There’s no secret that outsourcing is now a global phenomenon involving many companies all over the world. Significant part of them outsources, and even more significant part provides outsourcing services. And yet, there are companies planning to dive into outsourcing where they see the means of cutting costs, or an access to the necessary expertise they lack, or the possibility to concentrate their staff on core activities shifting some of the work to a third party, or all at once.

Well, here they better stop and ask some simple questions, in order not to get disappointed with their outsourcing decision in the future, – they are only five: who, what, where, when, and why.

• Who?
  Well, everybody outsource (or, at least, almost everybody), it’s a fact. If everything goes right, outsourcing is quite an advantageous thing: lower costs and, presumably, higher profit margins. But this “right” doesn’t always happen. The trick is in managing the outsourced process, which is not as easy as it may seem. So before stepping on the outsourcing path, you better think over whether you really need it.
• What?
  The “what” question comprises many things: what do you want to achieve, what are the benefits, risks, challenges you may face. And the most important thing is to decide which of your business’ activities you need to outsource.
• Where?
  Essential question is where to outsource. There are many outsourcing destinations nowadays, and each has its advantages and potential problems such as quality control, language differences, shortages of experienced management talent, supply chain uncertainties, inadequate infrastructure, political and economic situation, etc. It’s wise to study as much facts as possible about a would be outsourcing location.
• When?
  Many companies are in a rush to get started. But outsourcing should approached from the all-or-nothing position. It’s better to start slowly, consider multiple vendors in multiple locations, see what works, and discard everything that doesn’t. Then, when you are confident you’re doing right, you may expand.
• Why?
  Every business executive knows exactly why. Sometimes it is not a bad idea to know why not.

Outsourcing and SaaS, though based on the same idea – transferring some kind of activities to a third party – differ in fundamental ways. However, there are things that may be applicable for both solutions. Thus, the compliance and risk management strategies used in outsourcing, including supplier due diligence, compliance risk assessments, and standard contractual terms and conditions, are also should be used when considering SaaS solutions.

Those risks are generally categorized into three areas:

1. Governance risks – risks attached to the loss of control over the management and incentive structure of the party performing the outsourced function.Though currently, SaaS offerings do not provide benchmarking rights, or even promises for long term price protection – things that are very common for outsourcing, all the same, as SaaS providers seek to provide comfort to customers that governance risk will be tempered, such contractual provisions may begin to find their way into SaaS contracts. Moreover, SaaS providers start investing more willingly in their reputations, particularly with respect to data privacy, security and scrutiny over unilateral contract changes.
2. Operational risks – risks connected with the performance and delivery of activities that are under the control of a third party provider.When speaking about outsourcing, we normally mean service level agreements, mutually acceptable procedures manuals, and performance warranties as a means to address operational risks. SaaS solutions already borrow some aspects of the operational protections of outsourcing. They provide, for example, for different levels of service based on price which is very similar to the incentive structure employed in the service level agreements in outsourcing deals. However, SaaS considers the service level agreement to be used mostly as a means of allocating resources based on price.
3. Compliance risk – risks that imply legal, government and other third party liability that may not be delegable even when control over the delivery of the outsourced function is transferred to a third party.In the outsourcing context, these risks are addressed through the clear allocation of controls to mitigate the risk of violations, audit rights to verify conformance with controls, well articulated procedures, and indemnities intended to reallocate liability from the party that may incur a penalty for breach to the party best positioned to prevent a violation.  Under a SaaS model customers will remain responsible for breach of non-delegable compliance obligations. Unfortunately, still many of the protections provided in the typical outsourcing agreements are absent in the context of SaaS solutions.

Despite the hard times, the outsourcing industry is being optimistic about the raise in IT deals, driven by enterprises searching to improve efficiency and cut costs. The character of those deals will change in favour of short-term deals rather than long-term contracts, according to Gartner.  However, customers in their cost-cutting haste risk to cut the wrong corners, ending up disappointed with the results.

It’s time to be wise and accurate when it comes to outsourcing strategies. Here are some recommendations to pay attention to in order to benefit from an outsourcing deal.

