Updated: Feb 23
Outsourcing IT labor is a good way to trim employee costs and speed up projects, but it can turn into a nightmare when not properly managed. Research indicates the failure rate of engaging with external vendors for project-based activity can run as high as 70%. To help people avoid such challenges, ClearEdge has created a simple five-step road map to assist clients with staying on point and on track.
1. Start with Spend Analysis
Make a business case for outsourcing. Benchmark and analyze project costs thoroughly to determine if using third party labor is the right option. Keep the project’s goal (not the problem, or technology) at the top-of-mind, and answer the following questions:
How much would it cost to do it yourself vs. use outside labor?
How long will it take to find the best vendor for the job?
How much will it cost to transition the work/knowledge to the vendor?
How can we safeguard against staff turnover at the vendor?
2. Standardize Job Titles and Descriptions
Unfortunately, there are no universally accepted industry standards for titles and job descriptions from company to company. This results in many different and often confusing job titles. One solution is to limit the scope of the project and use the existing HR classifications in your organization. Don’t waste a lot of time splitting hairs regarding job titles and descriptions – remember, the solution must remain your focus. You must determine which skills are needed for your project – don’t let the supplier decide for you.
3. Establish Rate Cards Across Suppliers
It’s hard to choose a third-party labor vendor when they differ on how they define their work product, and how they charge for services. We urge clients to consider an RFP to (a) establish consistency in the bids and (b) drive competition for your project. Confirm that they show a track record of agility to meet changing demand and success on projects like yours.
4. Consolidate Suppliers
Consolidating suppliers can be an effective strategy to drive better pricing while still having the protection of supplier competition to influence their behavior. We encourage clients to take a conservative and methodical approach to phasing out vendors to minimize risk and impact on the business.
Establishing consistent contract terms during the consolidation will help you improve vendor management and pricing though increased spending with the suppliers that remain on board. You might also examine if you’ve got the best strategy for how the services will be structured and consider using an aggregator model where the management of suppliers falls under a single vendor’s responsibility, with a single MSA, achieving reduced financial and administrative management.
5. Establish Governance
It’s essential to get 3rd party relationship management right from the get-go. This requires a collaborative and flexible approach, and includes every aspect of the outsourcing effort, from the contract inception through project completion. Make sure everyone understands their level of responsibility for managing activities such as standardized rate cards, establishing and revising technical roles and descriptions, on-boarding new vendors, and contract and transition management.
Jim Faletra is a ClearEdge Managing Director who specializes in IT Services.
This blog post was inspired by the webinar Optimizing 3rd Party Labor Spend. You can access the full recording to this webinar below. If you are interested in other services-based knowledge articles, read our blog post on agile contracting or contact your ClearEdge representative.