As companies attempt to focus on core competencies many are considering outsourcing various aspects of their in-house operations. The driving force behind this decision is typically cost reduction and organizational restructuring. A key component to a successful outsourcing relationship is the ability to communicate and document performance results using meaningful business oriented metrics.
Unlike the other business functions, metrics for software outsourcing contracts have been difficult to document and quantify. Leading edge companies who are pursuing and offering outsourcing arrangements are taking aggressive steps to remove the ambiguity from software outsourcing contracts. Making the decision to outsource software functions is difficult and is often based on frustration rather than facts. The decision should be based on a solid understanding of departmental performance. Software metrics should be utilized to establish a baseline of productivity, quality and the costs associated with providing these services in-house. When analyzed against industry norms the results may be positive. Having quantifiable baseline data allows a company to enter into an outsourcing venture knowing the objectives they want to achieve, the anticipated benefits and the metrics required to measure and manage the contract.
For a total outsourcing contract a broad reaching quality and productivity baseline is preferred. This will ensure that the contract basis is a fair representation of the customer’s historical performance. Baseline results vary significantly across organizations. This is due to technology, culture, history and skill base which dictate performance and drive the baseline. Some companies have attempted to use “standard” quality and productivity rates to establish outsourcing contracts. The use of these standard rates should be approached with great caution since they have proven to be inappropriate on a number of outsourcing arrangements.
In order to maintain a healthy Customer/Vendor relationship an ongoing process needs to be established. The process should provide assurances to the customer that they are receiving the appropriate products and services as contracted from the vendor. From the vendor’s perspective, the process should help manage quality, productivity and costs which are critical to the success of the relationship. In total, processes are required to track performance, communicate status and document results.
It is important to recognize that establishing the processes discussed takes time. Many organizations require a full year to implement these ongoing processes. Time is required to develop the processes, train personnel and integrate the techniques into the daily software development and support activities. In addition, management will need to monitor, modify and mandate as appropriate.
The performance validation should be approached with the same level of control and discipline a company follows to close its books, audit its results and produce its annual report. Using a cohesive approach, actual performance and variances should be documented along with specific recommendations designed to improve adherence to contract requirements.
Outsourcing can result in significant benefits for both customer and vendor. A winning approach needs to be followed to help ensure a successful relationship. The approach begins with a baseline to fully understand the current environment and develop a fair contract with the vendor. Next, management processes need to be reviewed and modified to help manage the Customer/Vendor relationship. Lastly, the use of metrics and auditing the results is necessary to manage vendor performance and the ongoing relationship.
March 19th, 2010 at 7:49 PM
Thanks the author for article. The main thing do not forget about users, and continue in the same spirit.