Outsourcing has evolved tremendously over the last 15 years, from the breadth of functions to the maturity of SLAs. So, what do today's risks look like? According to the 2011 IDG Enterprise Outsourcing and Service Providers Survey, the biggest risk is quality of service. CIO.com recently reported on the findings of this survey:
"While 44 percent of the 1,176 IT leaders who responded to the online survey said their service-level agreements (SLAs) were tighter than they were three years ago, they cited poor-quality service as the top risk of IT outsourcing."
One would think that better SLAs should lead to better service, but that's not always the case. A solid SLA is not synonymous with good outsourcing management and governance. According to the survey, 43 percent of respondents said they were only "somewhat effective" in outsourcing management, while 12 percent said they were ineffective. Case in point:
"When Barr Snyderwine took over as CIO...he thought he had a solid outsourcing strategy in place... The BPO work was straightforward. The time difference occasionally posed a challenge, but service was decent and the costs were low. Outsourced IT was a different story. "If the server is down, they're responsive and they'll have someone here in four hours. But it's still four hours," he says. "And when someone [leaves the provider], we're left with a lack of knowledge of our network." On the application-development front, service quality has been variable. "When we weren't clear enough with our requirements, it was a never-ending money pit," Snyderwine says of one offshore outsourcing relationship."
Companies that wish to improve outsourcing performance should evaluate how well they're managing their outsourcing vendors -- not just contractually, but from a governance perspective. This means clearly defining and communicating requirements and objectives, establishing benchmarks and checkpoints to keep projects performing well, and providing diligent oversight. The results of these efforts will not only lead to better outsourcing performance, but reduced costs as well.
-- Jeff Muscarella, EVP of IT, NPI