Technology

Ten Steps to Outsourcing

Here's some advice for CFOs looking to slash IT costs.
Michelle GabrielleMarch 12, 2001

Outsourcing of information technology never went out of fashion, but lately, it’s become more popular as the economy weakens and companies look to slash their IT spending.

Those CFOs who are looking to outsource may want to review a few helpful pointers from Frank J. Casale, chairman and CEO of The Outsourcing Institute in Jericho, N.Y., who presented his ideas at CFO’s Financial Outsourcing Conference and Exposition in Chicago.

Casale told the audience at his workshop, “Finance people are still spending the bulk of their days on non-strategic tasks. It’s not good for the company, and it is certainly not any fun.”

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The drive to let CFOs devote more of their working days to the things that matter is more crucial than ever at a time when companies everywhere seek tighter control of their spending.

The following are Casale’s steps for establishing a successful outsourcing contract:

One. Plan from the beginning. Expectations should be set before a contract is written with the supplier. A company needs to think and plan the service it needs. “The report card that determines success or failure need not to have been created from scratch, rather it should be a duplication of the initial thinking,” says Casale.

Two. Emphasize and empower a management team. The key is selecting an individual to manage a project early in the process.

Three. Emphasize people development. Individuals on both sides of the relationship should share their professional expertise and knowledge. For example, says Casale, companies should leverage the expertise of in-house people to enlighten the service provider. Conversely, they should also learn from the service provider’s skills to help in-house staff do their jobs better.

Four. Establish objective performance criteria. Delegate responsibilities to individuals on both sides of the relationship. “Quantify as much as possible when a task or service needs to be done, as well as by whom,” advises Casale. “The more you crystallize the better.”

Five. Schedule formal quarterly meetings. Senior management needs to communicate the current status or level of service both internally and externally. Although a company’s service may be operated by an outside firm, that doesn’t mean the user can ignore the service that’s been farmed out. Both parties need to be involved.

Six. Structure decision making. “One of the key things involved in outsourcing is a reconfiguration of your organizational chart,” says Casale. In addition, there is a line between “critical authority versus responsibility. It should be seamless between the client right out to the service provider.” Accountability is also an issue. Both parties should be expected to keep up their end, taking full responsibility for their actions or services.

Seven. Agree upon and implement management reporting. Casale says, “The clients that do the most reporting have the most harmonious relationship with their service provider.” The outsourcing contract should dictate specific goals and expectations along with the costs and project milestones that need to be reported.

Eight. Think beyond the supplier. “One of the biggest mistakes a company could make is to treat an outsourced service supplier as they would a traditional supplier,” says Casale. “The key is to differentiate between procurement and strategic sourcing.” Choosing an outsourcer is like “picking a roommate.”

Nine. Think about strategic improvement. A company can experience the greatest benefits from outsourcing by allowing the service provider to expand upon the initial service. “Allow the service provider — over time — to reengineer your process,” says Casale. “That is where you’ll get five or even ten times the benefits, such as cost- savings or improved customer satisfaction.” Casale also suggests that in addition to setting goals and expectations, creating incentives for the supplier, such as cash bonuses or stock options, can also help the relationship.

Ten. Consider creating a role for a chief resource officer (CRO). Simply defined, a CRO acts as a liaison between the client and the outsourcing provider. Casale says, “Nothing epitomizes the acceptance of outsourcing and the importance of it, as the emerging role of a CRO.”

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