• Have clear scope.
  Make a thorough assessment of your entire IT portfolio and clarify what you can outsource and what should not be outsourced. Do it before starting the outsourcing selection process.
• Think about a multi-sourcing strategy.
  You may gain more by signing on a small stable of preferred providers instead of a single vendor. In addition, this will help mitigate risk through redundancy and provide access to a broader or deeper talent pool.
• Connect your service lines.
  Provide for reinvesting savings in one line of service into spending on another line of service. Make it mentioned in the contract. Thus, you will be able, if necessary, to move your infrastructure savings into innovation or transform them in another area.
• Make the vendor provide for cutting costs in the future.
  Include a contractual provision that obligates your outsourcing provider to reduce costs and charges in the future.
• Employ new delivery methods.
  There are plenty of multi-tenancy, pay-per-use options available today that may  lower your IT costs – software-as-a-service, virtualization, cloud computing, infrastructure on demand, etc. Think over the possibility to use them.
• Be simple.
  Diligence in outsourcing negotiations is important, but try to avoid over-engineering the contract.
• Don’t consider your current provider to be your eternal partner.
  This may seem convenient to sign a new deal with your old provider; however, it can turn costly in the longer term. Why not looking for the best provider for a new function you want to outsource? Your existing partner may not be the best-or most cost effective-choice.
• Fight for your rights.
  Provide for an audit or a third-party benchmarker in the contract. While this may not make your provider happy, retaining these rights gives you pivotal leverage in the partnership.  In addition, invest in outsourcing governance software to ensure you are able to evaluate provider’s performance.
• Think about a managed services model.
  Spend some time to determine the appropriate engagement model for your next outsourcing deal. Many outsourcing customers prefer moving to managed services deals. In the managed services model, the customer pays for IT services themselves at pre-agreed rates, rather than paying for man-hours of labor.

If continue talking about outsourcing trends, then some words should be said about such phenomenon as rightshoring, which starts gaining its popularity.

Is it a new type of outsourcing, like offshoring, inshoring, nearshoring? Well, not exactly. In fact, rightshoring is an approach to outsourcing which lies in finding a mix of off-shore, in-shore, and nearshore outsourcing models. This approach is believed to be a strategic best practice which helps find an outsourcing solution that would fit each client’s individual needs.

• Rightshoring is based on the analysis of all project-related factors, and considers several steps to identify the right -shore location for a particular part of a project:
• Search and gathering project-related information, including development team size, frameworks in use, technical requirements, application vitality for business, and others;
• Analysis of the information and mapping it against potential locations - in-shore, off-shore, and nearshore – to identify the best combination for customer’s project;
• Choosing the best combination of outsourcing locations taking into account all the analyzed factors;

Thus, rightshoring is about organizing the distributed delivery process embracing most of existing outsourcing models, it is about strategy and flexibility.

Gartner has recently predicted the falling of prices in the IT sector of services market, including outsourcing. This may sound good news for the customers. However, the meaning of the falling prices is not so bright, as this may drive many outsourcing providers out of business. Thus, the customers will suffer as well, because waking up one day to find you vendor went broke is not the thing everyone dreams about.

That’s why, companies, especially those outsourcing their mission-critical applications, need to monitor the health of their outsourcing partners and avoid long-term contracts. Watching for financial distress warning signs may help recognize a provider being in trouble, and gives a company time to make decisions.

Here are the things to pay your attention at:

• Technical support issues turnaround time has increased.
• Provider unusually highly resists to discounts in favor of longer-term strategic wins.
• Unusually high personnel turnover, personal contacts no longer being available, or your vendor’s employees turning up at other companies.
• Vendor more often misses software release dates for upgrades or maintenance releases.
• Vendor fails to comply with terms of service-level agreements.
• Mergers, acquisitions and failures in the vendor’s market segment.

In the beginning of the year there’ve been lots of predictions about the tendencies in outsourcing. The analysts considered consolidation, globalization, and strategy of long-term, formalized outsourcing relations as outsourcing perspectives.

Now, as almost half a year has passed, the analysts speak about new trends in outsourcing that are most likely to catch on in the next few months.

Gartner strongly recommends customers to forget about big long-term deals in favor of short-term contracts to be able to adjust their volume and service level terms. This trend will lead to the changes in the outsourcing market as vendors will have to create service offering at competitive rates and with appropriate differentiation for the marketplace.

Moreover, Gartner advices companies to monitor the financial state of their vendors at least every six month. Today, as the economical state is very uncertain, being in a current with the financial health of your provider seems wise and important.

According to IAOP, outsourcing trends will turn towards enhanced nearshorring and professional expertise.

Nearshorring means dealing with a vendor located in the geographically closest region. However, this trend will be mostly observed in Europe.

Vendor’s professional expertise will be extremely important and valued more than any higher-value propositions. One of the predominant vendor selection criteria will be the organization’s ability to manage its internal processes and operations.

