimally. Conversely, this type of pricing plan requires suppliers to pay a penalty for unsatisfactory service levels. Performance-based pricing is often used in conjunction with a traditional pricing method, such as time-and-materials or fixed price. This approach can be beneficial when the customers can identify specific investments the vendor could make in order to deliver a higher level of performance. But the key is to ensure that the delivered outcome creates incremental business value for the customer, otherwise they may end up rewarding their vendors for work they should be doing anyway.

Gain-sharing: Pricing is based on the value delivered by the vendor beyond its typical responsibilities but deriving from its expertise and contribution. For example, an automobile manufacturer may pay a service provider based on the number of cars it produces. With this kind of arrangement, the customer and vendor each have skin in the game. Each has money at risk, and each stands to gain a percentage of profits if the supplier’s performance is optimum and meets the buyer’s objectives.

Shared risk/reward: Provider and customer jointly fund the development of new products, solutions, and services with the provider sharing in rewards for a defined period of time. This model encourages the provider to come up with ideas to improve the business and spreads the financial risk between both parties. It also mitigates some risks by sharing them with the vendor. But it requires a greater level of governance to do well.

IT organizations are increasingly looking for partners who can work with them as they embrace agile development and devops approaches. “Organizations are rapidly transforming to agile enterprises that require rapid development cycles and close coordination between business, engineering and operations,” says Steve Hall, a partner with sourcing consultancy Information Services Group (ISG). “Global delivery requires a globally distributed agile process to balance the need for speed and current cost pressures.”

Outsourcing and jobs

The term outsourcing is often used interchangeably — and incorrectly — with offshoring, usually by those in a heated debate. But offshoring (or, more accurately, offshore outsourcing) is a subset of outsourcing wherein a company outsources services to a third party in a country other than the one in which the client company is based, typically to take advantage of lower labor costs. This subject continues to be charged politically because unlike domestic outsourcing, in which employees often have the opportunity to keep their jobs and transfer to the outsourcer, offshore outsourcing is more likely to result in layoffs.

Estimates of jobs displaced or jobs created due to offshoring tend to vary widely due to lack of reliable data, which makes it challenging to assess the net effect on IT jobs. In some cases, global companies set up their own captive offshore IT service centers to to reduce costs or access skills that may not result in net job loss but will shift jobs to overseas locations.

Some roles typically offshored include software development, application support and management, maintenance, testing, help desk/technical support, database development or management, and infrastructure support.

In recent years, IT service providers have begun increasing investments in IT delivery centers in the U.S. with North American locations accounting for more the a third of new delivery sites (29 out of a total of 76) established by service providers in 2016, according to a report from Everest Group, an IT and business sourcing consultancy and research firm. Demand for digital transformation–related technologies specifically is driving interest in certain metropolitan areas. Offshore outsourcing providers have also increased their hiring of U.S. IT professionals to gird against potential increased restrictions on the H-1B visas they use to bring offshore workers to the U.S. to work on client sites.

Some industry experts point out that increased automation and robotic capabilities may actually eliminate more IT jobs than offshore outsourcing.

The challenges of outsourcing

Outsourcing is difficult to implement, and the failure rate of outsourcing relationships remains high. Depending on whom you ask, it can be anywhere from 40 to 70 percent. At the heart of the problem is the inherent conflict of interest in any outsourcing arrangement. The client seeks better service, often at lower costs, than it would get doing the work itself. The vendor, however, wants to make a profit. That tension must be managed closely to ensure a successful outcome for both client and vendor.

Another cause of outsourcing failure is the rush to outsource in the absence of a good business case. Outsourcing pursued as a “quick fix” cost-cutting maneuver rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage is more likely to disappoint.

Generally speaking, risks increase as the boundaries between client and vendor responsibilities blur and the scope of responsibilities expands. Whatever the type of outsourcing, the relationship will succeed only if both the vendor and the client achieve expected benefits.

Service levels agreements

A service level agreement (SLA) is a contract between an IT services provider and a customer that specifies, usually in measurable terms, what services the vendor will furnish. Service levels are determined at the beginning of any outsourcing relationship and are used to measure and monitor a supplier’s performance.

