At Milan Solutions, we believe that Outsourcing is a strategic decision with long term impact on the organisation and is not to be taken lightly.  We have observed that over the years, Outsourcing has become synonymous with offshoring which unfortunately to many means less visibility and less control with the associated risks of poor performance and non-delivery.  Cultural and communication issues are paramount and many organisations have failed to benefit from outsourcing.  Outsourcing can be hugely challenging especially when offshoring is involved .  In our experience, some of the main challenges could be:

• Cultural differences
• Language and even accent problems
• Inadequate communication 
• Lack of offshore project management skills
• Lack of tight processes for specifying work
• Vendors lack business domain knowledge
• Lack of clear performance metrics 
• Lack of quality control processes

Nevertheless, we firmly believe that Outsourcing (and Offshoring) must be considered in a tougher business cycle, as businesses can use it not just to lower their total IT spending, but also to tackle fixed costs. "If you invest money in assets and hire people, you have created a significant fixed-cost base," says a Gartner analyst. "In general, external services tend to be more flexible."  On the whole, businesses have been successful at using outsourcing to drive down the total costs of their IT operations. According to the 2008 outsourcing report carried out by the management consultancy arm of Deloitte, 83 per cent of companies achieved a return on investment of more than 25 per cent.

It is clear that outsourcing gives cost and resource advantage to those organisations that have adopted it effectively.   In the simplest of cases you might outsource  part of your software development work offshore.  This too needs to be well thought out and managed.  To gain a sustained competitive advantage you would outsource a process or a department. 

Milan would help you in the following ways:

• Establish the right reasons for outsourcing
• Determine what should be outsourced
• Examine the various alternatives with respect to outsourcing (outsource, co-source, application rental)
• Consider the key aspects of the outsourcing project (communication, staff, resources)
• Locate the right outsourcing vendor
• Negotiate with the outsourcing vendor
• Ensure that key components of the contract are considered.
• What comprises the contract and what will be handled outside the contract.
• Ensure that exit scenarios and contract cancellation issues are discussed and included
• Address performance issues like increasing improvement expectations.

The outsource contract is critical and if improperly prepared and structured, can hurt an organization or damage it so severely by putting it at a competitive disadvantage. Milan has many years of experience in outsourcing contracts and can help negotiate appropriate contracts as well as manage outsourced units, programmes and projects.

Our research shows that outsourcing falls into three distinct models or generations: 

• 1st Generation Outsourcing:     Pure Local offering 
• 2nd Generation Outsourcing:    Pure Offshore offering 
• 3rd Generation Outsourcing:     Offshore company, with a local presence (power base still offshore!)
• 4th Generation Outsourcing:     Local comoany, with an offshore back-end    
  

For further information on the four generations of outsourcing, read our white paper.  Click here to view/download it.  Also, why not contact us for a general discussion?