Each year, corporations globally outsource an increasing number of complex types of IT engagements. While global IT outsourcing is a reality, achieving significant gains comes with one major limitation: Not every application is a fit. But making the decision about which application to outsource can be challenging. The human ownership component (i.e.: “My application is too critical to outsource. Use another department’s”)-can complicate critical and objective analysis of the decision.
Both experienced CIOs and outsourcing firms rely on scorecards and other tools to rate every IT application’s suitability. A scorecard approach helps organizations gain a better glimpse into which applications make sense to outsource and which do not.
Below is a nine-point “outsourcing candidate” analysis based on Syntel’s “Health Check Indicator Scorecard.” To use this analysis, each factor should be assigned a level of importance based upon an objective measure of the IT department’s goals, budgets, staffing and other resources. Analysis of each factor should also include a short explanation providing appropriate context.
Factor No. 1: Size of the Application
Larger applications are better suited than those which require less than two FTEs (full-time equivalents). This is especially true for applications intended for use in an on-site/offshore mix of resources.
Factor No. 2: Technology Platform
Applications that require a special technology skill, or those that stand alone within a portfolio, are harder to outsource. This is because of the higher costs required to provide back up resources and the effect on an on-site/offshore mix. This factor gains importance when you’re grouping applications to reach a critical mass for outsourcing.
Factor No. 3: Stability of the Application
Stable applications (that is, those with fewer software problems) are easier to maintain and support than those that have a significant amount of problem tickets over a set period of time. The time to repair, conduct root-cause analysis and improve overall performance is directly proportional to the amount of support time required.
Factor No. 4: Volatility of the Application
This refers to the amount of change to the application over some set period of time. Applications that are highly volatile have a much greater chance for swings in the number of error conditions that must be addressed.
Factor No. 5: Candidate for Retirement
Applications scheduled for retirement in less than a year combine a high investment in knowledge acquisition and transition with a low return value. These are not good outsourcing candidates.
Factor No. 6: Required Business Knowledge
All applications require some business knowledge to ensure high productivity of support. However, some require a detailed understanding of the business rules and the complexity of the business process. Beware: Existing owners place a high value on this requirement-making this item one of the most difficult to quantify.
Factor No. 7: Complexity of the Application
This measures the relative complexity of the application including (but not limited to) complexity in processing logic, a high number of interfaces and multiple support platforms.
Factor No. 8: Development Phase
This metric defines whether the application is under development or enhancement, or whether or not it is nearing a milestone or cutover phase. An application in the final stages of testing would not be a good candidate.
Factor No. 9: Service-Level Requirements
The service-level requirement indicates how critical the application is for the operations of the business and what impact a problem would have on it. Very tight service-level agreements point to mission-critical requirements.
Categorizing the Applications
Based on the analysis, applications are placed in the following four categories:
Category No. 1: An immediate candidate with a 30-day transition to outsourcing.
Category No. 2: A good candidate with a 60-day transition to outsourcing.
Category No. 3: A long-term candidate with a 90-day transition to outsourcing.
Category No. 4: Not a candidate currently, but can be monitored to identify changes that may alter its viability for outsourcing.
The results can be the basis for further analysis by skilled IT professionals and consultants to determine how to group applications being outsourced-or those remaining in-house-for additional gains in productivity. By assessing each application in a company’s portfolio with an easy-to-use tool, IT organizations can gain a head start on making the choices and building the case for the work that goes global-and the work that stays at home.