Building a long-term IT outsourcing relationship

by Sohini Bagchi    Nov 05, 2012

client vendorThe importance of IT outsourcing is steadily growing in the enterprise for obvious reasons such as scalability and promise of cost savings. However, companies should understand that IT outsourcing is not a mere give and take process, especially today, when technology is expected to drive business value and innovation. Therefore, the need of the hour for CIOs is to completely leverage the IT outsourcing partnership, especially in long term projects.

Unfortunately, many outsourcing partnerships fail to go a long way because of issues such as lack of clarity and communication, poor management support and not knowing what to outsource. So, how do enterprises ensure a healthy working relationship with their outsourcing partner?

“If there is a good understanding between the key personnel in both the teams, it often leads to long term business relationship,” believes Sudhir Reddy, CIO of MindTree. He recommends that it makes sense to maintain a single point of contact. For example, one project manager can be designated per project to avoid confusion. Reddy believes that the objective of all IT outsourcing deal must be quantifiable, so it is important for the CIO to understand the nature and scope of the project.

“The CIO needs to keep in mind the type and volume of the work to be outsourced to the vendor. The best outsourcing deal could be one which is precise and well defined,” says Vishal Anand Gupta, Joint Project Director HiMS and Manager Systems at the Calcutta Medical Research Institute. According to him, selecting the vendor is often the most important criterion in any project and from the start it is important for management to gauge whether the outsourcing partner will deliver promising results.

For a successful outsourcing relationship, several enterprises are already setting up special executive committees. “This will help the company chalk out as the executive team would be responsible for escalating issues, resolving conflicts and maintaining contact through periodic meetings and reviews,” informs Rathin De, GM- IT at United Bank of India.

“There is often a communication gap between the CIO and the outsourcing team, which leads to massive failure. Communication is the key here. Periodic updates give both the parties an opportunity to understand each other’s requirement and objectives for the deliverables,” says De.

These meetings often decide incentives and penalties based in the form of performance based pricing. In most cases, it strengthens the work commitments and help both the parties develop cordial relationship. Similarly, Gupta believes it is important for outsourcing vendors to offer rigorous training to their staff in areas such as technology, soft skills and management so that they meet the client’s business objectives while on the other hand, the IT department of the enterprise to keep themselves updated with the project details completely.

A recent research by the Society for Information Management (SIM) indicates that in 2013, nearly 49 percent CIOs are planning to spend more on outsourcing and less on hardware and consultants. CIOs believe that owing to increased IT consumerisation and the emergence of technologies such as business intelligence, cloud computing, collaboration and mobility, enterprises will increasingly move to outsourcing deals to better leverage their technology investments. And in such a scenario, they should also try to maintain a healthy working relationship with their outsourcing partner.