Often, a customer can charge a vendor a penalty fee if certain SLAs are not met. Used judiciously, that’s an effective way to keep a vendor on the straight and narrow. But no CIO wants to be in the business of penalty-charging and collecting. Bad service from an outsourcing vendor, even at a deep discount, is still bad service, and can lead to greater problems. It’s best to expend energy on finding out why the SLAs are being missed in the first place and working to remedy the situation. Strong SLAs alone will not guarantee success when outsourcing IT services. They’re one of many tools to help manage an IT outsourcing deal.

For a more in-depth discussion of SLAs, see “What is an SLA? Definition, best practices and FAQs.”

Outsourcing deal lengths

What’s the best length for a skirt? While the outsourcing industry is not quite as fickle as fashion, the prevailing wisdom about the best length for an outsourcing contract has changed over the years. When outsourcing first emerged as a viable option, long contracts — as many as 10 years in length — were the norm. As some of those initial deals lost their shine, clients and vendors moved to shorter contracts.

As with most questions about outsourcing, the optimal answer depends on what’s being outsourced and why. While decade-long deals have largely gone by the wayside, a transformational outsourcing deal may require more time to reap benefits for both client and vendor. But when outsourcing desktop maintenance or data center support, a shorter relationship may work better. Generally speaking, overly long contracts (more than seven years) should be avoided unless there is a great deal of flexibility built into the contract.

Choosing the right outsourcing provider portfolio

Many years ago, the multi-billion-dollar megadeal for one vendor hit an all-time high, and the big IT service providers of the world couldn’t have been happier. But wholesale outsourcing has proved difficult to manage for many companies. These days, CIOs have embraced the multi-vendor approach, incorporating services from several best-of-breed vendors to meet IT demands. Most major IT services players have done their best to adjust to this trend. In fact, some leading CIOs not only work with a cadre of competing outsourcers, but expect them to meet joint deliverables.

Multisourcing, however, is not without great challenges. The customer must have mature governance and vendor management practices in place. In contract negotiations, CIOs need to spell out that vendors should cooperate and refrain from blaming each other, or else risk losing the job. CIOs need to find qualified staff with financial as well as technical skills to help run a project management office or some other body that can manage the outsourcing portfolio.

The rise of digital transformation has initiated a shift not back to megadeals but away from siloed IT services. As companies embrace new development methodologies and infrastructure choices, many standalone IT service areas no longer make sense. Some IT service providers seek to become one-stop shops for clients through brokerage services or partnership agreements, offering clients a full spectrum of services from best-in-class providers.

How to select a service provider

Selecting a service provider is a difficult decision. But start by realizing that no one outsourcer is going to be an exact fit for your needs. Trade-offs will be necessary.

To make an informed decision, articulate what you want from the outsourcing relationship to extract the most important criteria you seek in a service provider. It’s important to figure this out before soliciting any outsourcers, as they will undoubtedly come in with their own ideas of what’s best for your organization, based largely on their own capabilities and strengths.

Some examples of the questions you’ll need to consider include:

  • What’s more important to you: the total amount of savings an outsourcer can provide you or how quickly they can cut your costs?
  • Do you want broad capabilities or expertise in a specific area?
  • Do you want low, fixed costs or more variable price options?

Once you define and prioritize your needs, you’ll be better able to decide what trade-offs are worth making.

Traditionally, IT organizations have spent six months to a year or more on the IT outsourcing transaction process, finding the right providers and negotiating a suitable contract. But as IT services — and, increasingly, as-a-service — deals have gotten shorter, that lengthy process may no longer make sense. While the selection process still demands diligence, there are some more iterative transaction processes that can reduce the time required to procure IT services.

Outsourcing advisers

Many organizations bring in an outside sourcing consultant or adviser to help figure out requirements and priorities. While third-party expertise can certainly help, it’s important to research the adviser well. Some consultants may have a vested interested in getting you to pursue outsourcing rather than helping you figure out if outsourcing is a good option for your business. A good adviser can help an inexperienced buyer through the vendor-selection process, aiding them in steps like conducting due diligence, choosing providers to participate in the RFP process, creating a model or scoring system for evaluating responses, and making the final decision.

