While IT outsourcing is the smartest choice for many enterprise companies (due to benefits like cost savings, access to specialized expertise, scalability, and 24/7 support), challenges must be addressed continually to ensure a smooth and productive collaboration. 

Challenges like loss of control over some elements of your IT functions, collaboration challenges, increased dependence on third parties, data security and privacy, and of course, service integration challenges. 

Throughout the highs and lows of building your IT vendor ecosystem, performance measurement and constructive feedback are vital things to remember regularly. In this final installment of our IT Outsourcing 101 series, we’re talking about measuring vendor performance and giving constructive feedback to your IT service providers.

Other articles in the IT Sourcing 101 series: 

• What IT services can be outsourced?
• How to select the right IT vendors
• Managing vendor relationships
• How to achieve best practices in your IT services

Quick recap on IT outsourcing 

IT multisourcing is when a company engages multiple external service providers to handle different IT functions or services. It's like putting together a team of experts from different areas to work together toward a common goal. 

This approach allows companies to tap into specialized expertise, be more flexible, and encourage innovation. Businesses reduce their dependence on just one vendor by using different service providers and spreading out the risks. IT multisourcing also promotes healthy competition among providers, which leads to better service quality and cost efficiency.

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Types of IT outsourcing

IT outsourcing includes various types depending on the services that are being outsourced. Some popular types include:

• Application development and maintenance
• Infrastructure management outsourcing
• Help desk outsourcing
• Cloud services outsourcing
• Business process outsourcing (BPO)
• Cyber security services 

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Each type offers unique benefits and suits specific business needs. For example, application development outsourcing lets companies benefit from external expertise for software development projects, while BPO allows businesses to outsource non-core processes like customer support or human resources.

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How does IT outsourcing affect business performance? 

When it comes to performance, IT outsourcing has its pros and cons. 

On the positive side, outsourcing can improve performance by leveraging specialized skills and resources that may not be available in-house. Service providers often have extensive experience and expertise in their respective domains, allowing them to deliver high-quality results. Outsourcing can also enhance performance by providing scalability and flexibility, enabling businesses to adapt quickly to changing demands.

However, there are potential downsides to consider. Outsourcing may bring challenges in communication and coordination, especially when working with remote teams or across different time zones. If not managed effectively, this can affect performance. 

Also, outsourcing may result in a loss of direct control, which could impact performance if service levels, timelines, or quality standards are not met. Establishing strong communication channels, precise performance metrics, and effective governance mechanisms is crucial to address these challenges.

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Measuring outsourced IT ROI 

No matter how good the relationship is with your service provider, it’s essential to measure and evaluate the ROI of IT outsourcing relationships to gauge the effectiveness of your investment and strategic decisions. 

One essential metric to consider is cost savings. According to Deloitte’s Global Outsourcing Survey, businesses that outsource their IT services experience an average cost reduction of 20-30%. By comparing the expenses associated with in-house IT operations to the costs of outsourcing (in the short and long term), companies can calculate the direct financial benefits achieved through outsourcing. These cost savings can be allocated towards other core business areas, promoting growth and innovation.

In addition to financial metrics, customer and end-user satisfaction plays a pivotal role in evaluating the success of IT outsourcing. Conducting customer satisfaction surveys and analyzing feedback from end users can provide tangible evidence of how outsourcing has enhanced service quality and customer experience. Organizations can measure the intangible but invaluable returns of outsourcing by quantifying improvements in customer satisfaction ratings and comparing them to pre-outsourcing levels.

By integrating financial metrics and customer satisfaction data, enterprise companies can gain a comprehensive understanding of the ROI generated by their IT outsourcing relationships. This data-driven approach empowers organizations to make informed decisions, optimize their outsourcing strategies, and foster a culture of continuous improvement.

