The outsourcing process doesn’t have to be a marathon if you invest time and effort preparing for a more iterative transaction process.
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Traditionally, IT organizations have spent six months to a year or more on the IT outsourcing transaction process, finding the right providers and negotiating a suitable contract. But as IT services — and, increasingly, as-a-service— deals have gotten shorter, that lengthy process may no longer make sense.
Industry advisors and consultants have debated the potential benefits of speedier sourcing for several years. In today’s rapidly changing business and technology landscape, it may become an imperative. But an effective outsourcing engagement demands more than just an accelerated version of the traditional IT services transaction process.
“Typical attempts to speed up the process include leaving out important activities or rushing to a solution to meet completion dates or budget objectives. In some cases activities that are skipped can be picked up and completed during transition,” says Michele M. Miller, director of KPMG’s Shared Services and Outsourcing Advisory. “However, we find that in most cases these activities are never completed and result in lost value and dissatisfaction in the outcome of the outsourcing project.”
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CIOs must take four steps to make sure they prepare their organizations for a new, agile approach to outsourcing, Miller says. First, they must define their business strategy, including the future state of IT and business services, in order to accurately asses how outsourcing will impact their companies down the road. Second, they need a clear understanding of their base case — the current cost of doing business today and down the road. Third, they need to define their target operating model (aligned with business strategy) in order to calculate the potential benefits of internal optimization vs. outsourcing or resourcing.
Finally, they must assemble a dedicated and experience outsourcing transaction team that was involved in building the strategy and is empowered to work closely with providers on day-to-day planning, design, and documentation of the solution as well as oversight of desired business outcomes. This preparation takes time an effort. However, “these steps are required for a successful outsourcing engagement,” says Miller, “and most companies are willing to put in the effort.” In fact, part of the reason Miller’s group began to document this agile approach to outsourcing was the fact that some companies had already established these key components.
With that foundation in place, IT leaders can attempt a more agile approach to outsourcing. Like its namesake software development approach, an agile outsourcing transaction process involves constant communication and collaboration between the IT organization and its providers throughout the outsourcing lifecycle, adapting as needs change. Unlike the traditional sourcing approach in which IT service customers approach the process in a linear fashion — gathering requirements, creating an RFP, engaging providers, and drawing up a contract — agile outsourcing transactions are more fluid.
Agile outsourcing starts with a series of sprints. “The sprints focus on collaborative ‘solutioning’ vs. the traditional approach, where the client outlines a solution up-front, often excluding other potentially beneficial alternatives from serious consideration,” Miller says. “Via these sprints, the parties consider alternatives together and jointly build a solid, viable solution. This results in a more-accurate RFP response, less time required in the due diligence phase, and more precise pricing during final pricing submissions or best and final offer.”
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Because the process is collaborative, with both parties knowledge of requirements and solutions early in the process, timelines can shrink significantly. In fact, business requirements and solutions are so well understood that a traditional 26-week timeline can be condensed to as little as 12 weeks, Miller says. But increased speed is just one of many benefits. Agile outsourcing can sharpen the focus on business outcomes and instill greater collaboration not just between client and provider, but also among a company’s ecosystem of suppliers, in delivering those outcomes, according to KPMG.
Most companies are drawn to the agile outsourcing concept, but not all can make it work. “These projects are not shorter because we leave out critical processes; the client needs to have completed the four key requirements mentioned and be willing to work in the fast-paced iterative environment and make decisions quickly throughout the project,” Miller says. “Similar to many components of outsourcing there isn’t a single approach which works in all situations.”
IT service providers are game for the new approach, according to Miller. “They understand that a collaborative approach to sourcing tends to result in a more successful outcome for both parties because each shares in the responsibility for the design of the solution.” However, it does require that they, too, have done the upfront work of designing and documenting their solutions for ease of integration into the process.
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