Help can also be found within your organization, from within IT and the business. These people can help figure out your requirements. There is often a reluctance to do this because any hint of an impending outsourcing decision can send shivers throughout IT and the larger organization. But anecdotal evidence suggests that bringing people into the decision-making process earlier rather than later makes for better choices and also creates an openness around the process that goes a long way toward allaying fears.

Negotiating the best outsourcing deal

The advice given above for selecting a provider holds true for negotiating terms with the outsourcer you select. A third-party services provider has one thing in mind when entering negotiations: making the most money while assuming the least amount of risk. Clearly understanding what you want to get out of the relationship and keeping that the focus of negotiations is the job of the buyer. Balancing the risks and benefits for both parties is the goal of the negotiation process, which can get emotional and even contentious. But smart buyers will take the lead in negotiations, prioritizing issues that are important to them, rather than being led around by the outsourcer.

Creating a timeline and completion date for negotiations will help to rein in the negotiation process. Without one, such discussions could go on forever. But if a particular issue needs more time, don’t be a slave to the date. Take a little extra time to work it out.

Finally, don’t take any steps toward transitioning the work to the outsourcer while in negotiations. An outsourcing contract is never a done deal until you sign on the dotted line, and if you begin moving the work to the outsourcer, you will be handing over more power over the negotiating process to them as well.

Outsourcing’s hidden costs

The total amount of an outsourcing contract does not accurately represent the amount of money and other resources a company will spend when it sends IT services out to a third party. Depending on what is outsourced and to whom, studies show that an organization will end up spending at least 10 percent above that figure to set up the deal and manage it over the long haul.

Among the most significant additional expenses associated with outsourcing are:

  • the cost of benchmarking and analysis to determine whether outsourcing is the right choice
  • the cost of investigating and selecting a vendor
  • the cost of transitioning work and knowledge to the outsourcer
  • costs resulting from possible layoffs and their associated HR issues
  • costs of ongoing staffing and management of the outsourcing relationship

It’s important to consider these hidden costs when making a business case for outsourcing.

The outsourcing transition

Vantage Partners once called the outsourcing transition period — during which the provider’s delivery team gets up to speed on your business, existing capabilities and processes, expectations and organizational culture — the “valley of despair.” During this period, the new team is trying to integrate any transferred employees and assets, begin the process of driving out costs and inefficiencies, while still keeping the lights on. Throughout this period, which can range from several months to a couple of years, productivity very often takes a nosedive.

The problem is, this is also the time when executives on the client side look most avidly for the deal’s promised gains; business unit heads and line managers wonder why IT service levels aren’t improving; and IT workers wonder what their place is in this new mixed-source environment.

IT leaders looking to the outsourcing contract for help on how to deal with the awkward transition period will be disappointed. The best advice is to anticipate that the transition period will be trying, attempt to manage the business side’s expectations, and set up management plans and governance tools to get the organization over the hump.

Outsourcing governance

The success or failure of an outsourcing deal is unknown on the day the contract is inked. Getting the contract right is necessary, but not sufficient for a good outcome. One study found that customers said at least 15 percent of their total outsourcing contract value is at stake when it comes to getting vendor management right. A highly collaborative relationship based on effective contract management and trust can add value to an outsourcing relationship. An acrimonious relationship, however, can detract significantly from the value of the arrangement, the positives degraded by the greater need for monitoring and auditing. In that environment, conflicts frequently escalate and projects don’t get done.

Successful outsourcing is about relationships as much as it is actual IT services or transactions. As a result, outsourcing governance is the single most important factor in determining the success of an outsourcing deal. Without it, carefully negotiated and documented rights in an outsourcing contract run the risk of not being enforced, and the relationship that develops may look nothing like what you envisioned.

For more on outsourcing governance, see “7 tips for managing an IT outsourcing contract.”

Repatriating IT

Repatriating or backsourcing IT work (bringing an outsourced service back in-house) when an outsourcing arrangement is not working — either because there was no good business case for it in the first place or because the business environment changed — is always an option. However, it is not always easy to extricate yourself from an outsourcing relationship, and for that reason many clients dissatisfied with outsourcing results renegotiate and reorganize their contracts and relationships rather than attempt to return to the pre-outsourced state. But, in some cases, bringing IT back in house is the best option, and in those cases it must be handled with care.

