Chapter 19: Outsourcing

Chapter objectives

In this chapter we shall:

• Consider the various aspects of IT which a not-for-profit organisation might choose to outsource.
• Reflect on the general pros and cons of outsourcing.
• Provide some tips on the process you might use to outsource your IT function.
• Set out principles of service levels relevant whether or not you are outsourcing

Outsourcing aspects?

Outsourcing can be an emotive term. Say the word "outsourcing" to some people and they immediately think of braying yuppie consultants, nightmarish uncertainty and job losses.  In fact, more or less everyone uses outsourcing to some extent, so it is all a matter of degree.  How many not-for-profit organisations do you know that retain their own staff to maintain IT equipment?  Most organisations "outsource" the engineering aspects of their IT to a specialist third party.   We have already talked about using third parties for maintenance, support and managed facilities (see chapter 8). 

Not-for-profit organisations can in fact consider outsourcing many aspects of their IT, including comprehensive outsourcing of IT.  See table 19.1

Table 19.1 Aspects of Outsourcing

Pros and cons

Much recent thinking on the case for outsourcing (not just in the IT arena) has hinged on the question whether the function you are considering outsourcing is core or non-core to your organisation.  Some people use the glib phrase "core or chore", core being matters that you want to do as they are central to your organisation's objectives, chore being matters that you have to get done in order to be able to do the core work.  This separation is a little simplistic.  Outside the IT arena, consider two not-for-profit organisations with similar revenues and operating in more or less the same field: The Cancer Research Campaign (the Campaign) and Imperial Cancer Research Fund (Imperial).  The Campaign provides grants to various scientific institutions to further research into cancer.  Imperial runs several research institutions, which are funded from the fund's charitable revenues.  Cancer research is core to both organisations, but at a strategic level the Campaign has chosen largely to outsource the research work whereas Imperial has chosen to retain the research in house.  There are perfectly valid strategic reasons for each of these approaches, but the decision certainly goes beyond the "core or chore" division.

We therefore suggest a slightly more sophisticated analysis based on four main types of function (for the purposes of outsourcing evaluation) rather than two.  Consider two questions:

• Is our not-for-profit organisation capable or not so capable in the function being considered?
• Is it acceptable (e.g. strategically and/or possibly in terms of public scrutiny) for this function to be outsourced by our not-for-profit organisation?.

This four-way split is still a simplification, of course.  The answers to these two questions can place your organisation, or portions of it, in one of four categories. Figure 19.1, below, illustrates this thinking.

• If your organisation is highly capable in the area in question and it would be mostly unacceptable to outsource that function, the function is a core function to your organisation and you should almost certainly retain the function in-house.
• If your organisation is highly capable in the area in question but it would be mostly acceptable to outsource the function, the decision on outsourcing should be a matter of cost/benefit analysis.
• If your organisation has low capability in the function in question and it would mostly be unacceptable to outsource that function, you need to beef up your capability and/or consider partial outsourcing (of the acceptable elements).
• If your organisation has low capability in the function in question and it would be mostly acceptable to outsource the function, there is a strong case for outsourcing it.

In chapter 8, we noted that it is hard for smaller not-for-profit organisations to find good IT service suppliers to take an interest in them and suggested more comprehensive solutions as a way of attracting better service.  However, for smaller organisations on very modest budgets, it is hard to find good suppliers who will look after a small organisation well.  We advocate a fair degree of self-help to such organisations.  If your organisation requires a reasonable level of complexity to the solution (e.g. a client-server network and remote access services for a multi-site operation and/or for home office workers), you are likely to need a reasonable amount of IT services anyway and should at least consider outsourcing. 

Some tips on the outsourcing process

The basic process for an outsourcing project is more or less the same process we advocate for other IT projects (see chapter 14):

• Agree objectives and scope in a short feasibility exercise.
• Specify your requirements in sufficient detail for an invitation to tender.
• Invite several suppliers to tender.
• Select a preferred supplier, subject to contract negotiations and transition planning.
• Agree contracts and transition plan.
• Implement the outsourcing.
• Evaluate the transition project.
• Monitor the supplier's performance on an ongoing basis (but the skills and measures required to manage complex service supplier performance is different from those required to manage a product supplier - see below).

The functions you might wish to consider include:

• IT administration (e.g. procurement, network administration, inventory management).
• IT help desk.
• Network services (e.g. installation, server management, think client services, disaster recovery).
• Desktop services (e.g. configuration management, office moves, hardware problems)
• Telecoms services (e.g. WAN services, voicemail).
• Contract management (e.g. managing third party contracts, service level agreements and key performance indicator reporting for the outsourcing).

