Devastating Effects: What the CIO Doesn't Know About ITO

Sourcing practices, as applied to information technology, are constantly changing. When outsourcing IT functions, CIOs need to control every aspect of the sourcing process in concert with their sourcing, legal, and staff leadership. A new report from Alsbridge, Inc. indicates that CIOs not aware of today's sourcing tactics may actually hurt their organizations more than help.

“New thinking and tools must be continuously applied by business and technology leaders to achieve the next incremental improvement in alignment, productivity, and business success,” says Ben Trowbridge, CEO of Alsbridge, Inc. “Nearly all CIOs have looked at the question of IT sourcing. However, most have not used proper techniques for creating an outsourcing deal that aligns external providers with business, IT, and sourcing strategies.”

According to Alsbridge, those misalignments are bound to create unhappy engagements, resulting in contract renegotiation at best and early termination at worst. On the other hand, using certain management processes, tools, and contract provisions, allows CIOs to ensure a mutually satisfying long-term outsource engagement.

In order to gain alignment, Alsbridge offers CIOs these 16 tips:

1. Know thyself and thy unit costs. In addition to knowing your costs by tower and category (labor, HW, SW, etc), analyze your environment to determine your unit costs and economies of scale.
2. Admit to why you are outsourcing, and be able to articulate that objective. Clearly link your sourcing strategy, IT strategy and business strategy. Looking for a low price and nothing else? - be careful, the hidden costs and management overhead may hurt you. Many times, access to skill sets is what matters - so say it like it is.
3. Take control of constructing the outsourcing deal. Demonstrate your business and industry knowledge by creating a deal that makes sense for your business and is open and fair to suppliers.
4. Proactively identify specific risks and how they might be mitigated. Risk belongs to either you or the supplier, so be clear on who gets what and when.
5. Establish metrics beyond IT component availability and reach into user satisfaction measures. Translate these metrics into service level targets.
6. Stay flexible on service level agreements (SLAs). Some things lose importance as business changes, and you'll want to change SLA emphasis along the way.
7. Build in contractually required, measurable improvements in price, technology, and service.
8. Build in the right to benchmark your supplier.
9. Establish contractual rules that specify price changes based on unit volume changes.
10. Share the gory details of your environment to eliminate ambiguity. Remember: ambiguity increases risk and increases price.
11. Develop a comprehensive base agreement and include in the RFP. Require suppliers to 'accept', 'reject', or 'accept with change' each portion of the contract as part of their response.
12. Leverage the suppliers for their creativity, expertise, and ability to absorb risk and costs, and know when to stay out of their way.
13. Negotiate for 'win-win' or stay home. You want your suppliers to be successful, and that means they make money.
14. Prepare for the long-term before Day 1. Establish a 'best practice' governance / relationship model and practice the spirit and letter of the model. Take the lead of this multi-functional team comprised of your company's and the supplier's employees.
15. Change your organization. Find or develop the requisite soft skills for managing long-term supplier relationships, and support that team all the way.
16. Have fun and Good Luck!

IT outsourcing consultants bring in-depth knowledge of current trends, years of specialized experience, and an objective, third-party perspective that proves invaluable to the CIO of an organization looking to outsource. Today's sourcing tactics, when appropriately applied, will more tightly align external suppliers with business and sourcing strategies.

Read the full report here.


About Alsbridge Inc.

Alsbridge provides world class sourcing advisory and benchmarking services for IT, finance and sourcing executives. With over 150 consultants located globally, we’ve helped hundreds of companies reduce costs and get more value from their vendors. Our experienced consultants leverage proprietary tools and information databases to identify and engage the optimal vendors for your situation, negotiate best practice terms at fair market prices, and improve the way you work with your vendors. Alsbridge clients utilize the most cost effective and value added sources globally for IT infrastructure services, hardware and maintenance, network services, software and maintenance, application support and development, business processes and cloud services. Our commitment to delivering value to our clients has made Alsbridge a distinguished member of the 2010 Inc. 500 fastest growing privately held companies in America.