Source: cio.com-What is outsourcing? Definitions, best practices, challenges and advice

Cloud computing delivers on outsourcing’s promise of cost savings

I try always to avoid answering an enterprise client’s question with “it depends” because it makes me sound like, well … a consultant. Companies searching for answers to their problems may want a range of possibilities, but they don’t want an imprecise answer.

The reality is, sometimes “it depends” is the best answer. Let’s take, for example, the cloud—the most tested and most proven of the new digital technologies. It used to be I could answer the question “How much will I save by outsourcing my data center?” with a very precise estimate subject to actually going about it the right way (which is my job).

But the cloud is still young enough that I can’t do that. I’ve seen some companies save more than 75 percent by moving aggressively to the cloud. And I’ve seen others save absolutely nothing. There are technical, procedural and human reasons for the variance, about which an entire book could probably be written. But by the time I do that, the technology would have changed. So, instead, I thought I would share some of the key issues that impact today’s cloud initiatives:

1. Don’t build it, for they will not come. The most successful enterprise cloud initiatives look at their applications first, and then look for reasons why each one should not move to the cloud. Not only does this make sense, it avoids the waste of engineering a solution for functionality that, for good technical or regulatory reasons, might never make it to the cloud. This works well, say, for the applications and infrastructure that support a utility company’s nuclear business or a manufacturer’s classified defense programs. And it is why application-first approaches are far more successful.

2. Consider what you are replacing. If you replace your 20-year-old car with a brand new one, you will immediately notice the difference in efficiency, performance, technology, packaging and safety features. The cloud is similar: the more outdated the legacy stuff, the more likely you are to see big differences in performance and significantly reduced cost to operate. But unlike a new car, the cloud doesn’t require a cash outlay to get started. It’s more like a zero-percent-down lease.

3. How do people feel about it? Most people agree “feelings” should not play a part in business decisions, but I’ve seen that they do. Most technologists enjoy tinkering with new tools and seize the opportunity to become skilled in the latest solutions. But a significant number of their peers are resistant to change and are vested in preserving the status quo. Among the most frequent mistakes I see enterprise buyers make in their cloud initiatives is ignoring or underestimating the need for organizational change management.

4. Get real about the objections. Of course, some obstacles are legitimate, but organizations tend to accept “no” too quickly. The regulatory obstacles are not as big as they seem, and the pace of change in technology means the architectural ones aren’t either. The best way to guarantee you get no benefits from the cloud is to block the programs that promote its adoption.

I’ve come a long way from being a cloud skeptic myself. While I still maintain that dynamic provisioning and smarter application architecture are the true innovations of what we call “the cloud,” arguing the semantics is beside the point. What I do believe is that cloud solutions do a better job of delivering on the promise of outsourcing than outsourcing itself. Deploying an up-to-date, standardized, flexible, cost-effective, constantly improved and shared asset on behalf of corporations has been outsourcing’s pitch from the beginning. But it took this thing we now call the cloud to deliver on that promise, even though, as they say, results may vary.

Source: cio.com-Cloud computing delivers on outsourcing’s promise of cost savings

Outsourcing Advisors: 6 Tips for Selecting the Right One

When it’s time to outsource, selecting the right outsourcing advisor may be the single most important decision you make—one that sets up your future relationship with an IT services provider for success or failure. Given that IT outsourcing transactions are complex and vendors are savvy at setting them up to their advantage, solid sourcing advice from a third party can help to level the inherently uneven playing field, particularly for less experienced IT services buyers.

But deciding which sourcing advisor is right for you is trickier than it may seem. All sourcing advisors are not equal. A big name firm may not give you the attention you need. A start-up may not have the depth of experience you require.

“There has never been as great a need for outsourcing advice as there is today, and there has never been such a plethora of advisors competing to give their advice,” says Phil Fersht, former AMR analyst and author of the outsourcing blog Horse for Sources. (Fersht now works for vendor Cognizant Technology Solutions.) “Whether you are a highly-sophisticated enterprise with your outsourcing experience or a complete novice, you will most likely have to engage a third party at some stage during the outsourcing lifecycle, whether it’s simply to administer and negotiate a complex contract or to hold your hand through the entire evaluation process.”

