Use metrics to find the right IT outsourcing partner

Qualitative metrics are on the rise in outsourcing arrangements.
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You may think that only classified ads or personnel evaluations will contain terms such as "innovative," "flexible," and "quality relationship." Today, however, companies use these terms--called "metrics"--to judge how well outsourcing vendors perform. When you think about benchmarking your outsourcer, you naturally want to gauge whether it helps your company improve its return. Yet, according to a number of outsourcing experts, companies are increasingly judging the success of these deals on subjective issues, in addition to the tried-and-true quantitative benchmarks.

Subjective measures come into play as outsourcing moves beyond help-desk applications and mainframe maintenance into helping a company meet its electronic commerce initiatives, or more efficiently run its accounting department. The goals don't just improve productivity, but they improve processes and new business as well.

The new economy

The Internet plays a major role in the move to value vendors based on more subjective measures. In the Web world, companies are not judging their outsourcer on code per person but on knowledge of Web-based technologies, quick installation of these technologies, and ultimately the company's customer satisfaction.

Big money goes to outsourcing

Source: International Data Corp., Framingham, Mass.
"A primary driver for outsourcing is access to new technology and access to skilled human resources that a company can't afford to bring in or doesn't have the time to bring in and train," says Cynthia Doyle, senior analyst for information systems outsourcing and business process outsourcing with International Data Corp., in Framingham, Mass.

Chicago-based Andersen Consulting refers to this type of outsourcing as "sourcing." One partner says the firm has three times the number of sourcing deals in its pipeline as it has traditional outsourcing deals. Virtually all of these opportunities are in electronic commerce.

Typical performance metrics don't seem to work in the new environment, says one corporate IT employee, familiar with her organization's outsourcing contracts. Those in the field agree that benchmarks such as local area network uptime, server uptime, the amount of time it takes to close a call to a help desk are all good because they provide quantitative measures. These same experts agree that the challenge is how you qualitatively measure the service your customers perceive they're getting.

The productivity ratio of code per person isn't important when you're asking a vendor to create a Web site or develop your e-commerce strategy. "If you look at code per person, the numerator is the output and the denominator is cost," says Michael Mah, managing partner of Pittsfield, Mass.-based QSM Associates and senior consultant on the Cutter Consortium, Sourcing Advisory Service. (QSMA maintains databases of outsourcing contracts and the metrics used to measure the success of these arrangements. The consortium, part of Arlington, Mass.-based Cutter Information Corp., provides IT advisory and publication services.) Speed, a crucial element in today's competitive environment, is not a factor in the ratio, Mah says. Companies are outsourcing to obtain skills that they don't have in-house or would take too long to build up, he notes. "They're looking to buy off the shelf and get to market faster," Mah says.

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