One of the keys to outsourcing success is pre-planning. After all, no matter how experienced the selected IT vendor is or how brilliant your new developers are, all your efforts will fall flat if your company lacks the proper operational procedures and infrastructure for engaging with these people.
In fact, according to PMI, a software development project can end up being 28 times more expensive when the company does not have established project management practices. What’s more, in 75% of organizations, every one in three dollars spent on software development is wasted due to poor project requirements.
In short, without a strong supporting organizational infrastructure at your end and proper preparation steps your outsourcing initiative can fail. That is why you should always perform an IT outsourcing readiness assessment prior to getting any new people on board.
How Companies Decide Whether to Outsource (or Not)?
The factors that drive companies to choose IT outsourcing as their scaling strategy are driven by market conditions. Global events and consumer expectations impact business objectives in different ways:
- Per Deloitte, ‘cost reduction’ was the top reason for outsourcing IT in 2020. Back then, businesses faced a lot of uncertainty due to the Covid-19 crisis and its potential outcomes.
- A year later, ‘process standardization’ supplanted ‘cost reduction’ in the Deloitte survey on main drivers for IT outsourcing. Companies that embraced digital transformation, were now seeking to maximize the value of adopted technologies.
When businesses made a decision to outsource in 2021, they also wanted to:
- Drive business value (73%)
- Accelerate digital agenda (61%)
- Increase development capabilities (59%)
- Streamline overall business strategy (36%)
That said, some leaders failed to capture these benefits due to lack of vendor alignment, transparent communication, and expectation management. A solution to this — having a realistic approach to IT outsourcing.
IT outsourcing services have gradually moved from client-contractor relationships to value-driven partnerships. When driven by a shared vision, proactive planning, and transparent communication, IT outsourcing is poised to make a bigger impact on your business.
However, such an approach also entails more preparations and responsibilities from your end. To get started on your IT outsourcing journey, complete the following prep steps:
- Ensure you are strategically and operationally ready to onboard your outsourcing partner
- Invest sufficient time in IT outsourcing vendor selection
- Don’t skip through any stages of the vendor engagement process
Let’s tackle the first step.
Your IT Outsourcing Readiness Checklist
This post will highlight the key areas you should address pre-outsourcing so that you could select the optimal IT outsourcing model for your business and gain the most value from outsourcing.
Every strategic assessment pursues several goals:
- Determine how IT outsourcing fits into your overall business strategy
- Develop a clear vision of the outsourcing process, plus set goals and objectives
- Identify areas where outsourcing/staff augmentation can create the most value without underlying your compliance requirements
- Formalize your capacity needs
Failure to tackle either one of these points early in your IT outsourcing readiness assessment can create a cascade of negative side-effects later on such as incorrect service model selection, costly team mismanagement, and other operational roadblocks preventing your selected IT vendor from delivering top results.
In essence, the underlying goal of a strategic assessment is to help you examine the current state of your company and systemize your future strategic position so that you can determine where outsourcing fits in.
That’s why the first question you should ask yourself is this one: what are our compelling reasons to use IT outsourcing?
The obvious answers such as cutting costs or gaining access to niche talent won’t cut it. You need to think on a deeper strategy level. That’s where the outsourcing decision matrix comes handy.
Here’s how to use the outsourcing decision matrix:
- Rank each of your projects in terms of strategic importance. Look into the value each of the tasks presents to your company and how it contributes to your competitive advantage.
- Estimate how the project contributes to operational performance. What will happen if a certain process improves or declines? What impact will this change cast on your operations?
- Place your project into one of the quadrants. Doing so will help you prioritize better candidates for outsourcing.
Let’s say that you want to free up your on-site engineers’. Currently, they spend the bulk of their time on maintaining your cloud infrastructure. Having a stable, optimized infrastructure is important for your operations. However, it’s not a top-of-mind strategic priority as you’d rather have your team working on new cloud applications. And that makes cloud infrastructure maintenance an excellent project for outsourcing.
Now that you have a better idea of what you plan to outsource, let’s get your vendor expectations straight.
Clearly, the outsourcing project type will largely dictate what IT skill sets you’ll need. But beyond that you should also carefully consider:
Which outsourcing service model will work best for your case? There are three main options — staff augmentation, managed team, and managed project. Each one has its own merits. You can learn more about the differences between these three outsourcing service models from our previous post.
What capacity and IT expertise do you need? Can you estimate the ideal team composition? What skills are absolutely necessary and which ones are nice-to-have? Also, think beyond hiring developers-only. A successful outsourcing project will stall without supporting roles — QAs, DevOps specialists, Team Leaders, and other managerial roles.
At this point, you need to sharpen and formalize your overall project vision and goals, so that you could communicate these to IT outsourcing vendors and receive relevant suggestions on team composition, additional roles, or, in case of a managed project— budgets and timelines.
An operational assessment is the next core step in every readiness assessment for outsourcing.
The underpinning goal of this step is to help you evaluate whether your organization has the process capabilities to support the proposed outsourcing service model. In particular, you’ll have to address the following questions:
Do you have appropriate governance in place to oversee the outsourcing project? To succeed with any initiative, you’ll need to establish a solid outsourcing management process and appoint someone to drive the engagement and report on progress to other stakeholders.
