Cost-Saving Secrets of the Outsourcing Insiders

Sure, you could hire a big, expensive outsourcing consulting firm to guide you step-by-step through the IT services procurement process. They've got experience, off-the-rack SLAs and contractual provisions, and enough templates and processes to fill a large conference room. But not everyone can or will pay $300-plus an hour for outsourcing handholding anymore.

The good news is that many IT organizations are capable of handling much of the process in-house. And such do-it-yourself outsourcing can pay off in ways beyond the bottom line, like a more flexible contract or a stronger relationship with the IT service provider.

[ 9 Ways to Save Money On Your Current Outsourcing Contract ]

Here are ten tips from the insiders-experienced outsourcing advisors and customers-for taking over the procurement process yourself.

1. Say No to FUD. Once you've decided to consider outsourcing, you may naturally turn to external experts for advice. But don't believe everything you hear.

"The industry is full of scare tactics," says Adam Strichman, now an independent outsourcing advisor based in Mechanicsville, Va. "'You'll be taken advantage of!' 'You'll pay through the nose!' 'The vendor will walk all over you!'"

Some of those warnings are based in truth. IT service providers put together deals every day so outsourcing customers naturally are at some disadvantage. But don't be scared of outsourcing boogeymen. "A smart internal team can work wonders," Strichman says. "And there is a lot of applicable information out there about how to do these things right."

2. Focus on the business case. If there's one piece of the outsourcing puzzle that's most critical to a successful outcome it's the business rationale behind the decision to outsource.

"Far too often we rush toward a foregone conclusion that outsourcing is the right answer, when the more appropriate decision may be insourcing, development of a shared services center, or implementing new technology," says Paul Pinto, co-founder and managing partner of outsourcing consultancy Sylvan VI.

Arriving at that foregone conclusion is even more likely if you hire an outsourcing consultancy to develop the business case. "There is a pretty good chance that you will be outsourcing something as a result of the analysis," says Pinto, a veteran of larger consultancies.

Take true advantage of the unbiased nature of an in-house outsourcing analysis-and your unique insight into your organization and its appetite for change-to make the best choices.

3. Use consultants selectively. You don't have to go all-in with the consultants. The big firms may not like it. After all, they're built to make money on full-scope engagements with multiple advisors onsite driving the entire process.

But if you feel like you need some targeted external advice on, say, SLA writing or benchmarking provisions, ask external advisors for targeted help or for reviews of your work. Revenues at most big consultancies have taken a hit. They're probably feeling flexible.

"Large advisories make the most money on large deals," says Michel Hofman, CIO Europe for London-based Rabobank International and do-it-yourself outsourcing practitioner. "But I'm pretty certain I could go to them, and say,' I'm not after you driving the process, but I would appreciate your support,' and they wouldn't turn me down."

Evaluate your team's outsourcing expertise to choose the appropriate level of external advice you'll need. You may not need to bring someone onsite at all. "Consider doing all the heavy-lifting yourself and only involving a remote advisor at critical decision points," Pinto says.

4. Take advantage of new tools. Just as Home Depot and Lowes sprung up to meet the needs of the home improvement do-it-yourselfer, there are now more tools than ever available for the DIY outsourcer. Mid-market customers, in particular, may benefit from outsourcing tools, says Pinto, such as business case templates, RFPs and contracts available à la carte online for a nominal fee.

5. Locate and leverage in-house experts. If you've hired employees from IT service providers in the past, put that experience to work. But don't forget to look outside your own walls, as well.

"Often, the folks most experienced with outsourcing initiatives have been promoted up within the organization, or have moved to other areas of the company," says Strichman. Even if they left IT years ago, they may be more than happy to step in as subject matter experts during the outsourcing process, provided they get executive-level approval to do so from IT and their own department.

6. Embrace hard times. What's that? You have no one with outsourcing experience on your staff? Let the outsourcing consultancies' losses be your gain. Many top-tier IT services advisors have laid off upwards of a quarter of their experienced consultants, who are now looking for full-time or contract work managing outsourcing deals on the customer side.

7. Consult counsel judiciously. Leverage in-house legal resources when you can. "And keep the contract shorter, rather than longer," says Strichman, who has reviewed hundreds of deals. "Contract length has little relationship with the operational success of the deal. In fact, it seems to have the opposite effect." (See The Best Time to Negotiation an Outsourcing Contract and How to Renegotiate an Outsourcing Contract.)

8. Exploit your vendor. IT service providers are eager to participate in your outsourcing process and willing to invest in re-engineering your business processes in advance of outsourcing, or helping with data for a business case. Obviously, they have an end goal in mind-getting you to sign an outsourcing contract. But it may be worth your while if you can leverage the vendor's expertise without committing to a contract.

9. Google it. "There is a plethora of research information, studies and white papers online that provide wonderful insight into the outsourcing process," says Pinto. "So much so that an internal resource could become a reasonably capable internal advisor in a relatively short period of time."

One big caveat: You are what you read. Take the time to seek out information and advice from reliable sources.

10. Be selective. If you were planning to build your dream home from scratch, you probably wouldn't draw up the plans, strap on a tool belt and do it yourself. The DIY approach, particularly the first time out, lends itself more to selective outsourcing than transformative mega-deals.

"Pick something smaller to establish a relationship with a vendor and try them on for size," says Strichman. For example, start with the AS400s instead of all the data centers.

"Once established, adding more services becomes relatively easy," says Strichman. "This strategy tends to work especially well for smaller organizations, which don't have the organizational and operational complexity of larger companies."

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This story, "Cost-Saving Secrets of the Outsourcing Insiders" was originally published by CIO.

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