Do Your Homework Before You Select an IT Outsourcing Provider

TECHNOLOGY BULLETIN  | 

Business owners and CFOs are outsourcing operational and IT functions so they can focus more time and resources on developing their core businesses. When you consider outsourcing any or all of your IT functions, ranging from help desk to custom application development to CIO strategy and advisory, it’s important to know how to identify the right IT provider. Business owners need to be smart shoppers, given that the current market is saturated with providers having varying levels of capabilities. Each one offers a different approach and therefore appeals to different types of organizations. Yet one thing remains constant – your organization should work with an IT provider that understands and can address your full range of challenges, and, thus, can help maximize return on your IT investment.

Following the four steps outlined below when evaluating a potential provider will help ensure a successful relationship.

1. Do your research

Your provider is going to do research on your company to determine the state of your systems and your motivations for outsourcing. Make sure to do your own due diligence. Too often, significant outsourcing contracts are executed based solely on price, without proper analysis of other factors. As with most transactions, you generally get what you pay for.

Be sure to assess the financial stability of your provider:

  • How long has the company been in business?
  • Is the company profitable?
  • What percentage of revenue comes from its largest client?

You don’t want to risk your provider going out of business if it loses a single client. Financial diversification is a major part of long-term business viability. Look for firms that are comfortable providing you detailed information regarding their client base.

Staff turnover can be a strain for outsourcing providers and, in many cases, is the primary reason for a failed IT outsourcing relationship. Ask for your provider's voluntary turnover rate and for references able to discuss account turnover. The quality and number of training resources the provider offers its staff relates directly to job satisfaction and turnover. Also ask your provider what kind of training programs it offers its employees. This will help you evaluate their commitment to the organization's overall culture and client service delivery.

It is important to have your account serviced by a unified team of professionals – a consultant and a sales person are not enough. Having a technical account manager in addition to a primary and secondary consultant are key to your project’s success. Without the proper account model and documentation, turnover can set your IT project back months.

Furthermore, it's important to meet with your consultant and team prior to signing the contract. Ask about your prospective consultant's current book of business. If he or she has more than 10 clients, you may not get the attention you require.

2. Look for a full-service provider

Most IT outsourcing providers, also known as managed service providers (MSPs), focus on supporting your PCs, mobile workforce, network and servers. While this commodity work is important, it is only a fraction of your organization's IT needs. A full-service provider will offer software development, support your business applications, provide strategic advisory services, install your accounting system, and help you with your privacy and compliance efforts.

A diligent provider will participate in IT steering meetings and assist in identifying revenue-generating opportunities, such as building an e-commerce website or an extranet to collaborate with your clients. Ask your provider for a list of service offerings that go beyond management of your day-to-day needs and IT infrastructure.

3. Know your risks

Always sign an agreement with your provider, even if it’s a month-to-month engagement. This document will protect your interests should any project issues arise. Pay close attention to the liability and indemnification provisions. Make sure they are consistent with your firm's risk management strategy. It's unlikely that your provider will assume liability in the management of your IT systems beyond gross negligence. Nevertheless, make sure you are comfortable with the liability caps under any legal theory or basis. Moreover, there’s a good chance your provider will be outsourcing services, such as data protection services, website hosting or e-mail security, to a third party. Make sure there are provisions in the contract for third-party software and services, as well as subcontractor confidentiality.

Unless your contract is large and requires significant onsite presence and resources, sign an agreement that does not include termination penalties. A standard IT outsourcing contract termination provision should include a 30-day notification requirement. The contract should also include a trial period; this will allow you to gauge work effort and ensure the contract is fair for both parties prior to establishing a long-term relationship.

4. Request service level metrics and deliverables

At the end of the day, it’s best to evaluate your provider quantitatively. Establish service metrics before the start of your contract and then follow through by asking the provider to issue reports on a regular basis. Expect to see metrics around end-user satisfaction, system uptime and support response times.

For example, at McGladrey, we measure end-user satisfaction per client and provide reports on a weekly, monthly and quarterly basis. We can also provide our clients the average answer rate and delays on calls made to our remote support group.

Without these metrics, it’s difficult to assess the efficacy of your IT outsourcing contract. You also should receive monthly deliverables regarding your services. Your provider should perform proactive maintenance tasks to ensure your network is running properly. Ask for documentation that confirms these tasks are being performed regularly.

If managed correctly, an IT outsourcing contract can provide significant benefits to your organization. Following the steps outlined above will help you separate the "pretenders from the contenders" when looking for a strategic technology partner. Significant project delays and costs can add up quickly if you need to change providers – so get IT right the first time by doing your research.

If you’d like to learn more about how to select the right IT outsourcing vendor, contact Diego Rosenfeld at 617.241.1170.