Mitigating the Risks of ITO

While the top benefits of ITO are fairly well-known, the top risks do not always receive as much publicity. Yet there are common risks most BPO buyers will probably encounter, and knowing how to properly mitigate them is an important tool to help realize the potential benefits.

Sourcing advisory firm Alsbridge, Inc. recently released a white paper, “How to Mitigate the Top 5 Risks of Outsourcing.” As mentioned above, outsourcing rewards such as cost reductions, redeployment of resources and improved service delivery have all been well-publicized. But the specific risks do not always receive the same level of attention. To assist your ITO efforts and help ensure their success, I will briefly review each of the top five risks as identified by Alsbridge, along with their recommended mitigation strategy.

Lack of Communication – Lack of communication among all players in an ITO relationship can lead to employee turnover, missed transition plans and resistance from IT service consumers. In addition to issuing executive-level communications, ITO buyers must ensure that all participants and stakeholders are actively involved in communications and fully engaged in the process. This includes retained and non-retained employees, employees transitioned to the provider, and even the provider itself, who should be kept well-informed starting during the contract negotiation period.

Inability to Change Behavior – The buyer’s IT leadership team, which most likely is used to managing specific IT-related processes and employees, must learn how to manage expectations and outcomes and leave the specifics to the outsourcing provider. ITO buyers must engage in thorough governance to make sure the IT leadership team receives the support and oversight necessary to successfully transition to this new and unfamiliar behavior. IT leaders who are unable or unwilling to change their behavior will need to be replaced.

Loss of Business Knowledge  - Outsourcing crucial IT activities to an outside provider can result in the loss of knowledge of how to perform those activities in-house, which becomes a major problem in the event those activities are eventually brought back in-house or outsourced to a new provider. ITO buyers need to retain enough strategic resources to maintain full control of the relationship, including all processes being outsourced, and also detail how knowledge is transferred in transition plans.

Unclear Expectations – To help ensure providers meet all expectations, ITO buyers should consider following defined industry standards. In addition, they should define market-based service level agreements (SLAs) with clear-cut penalties and a strong governance process. Using a multi-vendor ITO approach where no single vendor is responsible for delivering all IT services can help create competitive tension to meet expectations and also provide ready backup in event expectations in a certain area are not met.

Failure to Achieve Business Case – Many ITO buyers become so focused on ensuring providers get the technical aspects of a service delivery contract correct they lose focus on tracking results to the underlying business case. Buyers must develop a thorough business case that comprehends all investments, changes and savings, and then make it a central focus of all oversight activities.