Outsourcing: Tips For Making It Work

Kris Shah, president and CEO of Litronic, has a few key suggestions based on extensive experience. His Irvine, California company outsources a variety of design and assembly functions in manufacturing its line of electronic security products. In choosing an outsourcing partner he says "marketing people are always optimistic, so you need to check deeper into a firm's ability to deliver on its promises. Make sure you kick the tires. Visit the facility and meet the staff members actually responsible for delivering on those promises. And definitely check out their credentials and customer references."

Several other considerations can greatly improve the chances for a successful outsourcing partnership.

Understand your own needs and requirements. The first step in a successful outsourcing relationship, this affects all facets of the partnership. Aim for clarity and specificity.

Find the best outsourcing partner. The key word here is "partner." Make sure that your partner knows the proper order of your priorities (e.g., speed, cost, quality, flexibility, creativity) and shares a compatible corporate culture. Verify credentials and references.

The contract is crucial. Varying contract arrangements are used in outsourcing agreements. Try to find out what works best for both you and your outsourcing partner. If possible, before investing heavily in the relationship try a short-term "trial basis" contract.

Beware of unreasonably optimistic expectations for cost savings. This is a frequent area of disappointment. Carefully assess your expectations and look for potential costs hidden-intentionally or unintentionally-in the outsourcing contract.

Stay vigilant and maintain oversight. Outsourcing is a means of delegating tasks, not making them disappear. Successful outsourcing requires ongoing management of the relationship.

Use benchmarks to assess performance. Reviews should be scheduled at regular intervals during the life of the contract. Agree beforehand on useful benchmarks to measure performance. These strengthen a relationship by providing concrete, positive goals, and inherently reinforce the needs and priorities described above.

Y2K: Does outsourcing make sense for your company?

Businesses employ one of three general approaches for achieving compliance:

1. Rely solely on in-house IT staff to make upgrades and test products

2. Outsource all millennium compliance activities

3. Employ a hybrid solution: Perform some activities in-house, and outsource the rest.

Numerous factors will determine the optimal approach for your company. In general, the best candidates for do-it-yourself projects are home-based businesses-basically, any business so small that no LAN (local area network) is installed. Usually, this means five or fewer free-standing computers, and a highly simplified IT structure.

For these small businesses information is readily available. The Internet contains dozens of sites (including the U.S. Small Business Administration site at www.sbaonline.sba.gov), and numerous books and pamphlets have been published on the topic. Downloadable upgrades and testing software can be obtained from the web sites of hardware (e.g. Gateway, Dell) and software manufacturers (MicroSoft, Intuit). Many of these resources are available free of charge, and are easily employed by small businesses.

Large companies frequently prefer to keep Y2K compliance in-house, but for different reasons. Although their IT infrastructure may be complex, their in-house staff is often well-equipped-in terms of expertise and resources-to effectively handle any necessary changes.

However, small and mid-sized businesses are frequently caught in a bind: "Typically, when a small business has more than five PCs hooked up in a network," says Conway, "they're very busy and growing-and there's a good chance that they can't devote the resources to adequately ensure Y2K compliance. Remember: Once you start your Y2K analysis, that's just the beginning. You then must act upon the analysis and be vigilant in maintaining compliance. These companies often need help."

Various companies have successfully employed hybrid approaches to Y2K compliance:

Some firms devote their in-house IT staff to mission- critical Y2K issues, because their staffers already have detailed familiarity with the company's individual needs and existing systems. The firm then outsources more generalized tasks such as maintenance, LAN and desktop support.

Other companies outsource analysis and diagnostics, then use in-house staff to perform follow-up testing. The flip side involves making Y2K modifications in-house, then hiring another firm to perform extensive testing and evaluation.

If your firm decides to outsource certain IT functions, make sure internal IT staff plays an active role in shaping the process. They will be less likely to view partial outsourcing as a threat, and instead see it as a benefit. Liberated from mundane functions, in-house staffers will be able to focus on more critical issues.

Outsourcing can sometimes bring an added bonus. A partner specializing in information technology may provide excellent, unexpected solutions and ideas. As Conway describes it, "technology is our specialty, and we are exposed to a broad range of business environments. As a result, we can alert clients to new options and fresh technology that they wouldn't find on their own or might not even realize they need."

Tips For Achieving Millennium Compliance

Carol P. Conway offers a few tips that are equally applicable whether your firm does its Y2K upgrading in-house or via outsourcing.

Some software is more vulnerable. Proprietary software written specifically for a company or industry is particularly prone to Y2K complications. This is especially true if the software was written prior to 1993. In general, DOS-based systems are at higher risk than Windows environments.

Some software is less vulnerable. Quickbooks, Office 97, and new versions of Netware and Windows NT that run on Pentium computers are usually already compliant or else are readily upgradeable. However, results can vary widely and even new computers need to be tested.

Use a parallel system for testing modifications, especially for proprietary software. Avoid the risk of corrupting your current system. Copy all relevant files and programs to a separate, parallel environment specifically for testing. If bugs appear, they can be corrected without disrupting your ongoing operations.

Recognize the relationship between management and technology. "Every office environment is unique in its configuration of hardware, software, business products and telecommunications," notes Conway, "but management is the most important factor here. Rather than being a technical issue, Y2K is a business management issue-and a tedious one at that-which exposes how management functions are affected by the technology they depend on."

Use Y2K compliance to your advantage. "You can turn a seemingly negative situation into a positive step for your company," Conway says. "Y2K offers a good opportunity to take inventory of your business. Eliminate clutter by discarding products, software and components that are not critical. Retain and upgrade products that are germane to your business, and use Y2K as a catalyst to gain efficiency in operations. This is also a terrific opportunity to renew relationships with your suppliers, vendors, and clients."

Act now. "One thing is for sure," emphasizes Conway. "Time is running out, and a lot of businesses are going to be forced to do their Y2K upgrading in-house because they won't have a choice. By waiting too long, it will become increasingly difficult to find affordable outside help."

Seven A's For Dealing With Y2K

Whether addressing Y2K issues with in-house staff or through outsourcing, experts suggest this general procedure:

Awareness and addressing the issue. First, your company needs to recognize and formally address the issue by educating itself on the topic-fast. Seek information that pertains to your specific industry. Information is usually available on the Internet, through trade groups, and via software and hardware manufacturers.

Audit, assess and assign priorities. Investigate your computers, software, LAN systems, telecommunications, security alarms-anything that might contain a date-sensitive line of code or microchip-and identify areas most likely to present problems. Assign each area a priority, with mission-critical items receiving special attention. Industry-specific and customized proprietary software can be particularly vulnerable.

Act in an organized, decisive and timely fashion. Armed with the priority list from the previous step, define a Y2K strategy and devote the resources necessary for implementation. The plan should include specific upgrades to both hardware and software, and allow for plenty of testing of the modified systems. Experts agree that testing is a crucial and frequently underestimated part of the process.

Alert your clients, customers and vendors to this issue, and encourage their Y2K compliance efforts. Remember: your company's well-being depends on their company's health. Coordinate your efforts if you share interdependent data communications systems (e.g., for purchase orders, billing, inventory control and shipping).