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MSJ Computing outsourcing

I.T. is often only discussed at Board level when there is a problem. Outsourcing your IT to MSJ Computing allows you to take a strategic approach to IT, ensuring your technology helps to grow your business, not hinders. Outsourcing IT is not about spending more money, generally we can save you money. Systems can be maintained and governed without the need to employ someone to sit and watch them, repairs can be organized and undertaken often without the need for anyone to suffer downtime .

The trend in outsourcing continues to grow ? both in the number and value of outsourcing transactions and in the variety of services which are outsourced.

The pressures which lead organization to outsource show no signs of slackening and cost savings remains a major incentive. However, other factors are increasingly influencing the decision to outsource ? access to innovation, increased speed to market, and service quality are proving equally as important as cost savings.

As the value of transactions has increased, so too has the range of outsourced services. Most non-core services which organization have traditionally provided internally ? IT, finance and accounting, HR and property management - are now commonly outsourced. The locations from which services are provided have also changed ? the attraction in outsourcing to offshore locations such as India has soared.

Reports show that the fastest growing sectors are business process outsourcing and business process management. For many large IT suppliers outsourcing and process management are one of the few areas to have flourished in the difficult market of recent years.

What is outsourcing?

Outsourcing involves the transfer of the responsibility for carrying out an activity (previously carried on internally) to an external service provider. The service provider in turn provides services back to the customer against agreed service levels for an agreed charge. In many outsourcing the transfer of the activity involves the transfer of staff and assets (see the employment section below).

Outsourcing is often characterized as having 3 distinct phases:

The customer transfers the existing service to the service provider;

The services are provided by the service provider;

Termination/expiry, which may involve either:

  • (a) renegotiation/renewal of the service contract; or
  • (b) exit management either by:
    • (i) the service being brought back in-house (in practice this is rare); or
    • (ii) the appointment of a new service provider (most likely course).

Outsourcing is not a new concept: many organization are into their second or third generation of outsourcing. Traditionally the financial sector and the motor, defense and aerospace industries have dominated the outsourcing market. In the construction sector outsourcing is not unfamiliar but is a more recent phenomenon. Contractors have outsourced as customers to third party service providers. They have also, and increasingly, set themselves up to provide outsourcing/FM services to their clients, having identified outsourcing as a means of securing long term profit growth. In this briefing we look at contractors outsourcing as the customer and we focus primarily on IT outsourcing. We take a look at the pros and cons of outsourcing, issues relating to employees, global deals and off-shoring, and how to plan and prepare for a successful outsourcing.

What are the pros and cons of outsourcing?

The reasons for outsourcing IT are varied but some of the most frequently cited drivers include:

  • Reducing IT costs through efficiencies and economies of scale on the part of the service provider
  • Access to world-class IT skills, experience and resources
  • Removing non-core business
  • Minimizing sizeable capital expenditure on IT infrastructure
  • Certainty of future IT spend

In practice the benefits of outsourcing tend to be spread across the above areas. Those seeking to outsource to achieve cost reductions alone may very well be disappointed.

  • The potential downside to outsourcing include:
  • A loss of control over a crucial business service
  • A lack of flexibility in the services received
  • Damage to staff morale/culture clashes (between the service provider and customer)
  • The distraction of having to manage the relationship with the service provider

The number of companies choosing to outsource continues to grow so, for many, it seems that the potential benefits outweigh the downsides. However the benefits of outsourcing will only be realized if the customer is well prepared, the outsourcing contract contains sufficient detail and the ongoing relationship is managed effectively - it is an old adage that one should never outsource a problem, but unfortunately, this frequently occurs.

Planning for an outsourcing

Outsourcing disasters get reported frequently but successful outsourcing deals rarely get the same press. Like any commercial transaction, outsourcing can go wrong, but the mistakes that contribute to their failures can be avoided. Investing effort in the early stages of the outsourcing and good management of the relationship once it is implemented can help to prevent an outsourcing disaster. For example:

  • Have a robust business case to support the decision to outsource with senior executive backing
  • From a technical point of view, know and understand your existing IT operation and what you seek by way of external IT services from the service provider
  • Commercially, know and understand your existing IT estate and its cost base in sufficient detail to enable you to evaluate whether the pricing model proposed by the service provider provides value for money
  • Consider what form of organization is best placed to meet your objectives. Should you use a single provider or seek multiple providers for specialist services? Do you require multiple providers to form a joint venture or consortium?
  • Conduct your own due diligence on third party contracts and licenses to ensure that your third party software and hardware licenses permit use by the service provider (either by way of consent or through assignment or notation of the contract) ? failure to do so could lead to potential breaches of the contract or license and additional charges from the third party vendor
  • Provide for the future ? as the customer you have an interest in ensuring that at the end of the outsourcing the services can be transferred seamlessly back to you or to another service provider. Prepare and agree at the pre-contract stage and during contract negotiation an orderly transfer procedure ? this will give you assurance that you are not locked in to one supplier and that termination is a practicable option
  • Legally, be prepared to negotiate the finer details of the outsourcing transaction so that the terms can be documented in the services agreement

Managing the outsourcing relationship

Once an outsourcing deal has been concluded committed management of the outsourcing relationship is critical to its success. A successful outsourcing requires processes and procedures for managing the relationship between the customer and the service provider: for example, regular service meetings, agreed processes for reviewing the services (preferably involving benchmarking provision against other service providers), reporting procedures and a robust mechanism for escalating and resolving problems. An outsourcing services contract is not a contract which should be put in a drawer once signed ? it is a live and operational document.

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