The increased demands of IT service management such as being asked to oversee a host of new IT services, wrangle small and new suppliers, and meet increasing performance expectations, with little or no funding, may be too much for some IT teams who are struggling to handle it all themselves.
Under the circumstances where the outsourcing environment is evolving faster than you can manage, the business does not have adequate time for vendor management, or the organisation recognises the need to relinquish control, is it time to outsource vendor management?
What is vendor management?
Vendor management is a discipline that enables companies to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the device management life cycle.
What is outsourcing?
Outsourcing is the business practice of hiring a third-party service provider (foreign or local), agency, or consultant to manage a portion of your business that is usually done by an in-house team.
To outsource or not to outsource?
To outsource vendor management or not outsource is not a simple one size fits all decision. In many instances, there is a lot to weigh up based on the size of your company, your staff’s expertise, cost savings, and the risks involved.
As many companies invest 50% or more of their capital with outside vendors and third parties, having a properly structured and resourced vendor management program is essential to mitigate risk and ensure regulatory compliance.
Benefits of outsourcing IT vendor management
The top five benefits of outsource vendor management are:
Improved business focus.
Outsourcing lets the company target broader business issues while leaving operational details to an outside expert. For many companies, the single most compelling reason for outsourcing is to relieve management of the issues that siphon off huge amounts of managements resources and attention.
Access to world-class capabilities.
By the very nature of their specialisation, outsourcing providers bring extensive worldwide, world-class resources to meeting the needs of their customers.
Lower operating costs. Access to the outside providers lower cost structure is one of the most compelling short-term benefits of outsourcing.
More capital funds. Outsourcing reduces the need to invest capital in non-core business functions, thereby making capital funds more available for core areas.
There are tremendous risks associated with the investments an organisation makes. When companies outsource, they become more flexible, more dynamic and better able to adapt to changing opportunities.
Free resources for other purposes.
Every company has limits on the resources available to it. Outsourcing permits a business to redirect its resources from non-core activities to activities that have a greater return in serving the customer.
By outsourcing the management of vendors, companies can reduce costs, improve service delivery, and give internal resources the ability to deliver higher strategic value for the business.
Drawbacks of outsourcing your vendor management
The benefits of outsourcing can be substantial – from cost savings and efficiency gains to greater competitive advantage. On the other hand, outsourcing your vendor management function may present potential business risks:
Loss of control.
Critics of IT outsourcing argue that no outside vendor can match the responsiveness and service levels offered by an in-house function, largely because the outsider is not subject to the same management direction and control as employees.
Being held hostage.
Tied to losing control, some argue that outsourcing relinquishes ownership and turns the keys of the store over to the vendor. In essence, companies become hostage where they become locked into proprietary software and hardware they have little or no control over.
The outsourcing vendor provides the level of IT services specified in the contract using the technological platform it deems appropriate. Unless specifically spelled out in the contract, a company may lose the flexibility of moving to new computing platforms.
Questionable cost savings.
Many managers assume that outsourcing vendors are inherently more efficient due to economies of scale. In the outsourcing arena, however, this model may not always apply.
In addition, concerns exist with outside vendors about confidentiality of data, strategic applications and provisions for disaster recovery.
Offshore outsourcing, although potentially more cost-effective, may present additional challenges such as hidden costs of provider selection or handover, severance and costs related to layoffs of local employees who will not be relocated internationally, etc. Even simply managing the offshore relationship can prove challenging due to time zones, different languages or cultural preferences.
IT outsourcing is not a panacea for your IT problems; if you haven’t got the right plan in place and the right partner for your business needs, it may create as many problems as it is intended to resolve.