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FIVE RULES For Successful IT Outsourcing

Nallan Sriraman (Sri)

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What is IT outsourcing ? 1. Simple staff augmentation - Time and Materials or in body shopping 2. Turnkey projects – outcome based project execution

3. Complete Managed outsourcing of major functional area of IT Data Center Management, Application development, Application Maintenance This deck is about #3

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WHY Outsource ?

It is all about economics

and shifting scale and execution risks

forceful transformation driven by Top Management But it is all about economics

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Pick the Partner(s) Pick partners who are $ (cheap) during the first 3 - 4 years

There is little differentiation among the competition Forget the vision / value add pitch (neither you nor the partner will have time )

Don’t pick just one partner – Pick 3 2 to create healthy competition and 1 to police the other two (if you don’t have internal PMO)

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Sign the deal Hire the best outsourcing law firm you can afford, worth it… They come with standard outsourcing contracts – you just make minor tweaks

All the IT service providers know them well, so deal will go through smoothly

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Transition The lawyers / Partners will offer standard templated transition plans / operating models / methods of work / RACIs you name it, you will get it

Be ready for some bumps

–  You may not know all the applications you just outsourced –  You may not know who was managing / developing the

applications –  you may not have the source code for some of the apps you

thought you owned –  You may not have standard SLAs for ticket resolutions –  You may not know what ever what ever…!!

Be ready for the bumps !!!

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Honeymoon Transition is over

Day 1 came and gone

Light is still on

Projects continue to trend pre-transition RAG status

Meanwhile – on the ground, on both sides start to make some noise

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3-6 months, Reality sets in Projects start to trend high RED / AMBER Tickets resolutions are taking longer

Hang On You just realized you and your partners forgot to implement any change management based on the new operating model, tempalted process etc

BE READY Go through change management – will be Painful

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6-12 months, Re-write Rule book You realize The text book you got from the lawyers and your partners are not working

Start re-writing the text book that make sense to your enterprise – based on your culture, your stakeholder behaviors, your financial needs and your internal staff’s ability to manage outsourced partners!!!

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Year 1 Look back – not a bad year, you recovered deliveries and SLAs back to pre outsourcing date You start to get some insights that you would have never had before when you had internal organization – one of the benefits of outsourcing is

METRICS – lots of them Metrics start showing how bad it was prior to outsourcing Nobody likes to hear that, so just keep it yourself

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Years 1-2 You start seeing some anomalies in the contract portions or vague as you end up spending lots of time arguing with your partner on interpretation of certain entitlements

Work with your partners, do your homework still keeping your financial targets in mind, fine tune the master contract!!!

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Years 2-3 During the pitch – ignore the vision, ignore the value add, ignore flexibility – Focus on bottom line as CxO that is where you rear is…….

Start to reminding your partners on – Hay it is been two years – what about the vision you rattled during the pitch,

Where is the Value Add you promised? BTW now that we have lots of metrics, I would like lot more flexibility to how we do business with each other

That is when you realize you moved towards True partnership and having adult conversations

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Years 3-4 The CFO had a short term Amnesia - forgets you delivered significant YoY savings 3 years ago It is off the books and everyone has forgotten

Too much metrics you loved initially - indicates there is steady but significant YoY unit cost increase for the past 3-4 years

Your CFO starts questioning your decision to outsource and start pushing you to cut costs on outsourcing

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Crawl Back – Be the Hero You start thinking which location you should go and start building your internal organization ---

Last time you checked Qingdao seems good fit compared to Bangalore

Brush up your Mandarin and of you go…

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In summary…

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Pick 2-3 Partners

based on Cost

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Hire the

best Lawyers

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Don’t forget

you and your partners need Change Management

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Be ready

to re-write Rule Book

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Always

remember $ Bottom line

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