Who should it be? As we wrote in our previous blog post, different roles make sense — having a Project Manager or Product Manager at your side and a Scrum Master on the vendor’s is one possible scenario. Alternatively, a remote team could be managed directly by an experienced CTO or someone at a lower managerial role with a technical background.
Is your operating model compatible with outsourcing? Your current operating model may require certain changes to accommodate outsourcing operations.
If you are new to IT outsourcing and distributed teams, your internal governance structure is probably rigid, fragmented, and siloed. Communication and collaboration cross-department happens at a low pace. Workflows can get easily blocked. When outsourcing gets added to such a mix, all of these issues rise to the surface as the new team cannot effectively meet the set goals for the lack of clear direction, communication, and shared workflows.
That’s why before you sign up with a new IT outsourcing vendor you should carefully assess where your current operating model stands in terms of digital maturity. Here’s a great example of a future-proof digital operating model according to McKinsey:
Now the big question is: how do you adapt your current operating model to accommodate remote work and distributed operations?
Here are several actionable tips, based on the two decades of our experience as an IT outsourcing partner:
- Align your target operating model (TOM) for the future — treat it as a roadmap of where your company wants to be and see where outsourcing and process optimization can make the most impact to help you reach that future to-be state.
- Create well-defined layers of expertise at different strategic levels that interact with one another, so that you can achieve a systematic response to every new business need.
- Define the key components (business applications, process and workflows, software components, and infrastructure management) that are most suited for outsourcing. Elaborate on how you will transition in-house people towards other operations and what technological/structural changes will be needed to effectively onboard a remote team.
- Perform a separate technical readiness assessment that will showcase the current state of your architecture, technical standards, applications portfolio contents, and age, and identify the scope of needed change.
- Execute a governess readiness assessment to determine the current state of your business/IT alignment, project management maturity, risk management, communication, and vendor management practices. Identify and address the key gaps and areas for improvement.
Creating a viable target operating model is a challenging, but crucial step. If you are struggling with this strategic exercise, it’s best to seek additional IT advisory services.
The last, but by no means least, step of your IT outsourcing readiness checklist should be a strategy alignment session.
During this step you should further strategize on how you will integrate your outsourcing partner in your current operations with the least disruptions, risks, and tensions. To create a strong alignment between your in-house team and offshore resources, think through the following aspects:
The needed scope of process alignments. In particular, look into your current policies and standard operational, communication, and knowledge sharing procedures. What should you do to keep the outsourced team on the same page with in-house people?
Setting up and mirroring your SDLC (software development life cycle) at the vendor’s side is one of the key priorities if you are going with staff augmentation or managed team service model. Doing so will help everyone move at the same pace and work on joint goals.
Three different scenarios are possible here:
- You can propose a working SDLC to the vendor and ask them to mirror it.
- Or you can use the vendor’s suggested SDLC and adopt it on your end.
- If you are new to managing software development projects, you can seek vendor’s expertise and ask them to help you set up the optimal SDLC.
Practice proactive knowledge sharing. Everyone should clearly understand the business requirements, not just ship code according to the specifications. That’s why you should also strive to create shared documentation and resources hubs that your internal and external team can refer to at the same time. This leads us to the next point.
Strong technology alignment. From day one enable tools and resources sharing. Set up shared code repositories everyone can access and contribute to. Also, take advantage of task management and collaboration platforms. Some of the best tools for this purpose are:
- GitHub — shared code repository hosting service, with additional features for collaboration such as version control, access control, wikis, etc.
- Bitbucket — an alternative version control repository hosting service with similar functionality.
- Atlassian JIRA — popular issue tracking software for development projects.
- Confluence — collaboration wiki tool, an excellent platform for knowledge sharing.
Improve information and communication flows by disseminating the key updates over a series of recurring meetings and channels such as:
- Weekly demos
- Daily stand-ups (via video conferencing or chat-only)
- Pre-iteration planning meetings, hold weekly or bi-weekly over video
- Retrospective meetings
P.S. We wrote more on the matter in our quick update post on remote work during the pandemic. You can download a separate tool checklist there!
Also, formalize all the development procedures, code standards, and styles, along with other best practices, and store them with shared access on a corporate wiki or knowledge management platform. Doing so means that you’ll experience fewer issues during code merges and integrations since both teams will be using the same standards.
Lastly, don’t forget to implement an effective access management process, so that the outsourced software development team could request and receive timely access to infrastructure and tools they need. Otherwise, your people will constantly get blocked.
People alignment is arguably the most important point. Secure strong internal support from your in-house team and resolve any potential misunderstanding regarding outsourced operations (if there’s any). This will prompt further effective collaboration and trust.
Secondly, create a clear escalation mechanism that would allow your outsourced team to bring up certain issues to everyone else’s attention and not stay blocked for too long. Your goal is to eliminate as many information exchange bottlenecks as possible.
Lastly, rely on managerial roles at the outsourcing vendor’s side — project managers, account or delivery managers or other b-suite team members — for additional guidance for improving communication and collaboration further!
The goal of an IT outsourcing readiness assessment is to help you lay a better foundation for your future operations. The better base you build early on — the fewer outsourcing risks and operational disruptions you’ll face later down the road.
At Edvantis we always like to share as much knowledge as possible with our prospects and clients when it comes to selecting the right outsourcing model and always offer proactive help with aligning all the aforementioned processes before and during the engagement. Contact us for a quick preliminary assessment!