Tips on Successfully Outsourcing Technology Support

by Douglas Lantigua, Principal, MUSA Technology Partners

There are four primary reasons why a business or organization should (domestically) outsource any portion of its IT services and technology management:

1. Reduce and control operating costs

2. Improve company focus

3. Gain access to world-class capabilities

4. Free up internal resources for other purposes

Source: Survey of Current and Potential Outsourcing End-Users
The Outsourcing Institute Membership

The reasons to outsource your IT infrastructure are apparent, but what isn’t so clear is how to best handle it. This is an upfront, unbiased outline of how to manage technology outsourcing correctly, and how to avoid falling in a common IT outsourcing trap that many organizations find themselves fall into. If you follow this advice, you can make the most of outsourcing your IT, and reap all the benefits that come with it, without the common pitfalls many organizations face.

Depending on the size of your organization, the role of technology vendor management is likely one person’s partial responsibility, or is left to a multi-tiered management structure to handle. Once the decision to domestically outsource IT services is made, a line is drawn within the organization to separate the internal knowledge and management from the outside vendor. The front line, internal resources are in place to make sure the IT services vendor performs work that is in alignment with company objectives. Internal IT roles shift from the management of departments, people and projects to the management of the external IT services vendor.

Technology outsourcing companies in general have become skilled at creating self-seeking contracts through an evolution of service delivery, exclusive contracts and assumed expertise. The company that is outsourcing a division may have a few people who have lived through an outsourcing and the intricacies of the contract details, but every year vendors gain additional knowledge and experience on how to write contracts that seem to only benefit themselves. Most of the larger outsourcers are public companies driven by market forces that demand higher profits and the expansion of services. At the same time, vendors are in a conflicting position to answer to management and stakeholders for higher profits while also trying to align with their client’s goals of lowering costs. The conflict of interest apparent here tends to create long term problems.

The original contract usually turns out to be a building block towards costly contract changes. A large company that has outsourced may review their contract and see what is working and what isn’t every five to ten years. Once the outsourcer controls the entire process and resource pool, it is relatively easy to demand fees that aren’t on par with market rates. In many IT outsourcing engagements, the company outsourcing its work will sell its IT equipment to the service provider for a good amount of money, in return for the short term cash influx. The reasons are mainly to offload all aspects of the IT burden and turn it into a service provided for outside of the firm. However, once the IT services firm holds a monopoly with its' clients environment and ownership of the equipment, the ground is fertile for less than ethical behavior. When the original firm needs a change to the base outsourcing contract, which can happen often over a 5-10 year period, the costs tend skyrocket.

The moral of the story: Do not sell your infrastructure to an outsourcing company unless the infusion of cash is absolutely necessary in the short term. Maintaining control of the infrastructure is an essential step in protecting the company from contractual obligations. This will break up the monopoly and keep project costs closer to actual market value. Also, by introducing some rivalry in the environment, the large outsourcing company will be kept on its toes when faced with potentially losing business. Without this competition an orgainzation will need to live with the equation where the result is added into the recurring service fee: [(the organization’s ‘walk away’ from the contract fee) / (Monthly service fee)]* [(Level of the organizations business critical need of the project or service on a scale of 1-10) * (10,000)] ^₁

By going with a multi-vendor model, an organization looking to outsource has the ability to freely choose the best of breed service delivery model for each particular subcomponent of its technology outsourcing needs. The firm should place strict terms of engagement to limit the role of a company coming in to do a particular service. This will keep the multiple vendors in harmony in their roles and allow them to work together to deliver a cohesive overall service. Contracts should be made shorter to keep the service quality high for the duration of the contract, and to increase competition between vendors. When outsourcing IT services, there is little difference for an orgainzation between managing one vendor or multiple vendors. If the orgainzation prefers to only interact with one vendor, another general contractor vendor can be brought in to govern the interactions and assist with contract negotiations since they will likely come up more frequently. For many reasons, domestic technology outsourcing is advantageous and here to stay. However, how an organization chooses to outsource will determine its success with it.

¹This formula is a simplified model, but for organizations that currently outsource their IT, this concept will look all too familiar.

For additional insight or help with successfully outsourcing technology services either partially or completely, contact MUSA Technology Partners, a rapidly growing technology consulting firm based in Cambridge, MA, through MUSA's online request form or call us at (800) 401-9123.