There are some general qualities that make for a good outsourcing guide. “The very best advisors are not only guardians of the clients’ interests, but are also excellent facilitators, who understand both sides’ perspectives, risks and interests, and can work creatively and constructively to find solutions that permit both sides to succeed,” says George Kimball, an outsourcing attorney in the San Diego office of Baker and McKenzie.

Here are six tips to help you choose your outsourcing consultants wisely.

1. Know your goals. “Make sure you define your basic sourcing strategy before selecting the sourcing advisor,” says Richard Matlus, research advisor for Gartner IT Services and Sourcing. For example, is your impetus for outsourcing to reduce costs? If so, adds Matlus, select an advisor that will help you achieve that goal. Some advisors excel at holding vendors’ feet to the fire on prices, while others specialize in other areas.

2. Bigger is not always better. Outsourcing advisors come in all shapes and sizes, from the big name firms that charge correspondingly high fees to independent individuals with lower hourly rates.

“When dealing with third party advisors, you usually get what you pay for,” says Fersht. “However, we have seen situations where enterprises have paid top-dollar for third-rate advice and others where customers received great service from one of the smaller, cheaper firms.”

A large, well-known consultancy may be a good option, but don’t make the decision based on name recognition alone. Now more than ever, there are great lower cost options available, thanks in large part to experienced sourcing advisors who were laid off during the economic downturn and who are now in business for themselvesand, as such, available at a large discount to you.

3. Get personal. You hire a consultancy, but you work with a consultant. “The individual advisor in charge of the project is at least as important as the firm,” says Kimball. “The (best) firms all offer good people, sound methods and a wealth of experience, but individual chemistry between advisor and client is crucial.”

Adds Matlus, make sure you’re not getting stuck with the rookie.

4. Check—and double-check—those references. You’ll want to talk directly and discreetly with multiple clients of your prospective sourcing advisor who are at least a year into their negotiated outsourcing deals. They’ll be in the best position to tell you whether the advisor’s guidance was worthwhile. The best references, as always, will come from people you know and trust.

“References from enterprises not put forward by the advisor are even more valuable,” says Fersht. “Try networking with peers at other companies who have experience working with outsourcing advisors.”

Make sure the references you talk to were involved with the consultancy at the start, or better yet, are those who’ve had experience working with the individual professional who would lead your process, adds Matlus.

5. Test drive the tools. Take a close look at the processes and methodologies the advisors use. The advisor should have a proven approach for taking enterprises through the outsourcing lifecycle.

“Ask them specific questions on how they applied it in previous client cases and how they would work with you during each stage of the cycle,” says Fersht. “You will learn a lot about how much they have thought through your issues when asked how they will apply their methodology to your specific situation.”

The better the advisor’s tools, says Matlus, the better and more expeditious the sourcing process will be.

But don’t forget about the need for flexibility, as well. “Look for the ability to vary usual methods to suit circumstances and client needs,” says Kimball. “One size does not fit all, especially now.”

6. Investigate conflicts of interest. There’s no doubt that you want an advisor who engenders respect from the vendor community, but when consultants get too cozy with providers, you lose.

“They must be focused on your best interests, not theirs,” says Fersht. “Investigate other business divisions and service lines within the advisory firm to ensure where their interests lie. Also prod them about their relationships with outsourcing vendors to make sure you’re getting an independent view of the market.”

Source: cio.com-Outsourcing Advisors: 6 Tips for Selecting the Right One

7 hot IT outsourcing trends — and 7 going cold

As IT organizations become more strategic, so too do their partnerships with IT outsourcing providers. Digital transformation, automation, and the data revolution are not just shaking up how IT operates, they are greatly impacting the kind — and quality — of services under contract with IT outsourcing firms.

Here is a look at the technologies, strategies and shifting customer demands shaking up IT outsourcing right now and the once-hot developments that are beginning to cool. If you’re looking to leverage an IT outsourcing partnership, or want to make good on the market for IT outsourcing as a provider yourself, the following heat index of IT outsourcing trends should be your guide.

