In-Depth

The Key to Optimal Outsourcing

Outsourcing can bring lower costs and increased levels of service, but be sure your Service Level Agreement is part of your contract.

• By Lou Shipley
• 04/27/2004

Today, you can’t open a magazine, a newspaper, or an online publication without reading about outsourcing. It’s even become a political hot potato in the 2004 election. CIOs are under tremendous pressure to investigate its promised savings by outsourcing major components of IT infrastructure, including desktops, with the promise of eliminating costly IT staff.

While there are many good reasons to outsource IT infrastructure, there is also reason to consider software solutions that augment an outsourcing agreement, ensure you achieve the desired service level agreements (SLAs) with your outsourcers and, in some cases, obviate the need for an outsourcing agreement.

The Gartner Group estimates the cost of managing a desktop in a major enterprise ranges from $6,000 to $9,000, exclusive of hardware. This cost includes software, maintenance, and labor associated with managing devices. For enterprises with over 2,000 desktops, this represents sizable budget dollars.

Many enterprises have been lured into outsourcing by the promises of reduced costs and the demands of focusing on core, non-IT competencies. If an outsourcer can significantly lower the cost per managed desktop, it is worth seriously considering entering a contract.

The Outsourcing Game

Large outsourcers, such as IBM Global Services and EDS, have the economies of scale and breadth of expertise to manage critical IT infrastructure. Such outsourcers reduce their own costs by playing a labor arbitrage game: subcontracting elements of contracts to sources of cheap labor in Eastern Europe, India, and China—only serving to further distance control and reliability of desktop application management. Outsourcers need to ensure their labor cost is the lowest possible -- lowering IT costs is the single most important way to ensure contract profitability.

Reflectent Software's prospects and customers tell us that outsourcers are moving beyond price as the major differentiator, and are instead relying on improved service levels and reporting to win business. Reflectent customer Brown Brothers Harriman recently told me the company did not expect to dramatically lower costs by outsourcing. Instead, it hoped to reduce the administrative workload of managing non-strategic IT functions.

Accordingly, outsourcers need to integrate new technology into their offerings to improve service and reporting. These new tools help outsourcers guarantee compliance with agreed SLAs. Frequently, relationships between outsourcers and clients become strained as customers tire of finger pointing and disagreements about SLA compliance. This is the most common reason companies do not renew outsourcing agreements and should give outsourcing prospects reason to investigate tools themselves.

The Million Dollar Question: Should We Outsource?

Based on our experience with customers, we suggest that companies considering outsourcing ask themselves the following two questions before entering into a contract:

• Can we risk outsourcing mission-critical, customer-facing, high-revenue desktops without having an internal tool to check SLA compliance?

• Can we really lower costs and increase service levels through an outsourcing relationship?

If the answers to these questions are unclear, consider implementing a product or service that can help monitor the service levels an outsourcer provides. If both parties can agree on SLAs, and the tools to measure them, the likelihood of a long term outsourcing relationship improves.

SLA Monitoring

If you do outsource, it’s critical to agree on the tools to be used to measure SLAs. If you don’t, conflict will arise as outsourcers generate reports (from their own systems) showing SLA compliance, while the client continues to struggle with poor service. One customer recently mentioned that he would move forward with an outsourcing arrangement on the condition that he or she determine what tools and reports the outsourcer would use to measure SLA compliance. This is a great way to maintain control as well as ensure you don’t overpay for an outsourcer’s homegrown product.

Rather than layout each SLA detail to be measured, companies should identify the top three to five performance metrics to monitor, and the tools and terms they will use to ensure compliance, and then agree to review the metrics quarterly. As is often the case, the priorities will change with time and new performance metrics will be introduced as older issues get solved and new issues arise.

The Bottom Line

Outsourcing is more than a buzzword. There are great savings to be gained by entering an outsourcing contract. To ensure a satisfactory long term outsourcing relationship, consider implementing tools alongside the outsourcing agreement to ensure agreed upon compliance with SLAs.