Lesson 9 - Vendor Partnering

According to Terry Cunningham, when partnering for vendoring. "When choosing for a significant other, you look for a range of compatibilities and great qualities that ensure the relationship will last. The same is true when you’re a solutions partner: you want to screen each candidate to make sure they’re the “other half” that will help you be your best and succeed for years to come. While most of us know what we’re looking for in a romantic partner, determining what makes a good business partner can be a bit trickier - but it’s actually far less subjective."

Risks associated with IT outsourcing do organizations face

Management complacency is the main danger in IT outsourcing. Thinking that they have a h&le on outsourcing, IT managers could fail to consider newer forms of outsourcing, different options, different strategies, &/or changing economies. Another danger is that expectations fall far short of what the industry promises. Companies that wish to take advantage of what the external IT services marketplace can offer must evaluate carefully & proceed in full awareness of the risks involved. Organizations need to articulate a sourcing strategy that balances internal versus external capabilities.

There are two reasons that outsourcing possibilities continues to expand:

Better connectivity, the availability of high-quality staff, & much lower costs are changing sourcing markets & exp&ing sourcing possibilities for org's. In addition, there continue to be more outsourcing choices & new approaches to sourcing looming that will change yet again how IT sourcing decisions are made. Some of these include strategic sourcing practices, offshore contracting, & nearshore sourcing using companies based in India, Irel&, Asia, & Eastern Europe. .

There are three common & complementary approaches to IT outsourcing:

1. outsourcing for operational efficiency
2. outsourcing for tactical support 
3. outsourcing for strategic impact

 • Outsourcing for operational efficiency:

This is the most well-established approach to sourcing & is still by far the most common model. The "utility" functions of IT are transferred to an outsourcer, often along with company staff. The objective is to save money by sharing staff & resources with other companies in areas that have become routine & do not make the company distinct. 

Outsourcing companies are typically autonomous entities that use their extensive experience in these areas, economies of scale, & the discipline of a contractual relationship to reduce the overall cost to a company. Many org's have found that outsourcing to bizes that specialize in these services allows them to offer the same or better service at reduced cost. Over time, this form of sourcing has become increasingly successful, as companies have learned how to negotiate & manage contracts to make outsourcing work.

• Outsourcing for tactical support:
 Org's have come to realize that outsourcing could be used to help free up their own IT staff to perform selected support & development work, & eliminate some of the peaks & valleys of the IT staffing cycle. Outsourcing can also be used to quickly introduce new technologies by using outsourced staff to transfer their experience & skills to in-house staff. With this approach to sourcing, IT managers seek to rapidly add to their capacity to deliver applications & new technology to their org's. While cost is still important, the primary driver for using tactical outsourcing is to achieve flexibility & responsiveness.

• Outsourcing for strategic impact:
The beginning of the new century saw a growing recognition that sourcing can be a tool for achieving an org.'s strategic objectives as well as driving costs down & adding capacity. As companies have become more focused on their core competencies, new possibilities for sourcing are discovered. 

With greater connectivity, it is now possible to outsource whole biz processes that are not considered biz-critical. Non-core applications can be outsourced, allowing org's to get full functionality without having to develop the applications internally. Some org's are using outsourcing to drive org.al change. Companies see that outsourcing can give them access to world-class capabilities, disciplines, quality, & innovation. To this end, some have established strategic alliances with a few vendors to take advantage of what they can offer. These preferred relationships are typically broad in scope & complex in nature, & are designed to deliver significant biz value.  


Outsourcing approach preclude any other outsourcing approach:

Each of the 3 outsourcing approaches represents an increase in the size, scope, & impact of what is sourced. Org's tend to begin outsourcing for operational efficiency & move toward tactical & strategic approaches as they gain experience & confidence at each level. As a result, one approach does not preclude any other approach.

Factors that are critical to the success of current outsourcing initiatives.

1. use selective sourcing
2. ensure joint biz-IT sponsorship
3. ensure a thorough comparison with internal operations
4. develp a detailed contract
5. limit length of contract

• Use selective sourcing:
Careful selection of what to outsource & what to retain in-house is a demonstrably more effective approach than total outsourcing or total insourcing. Companies find selective sourcing easier to control, more satisfactory, & considerably less risky.

• Have joint biz-IT sponsorship:
When both the biz & IT executives are involved in making outsourcing decisions, the results are far more likely to meet expectations than when either group acts alone.

• Ensure a thorough comparison with internal operations:
Too often companies don't get expected savings because they forget to include or identify the hidden costs involved in outsourcing (such as extra maintenance or consulting fees when problems arise).

• Develop a detailed contract:
Tighter contracts with carefully thought-out flexibility, evolution, & reversibility clauses lead to more successful sourcing.

• Limit the length of the contract:
Short-term contracts (one to 3 years) are more likely to be successful than mid- or long-term contracts. This is because they involve less uncertainty, motivate supplier performance, help ensure a fair market price for services, & enable recovery from mistakes more quickly. 

References

Austin. R.D., Nolan, R.L. & O'Donnell, S. (2009). The Adventures of an IT Leader. Boston: Harvard Business School Publishing Corporation. 

Cunningham, T. (2012, August 17). Five Things to Look for When Partnering with a Vendor. Retrieved April 23, 2016, from http://mspmentor.net/blog/five-things-look-when-partnering-vendor

McKeen, J.D. & Smith, H.A. (2012). IT Strategy: Issues and Practices (2nd ed.). New Jersey: Pearson Education, Inc.