If you have staff assigned or allocated to the function which you wish to outsource, you need to take account of the TUPE (Transfer of Undertakings (Protection of Employment) Regulations).  We shall not attempt to set out all the details on these complex regulations here.  Suffice it to say, that if an undertaking or part of an undertaking is being transferred, you are legally required to transfer the relevant employees to the contractor together with their existing terms and conditions and accrued rights preserved.  Terminating employment without following the TUPE regulations is by definition an unfair dismissal.  The question of whether an employee is assigned or allocated to the IT function, especially in not-for-profit organisations where such roles often form a small part of several people's work activities, is unclear.  You should seek professional advice in this aspect of outsourcing if you are unsure of your position, especially if you think redundancies might arise amongst people in the unclear area.

It is also important that you ensure that your relationship with the contractor contains appropriate escalation procedures and change control processes to enable you properly to manage the outsourcing contract once it is in place. 

Possibly the biggest mistake you can make with outsourcing is to assume that you are able to outsource all aspects of the management of the function.  Naturally, you can outsource the day-to-day management of your IT functions, but you cannot outsource the management of the outsourcing contract.  Managing a complex contract requires different skills from those skills required to manage staff.  Even the better suppliers will walk all over you unless you put some effort in to ensuring that you get the service you want from them.  For example, you can outsource the day to day management of your IT security, but your policies on information security and data protection need to be your organisations.  You are simply choosing to use a contractor to implement these policies for you.  Naturally, a good contractor should be able to help you with boiler plate policies which they are comfortable about enforcing for you, but your organisation needs to sign off the policies.  The ultimate responsibility for your organisation remains with your.

Service levels and key performance indicators

A service department such as IT should have agreed service levels and measures  against which the department is being measured, regardless of whether or not your IT department is  outsourced.  The guidance which follows might equally well be applied to an in-house IT department.

Agreements should specify the service levels required and key performance indicators to measure in order to prove that those required service levels are being achieved.  In particular, when specifying requirements for an outsourcing tender, you need to pay attention to the quality or level of service you require.    For example, if you are considering an outsourced IT help desk function, you need to think about service levels such as:

• The hours of service (e.g. 9.00 a.m. to 6.00 p.m.).
• Your base level call waiting time (e.g. no more than 15 seconds).
• The percentage of calls that you require to be answered within the base level call waiting time (e.g. 95%).
• The manner in which you require such calls to be logged (e.g. assign and issue log numbers to all calls).
• The percentage of calls you expect to successfully concluded at first port of call (e.g. 40%).
• The frequency of reporting you expect for the above service levels (e.g. monthly)

For each function you are considering outsourcing, you will need to think about detailed service levels like those listed above.  The absolute values (e.g. 95% of calls answered within 15 seconds) do not need to be agreed prior to contract time, but you do need to state that you expect these factors to form part of the contract.  Nevertheless you will want to negotiate detailed service levels into the contractual relationship.

A typical service level agreement might have 10 to 20 key performance indicators against which the supplier or department is being measured.   Some of these measures might be absolute (e.g. no more than two unscheduled server downtime incidents per month), some percentages (e.g. a rolling average of 99% network uptime during contracted hours).   Service level agreements often also contain some qualitative measures of user satisfaction, probably measured by sampling survey  (e.g. at least 60% of users should be satisfied or very satisfied with the overall service).  

Outsourcing contracts might contain financial penalties and/or termination options if the supplier fails to meet the service levels sufficiently well.  Some outsourcing contracts also contain bonuses if the supplier exceeds expectations.

Outsourcing contract negotiations can be complex and protracted (oh boy, do we know), so there is always a danger that the real purpose of the negotiation gets lost in the haggling.  Don't let that happen to you.   The key thing to remember is that the contractual arrangements should be a fair allocation of risks and rewards between the two parties to ensure the maximum chance of success for both. 

Summary

• Almost everyone outsources its IT functions.
• Ask yourself questions about your organisation's capabilities and the acceptability of outsourcing to decide your potential scope of IT outsourcing.
• Outsourcing is an IT project much like any other, but so make sure you take the TUPE employment regulations into account.
• Remember that you cannot outsource ultimate management responsibility, so don’t even try it.
• Make sure that you have appropriate and measurable service level agreements to support the contract.