Tuesday, March 29, 2011


Top Ten Mistakes a CIO makes in selecting an Outsourcing Firm

10. Insufficient internal expertise to understand the systems being outsourced in enough detail, and consequent inability to manage the outsourcer effectively.

9. Underestimating the amount of effort it requires within your own company to manage the relationship with the outsourcing firm. It isn't true that you can eliminate one position for every position outsourced. Instead, you need to have staff allocated to negotiate and manage the relationship. You also need staff to quality-control the results of the outsourcing firm. How will you know that they are doing a creditable job otherwise?

8. Allowing price to override quality.

7. Unmatched Culture fit: Granted you can outsource and in order for the relationship with the outsourcing firm to last long-term they have to have similar values and be a culture fit with you organization. In some cultures it is very rude to say No so they may always say Yes but fail to deliver on time. Insufficient understanding of cultural differences can cause huge problems.

6. Selecting the wrong outsourcing model. For example: moving the work to India when the work requires extremely close client supervision. Remember: offshoring and outsourcing are not synonyms. Work that requires very close client supervision may be better handled domestically or near-shore by the outsourcer so that client personnel can easily and inexpensively travel to the work site and where daily communication is cheap.

5. Selecting an outsourcer whose core competencies do not include the one you need. You don't order pizza in a Chinese restaurant, no matter how good the Moo Goo Gai Pan is. Just because an established BPO is well-respected in other spaces does not mean they have any real experience with what you need.

4. Assigning too many people to interface with the outsourcer. If my outsourcer has deployed (per the contract) 7 supervisors, an Operations Manager, a QA/Trainer guy, and an Executive liaison, and I assign 16 people to interface with them... Well, how many meetings per week can my 16 people set up with the 10 management people running the outsource shop? Lots of them! And 16 people can ask for lots of read-outs and create many programs and action plans to boot. How much time will the supervisors have left to coach their people?

3. Not focusing enough attention on downstream cost implications and focusing all of the attention and effort on forcing the outsourcing firm to provide upfront cost relief. Achieving significantly reduced resource rates without putting in place protections against subsequent increases to the resource rates will quickly diminish the value achieved in solely pushing on the resource rates from a total cost perspective.

2. Squeezing every penny out during negotiation, which results in zero flexibility and thus unforeseen costs. It is simply impossible to foresee every possible scenario in a SLA.

2. Impact on morale of the organization - If outsourcing leads to any immediate layoffs, the consequent impact on the morale of the organization and its impact on productivity

1. The first question that a CIO needs to understand is, "Why outsource?" What are the goals of outsourcing, has the cost benefit analysis been done, have the risks been understood, are proper strategies in place to manage risk and maximize productivity? Very often this exercise has not been done properly.

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