In the recent past, waterfall methods of software development have been used widely in in-house and off-shore projects.   A waterfall method included different project stages, such as design of requirements, creation of specifications, developing, testing, and finally release, performed in a consecutive order. Thus, if one phase is fulfilled, only then the project could move further.  Nowadays, when everyone is seeking the ways to cut costs and shorten time-to-market, and software projects are huge and complex, using such methods doesn’t seem realistic. Software may change during the course of a lifecycle. It is impossible to create at once all the specifications which could completely and concisely cover each requirement, and it is impossible to provide for any change that may be applied to initial plans.  And it seems even more difficult using waterfall methods when outsourcing a software development project to an off-shore provider.

The agile development methodology is a way out for an outsourced project. Instead of creating software all in one go, small pieces of the software are specified, developed, tested and reviewed in increments. The customer is kept in the picture throughout the development phase. So any change may be applied faster and less costly.

Below are some of the major benefits of using the agile methodology in outsourced projects, compared to the waterfall methodology:

1. The customer is involved. This lessens the risk that an off-shore provider misunderstands the requirements due to having not as much knowledge about the company needs as an in-house team.
2. The developers are not overwhelmed. An agile method supposes that software increments have very short durations - not more than 3 weeks usually. The developers don’t have to code up huge components. Instead they are dealing with small pieces, which makes the development process a lot clearer and quicker, and the risk of overdue deadlines is smaller.
3. More emphasis is put on quality. As each small piece of the future software is tested, the bugs are revealed and fixed at the earlier stages. Testing is usually more detailed and of a higher quality, and it is done throughout the project lifecycle. Thus the quality of the software is under control.

Outsourcing software development has become a common practice for many companies that wish to cut development costs, or give the in-house team concentrate on their core activities, or cover the lack of local specialists. Well, when a company has thought over their needs, have made the decision about a provider, it’s time to work out a contract. Contract is a crucial part of an outsourcing deal, for the initial general agreements are very difficult to change afterwards.  According to an article in IT Outsourcing Magazine that I’ve read lately, there are three contractual models that are used in the absolute majority of projects. They are:

• Fixed price contracts

This is the most predictable and wide-spread, but, at the same time, the most expensive way of software development project outsourcing. With this contract it is obligatory to have a clearly defined project scope and to try keeping it unchanged until the project is finished. However, there is a risk of a change request to pop up in the middle of the project.  A definite change management process should be established to deal with such situations, because the cost of a change request depends greatly on the project stage and may vary from €10 if submitted on a specification phase to €1000 if submitted on a test/acceptance/deployment phase. Thus fixed price contracts should be approached with extreme care and time/budget contingencies to mitigate the risk of failure at maximum.

• Time & Material contracts

This contract model is usually used for projects where scope is not or cannot be well defined due to various reasons. In this case, the supplier provides high level estimates and then submits weekly reports with actual hours worked. The customer is invoiced later on based on these actual reports. The model is good fight with sporadic “fires” on the projects and a customer can rely on an outsourcer’s advice on what needs to be done. However, there is a risk (especially when Agile methods, like Scrum, are used) of budget overblowing.

• Offshore Dedicated Centre

It is definitely the most cost-effective and usually the surest way to outsource software development. Basically, this agreement presupposes that a customer “rents” a certain number of software developers (usually at least three) from an outsourcer for a minimum of six months. This model is equally beneficial for both parties for a number of reasons:

1. An outsourcer provides CV’s of the available developers, a customer can choose the qualified developers, interview them and appoint on his fixed offshore team that is ready to start working immediately.
2. All infrastructures, like work places, hardware, internet connection, employee benefits, etc. are taken care of by an outsourcer.
3. Outsourcer is obliged to fix certain software developers to the project, and these resources can be substituted only on permission (or demand) of a customer.
4. The developers already understand the customer’s business and it will be considerably easier for a customer to start a second project with the same team.

Although a contract is crucial, the real guarantee that the project will be delivered on time and budget is supplier’s professionalism and experience.

While end-goals differ from company to company and from deal to deal, there are some general guidelines to follow to ensure you are achieving best advantage in outsourcing negotiations. Here are the elements to look for:

1. The offshore outsourcing vendor should be earning its client’s business based on performance, not on pre-negotiated commitments.

2. Termination for Convenience (without material early termination fees) eliminates potential scuffles over the excuses for terminating the contract, whether they are related to performance, cultural issues, distance or other areas that just may not be “good fits.” In fact, Termination for Convenience allows a company to terminate an offshoring agreement before the end of the agreement for any reason and without having to pay a significant termination fee.

3. Assuming there is a good termination of convenience clause, a good deal will consist of an initial term of two to three years with two to four successive one-year extension options that the customer can exercise at its own discretion. In addition, all terms of the deal, including price (subject to favorable renegotiation provisions) remain the same.

