Asking the tough questions in downturn driven sourcing

By Michael Friedland, Executive Vice President, Luxoft

Thursday, 27 November 2008

What's the common kneejerk reaction to a downturn? Keeping costs down is a necessary evil of all business. In times of financial turmoil, when the CFO is on the warpath, the urgency of this unfortunate business reality is felt ever more keenly. In this hostile environment IT decision makers frequently put the blinkers on in terms of their outsourcing priorities relationships and choose to focus solely on price. But leaping headlong into deals that only look good on the cash flow statement can be a big mistake, leading unforeseen problems and extra costs later on.

While price is certainly an important factor in the outsourcing equation, it should not be the deciding one. Smart companies realise that saving money upfront is meaningless if the IT project does not achieve success. Failure at a lower price is still failure and failure after a large investment of time and money can be negate any cost savings made by skimping on a supplier.

Balancing the process needs of a business with its financial capabilities is an ongoing problem. So many organisations have simply looked for labour arbitrage in the pursuit of cost savings and it hasn't worked. Too many fall foul of badly thought our arrangements that have been created almost completely on the basis of price.

But this isn't to say companies needn't stop looking for a good price, if cost savings simply have to be made then there's no point fighting the fact. But to ensure that companies reap the full benefits from outsourcing endeavours they need to look past the price tag and ask some tough questions of suppliers. Finding the happy medium - a combination of quality at a cost effective price - has to be the target.

Finding out not only whether suppliers can relieve cost pressures but that they understand the intricacies of the business vital for a successful outsourcing arrangement. It's important that they also possess the technical and business acumen, the ‘quality', to provide a competitive edge rather than a commodity-like service. There are some key questions that IT decision makers should ask prospective outsourcing that will go a long way in ensuring a productive and stable outsourcing relationship down the line.

Can they respect the baseline?

In order to understand how a software development partner's impacts their work, a business must have a clear picture of its own IT department's strengths and weaknesses. Many companies initiate relationships with outsourcing providers without first establishing a clear baseline against which outside work can be measured. For things to work properly IT heads should first establish an internal baseline for productivity and make sure that any potential partner understands that their work will be evaluated within those parameters.

Will they share the risks?

Is a prospective ITO partner willing to be accountable contractually for some of the project risks? If a project goes off-schedule, fails to meet its launch date, or otherwise does not meet an organisation's standards, will the partner accept responsibility for their role in the project's shortcomings?

Finding a software development partner that is willing to accept their share of risk is key. Communicating early and frequently about how to distribute the risks associated with any new project is vital. A good outsourcing provider should be willing to take accountability for the quality of their work before their services are even engaged.

Many development and engineering companies are open to structuring agreements that will account for the major risks a project may face on the road to launch. End users should have an honest conversation with prospective partners regarding how to distribute risks in order to make sure that both companies understand the stakes involved.

Do they understand the business drivers?

The best software development and engineering companies look beyond the immediate project at hand. End users must make sure the outsourcing provider understands what actually ‘drives' their business forward.

Those in the market for IT must find out whether prospective partners understand how one's company generates revenue and profit. What the concerns of corporate stakeholders are, beyond the IT department. The right partner should be keenly aware of how the project being tendered for will affect these business drivers.

Does the team know their subject matter?

Has the software development company under consideration completed projects in the company's industry sector? How often? How long ago? Often, outsourcing providers are quizzed on their technical acumen, familiarity with certain programming languages and other IT-centric specifications. However, it is equally important to vet a prospective partner's comfort level with the nuances of the particular industry. Whether the project is a Web publishing platform or a highly sophisticated aviation application it pays to know all partners understand the jargon, quirks, and potential pitfalls of the project's subject matter.

Asking potential partners these simple questions before rushing into an outsourcing arrangement doesn't extend the tendering process greatly, even when the pressure is on to do something fast. But taking a little extra time and diligence in choosing a partner can really pay dividends later on. Considering what lies behind suppliers' quotes should leave companies in productive and value-adding outsourcing partnerships rather than the weak, cost-centric arrangements that are too often started at the first whiff of a downturn.

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