How to Outsource: Four Simple Steps to Success

Enterprise Networks & Servers,  Jan 2004  by Swami, Vinod

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There's no better time to consider off-shore outsourcing. The sluggish economy has made cost-cutting a top priority for most organizations, and IT is no exception.

But saving money isn't the only reason to outsource. According to Gartner, it's not even the top one these days. The new number one motivation to outsource is the ability it gives companies to concentrate on strategic initiatives. Not far behind is the opportunity it provides to gain operational efficiency through its increased speed-to-market and leveraging of scarce or expensive IT resources. All are great reasons to consider outsourcing. But making the decision to include outsourcing to reach your tactical goals is the easy part. How to outsource successfully is not impossible, but takes dedication to the process.

Part 1: The Application Health Check

Choosing the applications that will benefit most and determining how to get the most bang for your buck is the challenging portion of the equation. Not all applications are viable candidates. A key precursor to entering an outsourcing arrangement is to analyze and determine which applications in your portfolio you should outsource. The criterion include the size and stability of the application, resource availability and skills, and investment-to-value ratio.

We at Syntel recommend using a quantitative approach to determine the relative ease of outsourcing applications. Our own proprietary approach - The Health Check Indicator - uses nine different factors to define the characteristics of each individual application and its suitability at any given time. By assigning a numerical score, a subjective average is derived. This average ranks the application into a relative position for outsourcing. These criteria include the following.

* Size of the application: Larger applications are more suited than those that require less than two full-time equivalents. This is especially true for applications intended for use in an on-site/offshore mix of resources.

* Technology platform: This element is important when grouping applications to reach critical mass. Applications that require a special technology skill or those that stand alone within a portfolio are harder to outsource because of the high costs to provide backup resources and the effect on an onsite/offshore mix.

* Stability of the application: Stable applications (few software problems) are easier to maintain and support than those that have a significant amount of problem tickets over a set period of time. The time to repair, conduct root-cause analysis, and improve overall performance is directly proportional to the amount of support time required.

* Volatility: This defines the amount of change to the application over a determined time. Those that are highly volatile have a much greater chance for swings in the number of error conditions that must be addressed.

* Candidate for retirement: Applications scheduled for retirement in the near term (i.e., less than a year) are not good candidates since the investment in knowledge acquisition and transition would be high compared to the return value.

* Required business knowledge: All applications require a level of business knowledge to ensure high productivity of support. However, some require a detailed understanding of the business rules and the complexity of the business process. This item is one of the most difficult to quantify because existing owners tend to place a high value on the requirement.

* Complexity: This measures the relative complexity of the application including complexity in processing logic, a high number of interfaces, multiple support platforms, etc.

* Development phase: This metric defines whether the application is under development or enhancement and whether it is nearing a milestone or cutover phase. An application in the final stages of testing would not be a good candidate.

* Service level requirements: The service level requirement provides an indication as to the critical nature of the application for the operations of the business and the impact a problem to it would cause. Furthermore, very tight service level agreements would point to mission critical requirements.

The Scorecard

Based on the scores, applications are categorized as:

Immediate candidate with a 30-day transition;

Good candidate with a 60-day transition;

Long-term candidate with a 90-day transition;

Application not a candidate currently, but can be monitored to identify changes that may alter its viability for outsourcing.

Based on this scorecard, further analysis can be conducted by skilled consultants to advise you on how to group applications being outsourced - or even those remaining in-house - to further optimize productivity and resources.

By assessing each application in your portfolio with this simple and easy-to-use tool, you'll increase your chances for a successful offshore outsourcing arrangement.

Part 2: Cultural Alignment

Cultural alignment is a critical aspect to consider when selecting an outsourcing vendor - one most often overlooked.