4. Considering the various currency implications, including hedging, banding, and reviewing average exchange rates, companies shouldn’t automatically proceed with a decision to pay for their deal in dollars. While offshore providers will gladly walk their customers into that option as it usually favors the outsourcer’s financial interest, companies should take a close look at which currency payment structure option makes the most financial sense for its particular risk profile, fiscal approach, and treasury policy.

5. Companies should ensure that as many resources (from the vendor) as reasonably practical fall into the category designated as “Key Personnel.” Companies’ rights with respect to Key Personnel include provisions that allow them to interview (and even approve) vendor resources for their projects, cite dissatisfaction with performance and terminate resources if necessary, limit the vendor’s ability to replace those resources at their own discretion. Key Personnel provisions provide companies more control over quality control of their labor assets.

6. A best practice for protecting intellectual property, such as when software is being developed, is to build in clear provisions enforcing the company’s ownership of the software, preventing the outsourcer from using the software again for other purposes, or providing it to competitors. The appropriate disclaimers and provisions, which vary from country to country, should be included.

7. A good deal has service level agreements (SLAs) that tie directly to the outsourcer’s performance levels and moreover are focused on those areas that create positive business impact for the company. Meaningful SLAs are tightly tied to business outcomes.

8. Staying competitive with the market is key and should be done each year to ensure fair and reasonable pricing. This practice keeps the outsourced vendor aligned with the market. One such approach is the so-called “baseball negotiation” clause where during the benchmarking period, both the vendor and customer assert their estimated market rate and then negotiate. If the two parties are at opposite ends of the spectrum, then a third-party may come in and pick one or the other’s proposal—forcing both sides to exercise integrity as they realize that the other party’s estimate may be chosen.

9. Productivity Improvements - a particularly vital item in offshore engagements, because they are more labor-based, with the real value provided by the outsourcer being one of improved technology, process and methodology. The customer should negotiate for annual, minimum cost decreases that will require the outsourcer to drive productivity in order to preserve its margins. This will align the incentives of the parties and create benefits for both.

In other words, to bag the best deal: Pick a target, choose a weapon, set the sights, steady your aim, and for your own sake, don’t rush the shot. In this economy, one shot may be all you’ve got.

There’ve been many talks about CRM systems and benefits attached with a properly managed and maintained CRM system. Many companies have already understood the effectiveness of CRM system implementations, though it requires time, money, and effort. Some hesitate whether it’s wise invest in CRM now, when the economic situation is far from perfect, and everyone is in search of cost-cutting means.

Experts, however, have their own opinion. According to Gartner, companies that fail to invest in CRM strategies because of the tough economic climate will delay perceived benefits by at least 12 months once the economy recovers, giving rivals an advantage in the market.

Just because times are tough and budgets are being cut, companies should not think that means no CRM investment. Companies need to think in terms of spending smarter, not spending less,

said Scott Nelson, managing vice president at Gartner.

Gartner has identified five low- or zero-cost strategies that companies can undertake, and which will generate positive results from a CRM strategy point of view. Here they are:

Customer Communities – Gartner predicts that CRM of the future will be about creating online communities of customers via emerging social media, such as Facebook, Twitter, and similar Web sites. The economic downturn provides a great opportunity to begin experimenting in this area, and Gartner advises companies to set up accounts on the various Web sites and learn what they do and don’t do, and how users interact.

Analytics – Once bought and installed, analytic tools can be put to good use during economic downturns. Many companies have more information than they know what to do with, and now they have the opportunity to put this to good use studying attrition models, looking at the next most likely to buy models, and figuring out channel usage patterns. While doing so, companies should bear in mind that customer behavior may change when the economy improves.

Segmentation – Many segmentation schemes are based on psycho-demographics, profitability or account attributes. However, a down economy provides companies with the opportunity to review their segmentation strategy and see if it really is the very best one that they could have.

Process Redesign – Process is often an overlooked part of CRM and in many cases all that CRM technologies have done is taken out old, broken processes and made them run more efficiently. Now is an excellent time to study customer processes with a view to redesigning them and creating a win/win situation for both the company — which gets greater efficiency — and the customer — who gets a “partner” that interacts with them in a meaningful way.

Organizational Redesign – Organizational change is one of the most difficult areas of CRM strategy, but many companies need to make the move from product-centric to customer-centric. In a down economy, with fewer distractions, many companies will find that this is the perfect time to start to address some of the organizational issues that get in the way of serving the customer.

Moreover, now CRM is all about change. Changing from product to customers, changing age-old processes, changing enterprise mindsets, and changing how companies relate to customers. All of this can be done without new systems, and the challenging economic environment may give companies just the chance they have been waiting for.