Heating up: Rapid software development

IT organizations are increasingly looking for partners who can work with them as they embrace agile development and devops approaches. “Organizations are rapidly transforming to agile enterprises that require rapid development cycles and close coordination between business, engineering and operations,” says Steve Hall, a partner with sourcing consultancy Information Services Group (ISG). “Global delivery requires a globally distributed agile process to balance the need for speed and current cost pressures.”

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Cooling down: IT services silos

As companies embrace new development methodologies and infrastructure choices, many standalone IT service areas no longer make sense. “In the past, companies may have sourced app services from one provider and secured cloud services from another,” says Ollie O’Donoghue, senior research analyst with HfS Research. “Now, thanks to new methodologies like devops and the increased ‘cloudification’ of business infrastructure, the lines between distinct IT services are blurring. Service providers and clients are far more likely to procure a blend of IT services to deliver business outcomes from a single vendor [rather than] contracting segments of IT out to a range of suppliers.”

Digital transformation is driving demand away from compartmentalization and silos of service delivery and toward frictionless integration, says David J. Brown, global head of KPMG’s Shared Services and Outsourcing Advisory.

Some IT service providers are becoming one-stop shops for their clients through brokerage services or partnership agreements. “Offering clients a full spectrum of services from best-in-class providers is enabling providers to broaden the scope of their offerings, and clients to select the technologies and services that suit them,” says O’Donoghue. “Even large providers which formerly cornered the market with proprietary technology are starting to champion vendor agnosticism in a bid to offer clients impartial, best-in-class IT services.”

Heating up: Cloud integration

Enterprises are moving more workloads to the public cloud, but continuing to run certain applications in dedicated private cloud environments for security, regulatory or competitive reasons. So they’re looking for providers that can seamlessly manage and integrate their hybrid cloud environments, says Rahul Singh, managing director with business transformation and outsourcing consultancy Pace Harmon. “Increasing adoption of software-as-a-service models for specific applications (such as Salesforce and Workday) creates further operational complexity for enterprises,” Singh adds.

Cooling down: Traditional remote infrastructure management

Over the past decade, the offshore delivery of infrastructure management services — from network services and help desk support to server maintenance and desktop management — became mainstream. But remote infrastructure management (RIM) is no longer a growth industry for IT services providers; it can’t compete on price with the public cloud, where adoption rates are growing at compound rates of 25 percent a year. “Almost every enterprise is taking a cloud-first strategy,” explains ISG’s Hall. “Service providers are shifting to cloud management services; but with the double whammy of integrated devops, even this is a short-lived venture.”

Heating up: Talent wars

An increase in consultancy-led engagements and the subsequent demand for more specialists and advisors in IT outsourcing is inspiring IT service providers to turn their attention to talent acquisition and retention, according to analysts at HfS Research. “The challenge of recruiting and retaining the talent necessary to deliver high-quality services has been brewing for some time,” says O’Donoghue. “The spectrum of skills in demand is becoming more focused, [and] providers seeking to compete in the modern marketplace will need to work harder to attract talent.”

Cooling down: Labor arbitrage campaigns

Sourcing IT services in the lowest-cost locations is no longer a competitive advantage, as clients demand use of automation and tools to drive efficiencies instead. “Organizations are driving massive productivity improvements through technology, not labor,” says ISG’s Hall. “Developing a solution that is based on low-cost labor won’t even get a CIO meeting in today’s market. Top IT leaders are driving massive digital transformation projects, and most service providers have adapted their message and core capabilities to be more than low-cost labor.”

Geography is becoming increasingly irrelevant to outsourcing decisions, says Marcos Jimenez, CEO of Softtek US and Canada. “Customers demand providers who are responsive, flexible, innovative and able to leverage emerging technology and solve business problems. They don’t care about where the work is done.”

Heating up: Automation results

Cost savings based on human labor are being supplanted by those delivered by so-called “digital labor.” Enterprises are demanding automation capabilities from their outsourced providers. “Automation not only provides increased efficiencies, but also brings proactive capabilities to deal with issues before they become business-impacting events, which adds significant value to enterprises beyond the typical cost reduction opportunities,” says Singh of Pace Harmon.

Automation is taking hold across middle and back-office functions that have been traditionally outsourced. “If you want to compete, you must automate,” agrees ISG’s Hall. “This is causing disruption in traditional sourcing models and driving service providers to make big bets and commitments on future pricing.”