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Setting Service Level Agreements (SLAs) and identifying Key Performance Indicators (KPIs)

Service Level Agreements (SLAs) are the backbone of IT outsourcing collaborations. SLAs are contracts between you and your service provider that document what services the provider will render and defines the service standards the provider is obligated to meet — and what happens if they don’t. 

There is sometimes some crossover between SLAs and KPIs, however, they’re not the same thing. KPIs, unlike SLAs, are generally tied to business objectives or strategic goals.

When managing outsourced IT service providers, organizations typically establish a set of KPIs that align with their business objectives and desired outcomes. These KPIs can vary depending on the specific IT services being outsourced, but some common examples include:

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• Incident response time:
  This KPI tracks the time taken by the service provider to respond to and resolve incidents or service disruptions. It helps evaluate the provider's efficiency in handling issues promptly.
  
  
• Customer satisfaction:
  This KPI assesses the satisfaction levels of the organization's internal users or external customers with the IT services provided. It is usually measured through surveys or feedback mechanisms and helps gauge the overall quality of the services delivered.
  
  
• Cost efficiency:
  This KPI evaluates the service provider's ability to deliver IT services within the agreed-upon budget. It tracks cost overruns, cost savings, and the provider's adherence to financial agreements.
  
  
• Service quality:
  This KPI measures the quality of IT services delivered by the provider, such as system performance, uptime, and adherence to security standards. It ensures that the services meet the organization's expected standards of quality.
  
  
• Problem or ticket resolution time:
  This KPI focuses on how quickly the service provider identifies and resolves underlying issues and problems. It helps determine their ability to address recurring or complex technical challenges efficiently.
  
  
• Ability to handle change:
  This KPI assesses the service provider's performance in managing IT changes, including the implementation of new systems, upgrades, or modifications. It ensures that changes are implemented smoothly and with minimal disruption to business operations.

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By implementing KPIs, organizations can establish transparent communication, set performance expectations, and ensure that the outsourced IT service provider aligns with their business needs, ultimately contributing to the overall success of the outsourcing arrangement.

Monitoring the performance of vendors

To effectively use KPIs in managing outsourced IT service providers, organizations typically establish regular reporting and monitoring processes. 

A few common ways to review KPIs and measure vendor performance include: 

• Weekly check-ins or scrums (depending on the ways of working)
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• Service level reviews
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• Performance meetings
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• Periodic assessments are conducted to review the KPIs

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Through these continuous and regular check-ins, organizations can identify areas of improvement or concern, and collaboratively develop action plans with the service provider.

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Providing constructive feedback to your IT service providers

In business relationships (and all relationships, for that matter), feedback is a gift. 

Whether it’s positive or negative feedback, feedback should be purposefully and consistently practiced regularly throughout your outsourcing relationship. The thing is, the way we’ve been programmed to perceive feedback (as an overwhelmingly negative experience) often makes it hard to give and receive feedback in a productive way. Think of feedback like a muscle: it must be trained often to work effectively.

Here are six tips for providing feedback to external IT service providers:

1. Be specific and objective
   When providing feedback, it's essential to be specific about the issue or area that needs improvement. Avoid vague statements and focus on objective observations, such as missed deadlines, technical errors, or communication gaps. This specificity of feedback helps the service provider understand the problem clearly and address it effectively.
   
   
2. Use a constructive tone
   While it's crucial to highlight areas for improvement, it's equally important to maintain a constructive and professional tone in your feedback. Avoid using accusatory or confrontational language. Instead, frame your feedback as an opportunity for growth and collaboration. After all, people do want to receive feedback and improve.
   
   
3. Provide examples and evidence
   To make your feedback more actionable, include specific examples or evidence that support your observations. This could include screenshots, error messages, or logs that demonstrate the problem. Providing concrete evidence enables the service provider to better understand the issue and investigate it thoroughly.
   
