Your Outsource Operations – Not Responsibility

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One of the great challenges facing senior executives today is whether or not to outsource the delivery of some of their services. The financial services sector was an early adopter of outsourcing in the US and UK and many institutions have outsourced their IT functions for several years. In other sectors, such as telecoms, outsourcing is in its infancy. In these sectors key questions are being asked about what functions should be outsourced; various criteria are used to inform these decisions – are these
functions core? Are they critical? Whole industry norms are being challenged in the telecommunications industry with big players such as 3 outsourcing their entire mobile networks.

Outsourcing in the telecoms sector has raised one specific interesting regulatory issue. Licenses governing spectrum allocation in the mobile space usually stipulate that mobile operators must retain ‘functional control’ of their network. The telecoms sector is highly regulated; network operators cannot evade this regulatory responsibility – it cannot be shifted to service providers. Indeed this issue raises interesting questions for the dominant outsourcing providers – no doubt some caution may need to be exercised in the future to ensure they are not perceived to have de facto control of any network.

More broadly speaking all companies should retain strategic control over the direction of all outsourced functions. All aspects of your core business will have key dependencies on the functions you have outsourced – this means you need to be in a position to control the outsourced operation at a strategic, governance and operational level (up to and including termination where the outsource is no longer aligned to corporate strategy) This requires three key elements to be present in your outsourcing framework:

* A Strong Internal Service Management Team responsible for the day to day management of the Service Provider. (commonly referred to as the ‘Retained Layer’.

* A specific and enforceable Service Level Agreement between you and your Outsourcing Service Provider.

* Ongoing review of the strategic business drivers for outsourcing.

Frequently companies spend so much time during the analysis, design and implementation phase of an outsourcing project that they neglect to dedicate time to the importance of ongoing management of the deal. It is only through consistent management of the service provider that the client organisation will retain a high level of understanding and expertise in the outsourced function. (This needs to be achieved whilst allowing the Service Provider to get on with managing the delivery of the service whilst the client focuses on the governance).

It is important to ensure that specific service levels are agreed between you and your service provider. Service levels should be as precise and business relevant as possible – avoid ambiguity and use a small number of significant measures. Where possible try to ensure the numbers are baselined against the industry norm.

A carefully designed and implemented Service Model will ensure that you remain in control of your business – a well trained management layer and a clear, Business-relevant Service Level Agreement are key components of the Service Model.

Traoloch Collins is a Director of Palladium. Palladium providers independent outsourcing advice. Palladium is not an Outsourcing Provider. Before joining Palladium Traoloch held a number of Senior Management positions in Ericsson. Most recently he was Director of Ericsson’s System Integration Delivery business in Southern Europe, Middle East and Africa. He has extensive experience managing outsourcing partners. In previous roles in Ericsson Traoloch managed the Business Consulting Team in CEMA and was a Sales Director towards Vodafone UK.

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January 2, 2006