The Dos and Don’ts of IT Outsourcing 
By Jim Carroll, Carroll-Net, Inc.

The desire to outsource information technology (IT) can be a powerful one. The Gartner Group estimates that 70 percent of all businesses outsource some or all of their IT services. Outsourcing is the siren’s song of efficient infrastructure that will smoothly move your business from accepting orders through delivery to clients. While securing new business is hard work, why does it always seem like managing technology is even tougher?

In a perfect world, technology would operate itself. Your staff would effortlessly maintain the file server, e-mail server, routers, firewalls, Web site, palm devices, office applications, business systems and data backups. Instead, they often become mired down in tiny sinkholes that consume all available time and deliver zero benefits.

You’ve tried to reverse this course so many times that your patience is exhausted. It seems there’s nothing you can do to help. The more staff you have to work on IT issues, the longer it takes to resolve them. All the while, real work comes to a grinding halt.

You start to think about outsourcing. First, you plan to find the right firm. You’ll conduct exhaustive interviews to make sure you find the right fit (and negotiate a good price). Seems like a no-brainer, right? You may be surprised to hear that outsourcing is not for everyone. Successful outsourcing requires vision, disciplined management and a staff willing to accept change. Firms without these characteristics will not successfully make the transition.

Why is vision so important to outsourcing? When all is said and done, outsourcing is a leap of faith. After the negotiating, number crunching and analyses, you need to determine if you should or shouldn’t make that leap. It’s not easy, even for those with a solid belief in their business future, but it is virtually impossible for those without it.

So you’ve searched your soul and believe IT outsourcing is the right path. Now what? Your next steps will depend on your business, industry and technology complexity. IT outsourcing has been around long enough for you to be aware of several dos and don’ts.

Don’t Outsource Who You Are
This is the most important rule of all. Outsource the back end of your business, not the front. You can outsource mission-critical tasks, but not something that defines your business identity. Keep your secret recipe in-house, and guard it jealously. Remember, your plan is to outsource distractions so you can focus on the core business. 

Don’t Outsource Responsibility
Some people think outsourcing means transferring responsibility for success or failure to someone else. You can outsource operations, but you need to watch the results carefully and step in for course corrections when needed. There is no “set it and forget it” with outsourcing. 

Do Manage the Outsource Relationship
This rule goes hand-in-hand with the previous rule. Any outsourcing relationship needs careful grooming. Think of outsourcing like a marriage, with your business connected to your service providers. You need to look out for each other. If you focus on what’s good for you at the expense of your partner, your relationship will deteriorate, possibly terminally and expensively.

Do Measure Performance
Successful outsourcing should have clearly established metrics — ones that are simple to quantify and measure objectively. This is probably one of the most difficult elements of any outsourcing negotiation. Once you and the provider agree to these parameters, include these measurements in a service-level agreement in the contract. An outsourcing relationship without specific goals means each party will develop its own, leading to friction, finger pointing and loss of trust.

Do Communicate with Your Staff
Outsourcing can be a scary word to staff members. They may have developed negative impressions about outsourcing and what it will mean to their jobs. It’s important that everyone understand as early as possible the reasons for outsourcing and the benefits to the business. Your ability to communicate your vision to win staff buy-in will be critical to the success of what functions you’ve decided to outsource. Staff buy-in at the beginning means less resistance to change later.

Do Negotiate Fair Pricing
Fair pricing means fair for you and the provider — a win-win relationship. Overly-hard bargaining tactics have no place in an outsourcing relationship. Remember, this is an important relationship, one you’ll hopefully have for years. Make sure both you and your provider are comfortable with the terms.

When addressing the area of pricing, start with your current expenditures.

If you think you’re overspending for services, let your outsourcing partner know why and what you expect from the relationship.

Do Follow-Up with Agreements
Once you’re engaged in outsourcing, you and your provider will discover many ways to improve your business. Any changes you agree to make to a process or to a policy need to be implemented. Often, these changes require you to use your executive authority to ensure they take place. Failure to follow up will mean mixed signals to your staff, wasted effort for your provider and headaches for you as goals are missed.

Do Negotiate an Escape Clause
If your provider does not deliver as agreed, there should be a reasonable means to terminate the outsourcing relationship. Establish the process for notification, remedies and time to cure disagreements. If you are unable to resolve the problems and need to dissolve the relationship, make sure the contract has terms to provide your business with transition services. This is an important part of the agreement to arrange in advance, but be sure it’s fair to both parties. Too much looking out for “number one” and negotiations will crumble fast. 

Jim Carroll is the President of Carroll-Net, Inc., a New Jersey-based information technology outsource provider delivering a select family of services that small and mid-size businesses seek to outsource most frequently. Carroll can be reached at jim@carroll.com or 1-888/432-1638.

Reprinted with permission from the New Jersey Society of CPAs.