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Golden rules of outsourcing

A.Yong | Feb. 28, 2011
Moving up the outsourcing learning curve.

The first phase is characterised by either fear of outsourcing or a naïve belief in its efficacy before organisations move on to the early adopter phase where the best and worst practices emerge, coupled with a focus on costs.

He noted that it is typically in the third and fourth phase that companies have more success in their outsourcing experiences. In Phase 3, richer practices emerge, and there is a focus on quality. The fourth and final phase is when outsourcing is institutionalised, and the focus is on providing value-add.   

“But the message here is be smart in your ignorance, don’t take on more than your organisation can manage. Build learning over time and build the supplier relationship,” added Willcocks.  

Success Factors

While there are pitfalls to avoid, organisations should also consider some outsourcing success factors. The organisations that succeed with outsourcing do not overstretch themselves initially.

Another successful outsourcing practice is to be selective in what is outsourced. Willcocks suggests differentiating between core and non-core IT activities. Those that are competitive differentiators and are critical to business operations should be kept in-house, but the non-critical activities that a supplier can do cheaper, and have the scale or superior capability, should be outsourced.

Willcocks said companies that outsource IT projects should keep key skilled staff in-house or risk losing control over the projects.

One of the most common reasons why IT outsourcing deals fail is because the team managing the project lacks the right skills and experience.

Hence, clients need to build in-house governance structure and distinctive management capabilities to ensure the success of their outsourcing projects. Senior managers must identify and retain key skills and core competencies in their in-house teams to benefit from the relationship with their outsourcing supplier.

Besides the strong management skills, trust-based relationships between supplier and client are important. Studies have shown that relationships based on mutual trust where the communication is collaborative and open, where the relationship is viewed as a long-term one, are more likely to be successful. In contrast, the power-based relationship is less likely to be successful, and is marked by coercive and secretive communication, a blaming and manipulating conflict orientation, with a short-term gain perspective.

“The power-based relationship is likely to achieve limited objectives – with the client intent on wringing as much out of the contract as possible. In the end, you are likely to get something, but you won’t get anything like what a long-term, trust-based relationship can achieve,” commented Willcocks.


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