Innovative clients and providers are taking an “automation first” approach, says Rajeev Tyagi, chief operating officer for Softtek US and Canada. “Rather than identifying human activities within an IT or business process that can be automated, enterprises will use digital labor as the starting point,” he says.

Cooling down: Automation hype

The results of automation are also becoming more transparent. Service providers are now expected to detail the iterative efficiencies that automation will create for clients, says Jamie Snowdon, chief data officer for HfS Research. Unfortunately for providers, that means they can no longer keep the savings to themselves. “Undoubtedly, as newer forms and blends of automation technologies enter the marketplace, vendors will be increasingly required to share the benefits with their well-informed clients,” says Snowdon.

Heating up: Captive offshore delivery centers

With technology becoming a competitive differentiator across industries, every company is becoming a tech company — from automakers to oil and gas providers to retailers. And that’s leading a broader swath of previous IT outsourcing customers to set up their own captive technology services delivery centers offshore, says Hall of ISG. “To compete and scale, enterprises want ‘badged’ resources, which means captives are back as a popular model to accelerate the adoption of automation and maintain the intellectual property for cutting-edge solutions.”

Cooling down: Low-cost service desks and call centers

Likewise, in an era that values superior customer and employee experiences, companies are placing more emphasis on the resources and technology employed to operate their internal service desks and customer-facing call centers.

“Call center consolidation and the desire to partner with strategic vendors continues, but call volumes are still high,” says Jimit Arora, a partner at Everest Group. “While virtual agents and chat bots are becoming prevalent, we see companies being reluctant to expose customers to these technologies just yet. They don’t want blow-back akin to interactive voice response system.”

Meanwhile, “the workplace of the future has made the service desk relevant again,” says Hall. “ CIOs and IT leaders quickly realized that outsourcing the ‘face to the business’ to a third party may not be in their best interest. Look for more creative, on-site and integrated solutions as organizations integrate a complete workplace solution into their delivery models.”

Heating up: Populism and protectionism

Concerns about U.S. immigration reform and the impact of Brexit are driving some IT and business services back to domestic locations, says Stan Lepeak, director of KPMG’s Shared Services and Outsourcing Advisory.

Cooling down: H-1B panic

However, anxiety about potential changes to the H-1B program in the U.S. has been allayed — for now. “The Trump Administration’s early saber rattling appears to have sparked renewed interest in artificial intelligence and robotic processing as ways to reduce cost and eliminate jobs without offshoring,” says Dan Masur, partner in Mayer Brown’s Technology Transactions practice in Washington, D.C. “[But] other administration policies and objectives appear to have eclipsed outsourcing issues, at least for the moment.” Many of the biggest users of H-1B visas were already increasing their American hiring prior to the last election.

Heating up: Business-based metrics

One of the biggest changes facing the IT services industry in this period of business transformation is how to quantify services. Contracts are shifting from traditional input or transaction models to those built on business metrics andresults. “We’ll soon see a move from traditional arrangements — like FTE models — pushing beyond convoluted outcome-focused metrics and into the heart of the client companies with business-linked metrics,” says Snowdon of HfS Research. “We can expect more deals to focus on specific outcomes measured by business metrics.”

Client expectations are rapidly evolving. HfS analysts are seeing client engagements begin with a particular business challenge, with prospective vendors asked to tailor a solution to them. The result is an increase in consultancy-led engagements, which carefully design solutions for the customer.

Cooling down: IT services industry growth

Secular forces have driven the outsourcing industry into significant deceleration. The results of the second quarter of 2017 have yet to be announced, but the top 20 publicly traded IT services companies saw 2.1 percent year-on-year organic growth in the first quarter, according to the Everest Group. “This is the lowest growth number in the last three years, and represents an industry that is witnessing significant pressures due to digital technologies, pervasive automation, new business models, and immigration-related concerns,” says Everest Group’s Arora.

The top five Indian IT companies have experienced seven straight quarter of growth deceleration with a forecast growth rate of less than seven percent over the next 12 months, according to Arora. The key will be to evolve from arbitrage-based models to those built for digital transformation, which will require all providers to spend capital on new capabilities.

Source:  cio.com-7 hot IT outsourcing trends — and 7 going cold