Five Things I've Learned from Sourcing Experts

At a conference this week, Gartner executive Claudio Da Rold issued some steps that CIOs should take in order to improve their outsourcing strategies. Along with some solid recommendations, like be sure to consider all potential scenarios, were some that seemed a little, well, either obvious or extraneous. For example: "Define your business." Maybe I'm missing something here, but hasn't a business done that already by the time it's looking for an outsourcing provider?

Now, keep in mind that I'm no professional analyst. (If I were smart enough to be a professional analyst, I'd be a professional analyst.) I'm just a guy who listens to a lot of people who are heavily involved in outsourcing. So, today I'm going to offer some quick suggestions for improving outsourcing outcomes that I've borrowed from these smart folks.

1. Don't base your strategy only on the lowest-cost labor. “Chasing wage is yesterday,” says IBM's Cameron Art. “Chasing productivity is today." He points out that during the days when customers were "drunk on wage," when the only thing that mattered was the labor price tag, defects and errors were at a peak. This idea seems to be gaining some steam behind it.

2. "Look for process excellence," says Lee Coulter, who has been in the sourcing business for 20 years, including as head of IT outsourcing at GE and at Kraft. Ascertain if the provider has proven that they have process expertise, preferably across a number of industries. Check those references to make sure they have strong project management skills, "because this is all about implementing change, and implementing change is tough."

3. Insist that service delivery personnel be involved from the get-go. “Too often, the pursuit team is paid to close the deal, then the delivery team has to come in and make it work," Coulter says. "They have no idea of all the things the pursuit team has promised. But they’re the ones on the hook, not the pursuit team.” Hence: “No less than half the people on the deal should be people who have to look me in the eye,” he says.

4. Diversify your sources. Depending on the volume or variety of what you're outsourcing, it can be risky to put all your eggs in one geographic basket. "As global sourcing continues to grow, so does the interest in new locations," says Atul Vashistha, founder & chairman of Neo Group and a world-recognized outsourcing expert. "Companies are interested in new locations to diversify risk but also to better serve their own diverse operations or diverse needs."

5. Pay attention — pay attention! — to culture. Cultural affinity between provider and client is one of the much-sung benefits of nearshore outsourcing, and I've yet to meet an IT services buyer who didn't agree with that. At the Nearshore Nexus conference, which brought together people on both sides of the outsourcing equation, cultural compatibility was one of the dominant themes and was seen as the thing that keeps a relationship thriving. John Parkinson, chairman of Parkwood Advisors and a veteran of 35 years in IT and consulting, put it quite bluntly: “If you can’t get the cultural alignment problem out of the way, then it doesn’t matter that you paid your workers only $20 an hour. The number of times you’ll have to do the work again means that you should have paid someone $70 an hour.”

That last one is really key because outsourcing, after all, is about people. It's really in the engagement — the day-to-day work, the daily updates and conversations and problem-solving sessions — that a project either succeeds or flops.