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Such rigid contracts cannot accommodate the dynamic nature of today's business environment. As a result, organizations inevitably end up buying services á la carte or growing internal staff or contractors to accommodate their urgent needs - an approach that often costs organizations more in the long term.
To pay for the cost of transformation, vendors need long-term agreements in order to achieve ROI. Such agreements require the planning of IT for five or more years into the future. In today's economy, this is not realistic. Hence avoid the need for transformation by fixing your processes before you outsource. This makes sense anyway - the old adage is still true: "If you outsource a mess you will end up with a more expensive mess." Retain flexibility and plan for disruptive changes, such as rapid changes in external business conditions and organizational changes resulting from divestiture or M&A activity.
Plan the size of the retained organization and its skills as an integral part of the outsourcing project, not as an afterthought. Our experience is that almost all firms underestimate both the size and depth of skills they need to keep to manage an outsource contract. Why - a combination of over-optimism coupled with a naive view that an outsourcer will deliver what the user needs without being actively managed. Preparation continues with defining the look and feel of the retained organization. While some roles become redundant during an outsourcing engagement, new roles may be required to ensure smooth contract management. Forrester found that I&O professionals are well advised to:
Retain knowledge and expertise. Consider business, technical, and governance criteria when identifying key skills and resources required for rapid response to unplanned business needs as well as control over future strategy and architecture.
Manage the outsourcing relationship. Clear, continuous communication of business needs and expectations between the internal IT staff and the external provider helps establish and manage realistic expectations all around. Regular service and contract reviews are a vital part of this process.
Monitor and manage the supplier. IT organizations need dedicated internal resources to monitor service levels, manage change, escalate late trouble tickets, and hold regular service meetings. Attention to detail is essential to obtain good service from the supplier.
Maintain the balance of control and initiative. An adequately staffed and knowledgeable internal IT organization signals independence and helps drive external providers to deliver service to the contracted quality level and to demonstrate value.
Finally, hardware platform trends and emerging technologies are enabling the commoditization of IT. The key to this is virtualization. Virtualization of servers and storage within the data center improves internal efficiency and flexibility. The next step is to add self-service to the process and turn the data center into an internal cloud. This will enable the pool of available resources to be extended seamlessly outside the organization to resources in outsourcers hosting centers - which Forrester calls 'hosted clouds.'
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