   
4. Focus on outcomes and impact
   When providing feedback, emphasize the impact of the service provider's actions or performance on your organization or project. Clearly communicate how the issues you've identified affect productivity, customer satisfaction, or business objectives. By highlighting the consequences, you help the service provider grasp the importance of addressing the problem promptly. In the same way, outcomes and impact are great for positive feedback too, so your service provider knows exactly what they did to create that positive outcome or experience for you (and they can do it again!) 
   
   
5. Don’t shy away from emotion
   As much as you should be objective, there’s also value in sharing how the action’s impact made you feel. For example, consider an outsourced IT service desk not fulfilling service expectations: “When I noticed our customers incident wasn’t responded to within the time frame we’d agreed on, it made me feel frustrated and in turn, made me lose trust in our partnership. It also makes our company seem unreliable in the eyes of the customer.”
   
   
6. Maintain open communication
   Feedback should be a part of an ongoing dialogue between you and the service provider. Encourage open communication channels to discuss concerns, progress, and potential solutions. Be open to their perspective and engage in a collaborative problem-solving approach. Regularly follow up to track progress and ensure the feedback is addressed effectively.

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Remember, the goal of providing feedback is to facilitate improvement and strengthen the relationship between you and the IT service provider – so it’s worth investing time and energy into it. 

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Vendor relationship management

Effective vendor relationship management is critical to the success of IT outsourcing. By following best practices, organizations can establish successful, long-term relationships with IT vendors, which can lead to improved service quality, increased efficiency, and reduced costs. 

Managing multiple vendors in IT outsourcing can be challenging, but best practices such as establishing clear roles and responsibilities and integrating vendors with your own ITSM tools and practices can help organizations manage vendor ecosystems more effectively. 

Finally, negotiating contractual agreements that align with the vendor relationship goals and incorporate effective SLAs and exit strategies is essential to managing vendor relationships. By following these best practices, organizations can build successful and long-lasting relationships with IT vendors and achieve their outsourcing goals.

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Case study: Bayer 

As Deloitte found in their Global Outsourcing Survey last year, there has been a significant shift from enterprises surrounding outsourcing – namely from vendor management to holistic ecosystem management. 

Sounds like a step in the right direction – but what does this actually mean? 

Building a holistic supplier ecosystem, at least for our customers at ONEiO, looks a little like this: 

It’s what happens when you go from managing each supplier relationship in a silo, spending an excess of time and resources each time a new supplier comes on board, to be able to onboard and integrate a new vendor with your entire service management ecosystem in a matter of weeks. 

Take our customer, Bayer, for example. 

Driven by the desire to refocus on their core business by allowing their IT personnel to be freed from serving their infrastructure, Bayer launched an outsourcing program (the largest in Europe to date) to run the IT for their global operations. 

Not only was Bayer outsourcing their IT, but they were also redesigning the entire IT service delivery and, in turn, flipping its current integration landscape upside down. 

In partnership with other global IT service providers, ONEiO successfully led the integration of Bayer’s entire supplier ecosystem.

Read the full customer story here.

Wrapping it up 

In conclusion, our IT outsourcing 101 series has taken us on quite a journey. We've covered everything from understanding the need for outsourcing to determining which services and providers are the right fit, along with helpful tips for maintaining best practices throughout the process. 

While IT outsourcing presents a whole range of benefits for enterprise companies, such as cost savings, specialized expertise, scalability, and round-the-clock support, it's important to address the ongoing challenges to ensure seamless and headache-free collaboration. Challenges like navigating the loss of control over certain aspects of IT functions, overcoming collaboration hurdles, managing increased reliance on third parties, safeguarding data security and privacy, and tackling service integration challenges. 

Acknowledging and actively working around these obstacles can forge strong and productive partnerships with your outsourcing providers. So, embrace the journey, keep these challenges in mind, and set yourself up for success as you embark on building your IT outsourcing ecosystem.

For more on ONEiO’s approach to vendor integration and building an interconnected supplier ecosystem, download our multi-vendor management guide below.