IT Outsourcing: Conditions for success in a complex context - DAC Beachcroft

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IT Outsourcing: Conditions for success in a complex context

Published On: 22 May 2015

Although the concept of IT outsourcing (and indeed business process outsourcing) has been around for many years now, it is easy to forget that it often happens within a very complex context – market developments, technological change, cultural changes to the use of technology and sharing of data as well as economic and political trends, all play their part.

Given the economic climate of the last few years, the ever-growing clamour for better quality and more integrated service provision and the demographic changes that are reshaping thoughts around provision of healthcare in the UK, it is perhaps surprising that the NHS has taken so long to come to the realisation that it really must focus back in on its core business and, for non-core tasks and activities, join the ranks of other organisations that have long since seen the sense in using outsourcing as a means of maintaining flexibility and responsiveness to change whilst maximising the opportunities to benefit from economies of scale.

So, as a relative newcomer to the field, what are the basics that an NHS organisation should be thinking about if the idea of IT outsourcing appeals?

Taking the obvious potential upsides first, IT outsourcing presents an ideal opportunity to turn fixed costs into variable costs and at a more granular level than might have hitherto been the case. It can result in the replacement of legacy systems with far more efficient technology, provide significant service improvements, the chance to use new tools, new skills and new know-how as well as avoiding the need for upfront capital investment.

However, although all of those things may be deliverable, none of those things will be measurable unless there is some way of working out what the current service actually looks like and what it currently costs. (There may even be a happy surprise if it turns out that the existing internal service provision is both cost-effective and efficient!) This is where a lack of internal visibility and failure to plan properly can cause the unwary to very quickly become unstuck, similarly, failing to appreciate that this great new opportunity will almost certainly be perceived as a threat, by some within the organisation, can easily derail a project.

It is for this reason that considerable time and effort must be invested in bringing together a suitably skilled team for the project; preferably with board level sponsorship, and certainly consisting of financial, legal, technical and HR professionals.  Ideally they will be released from their "day jobs" to focus on the issues at hand, which means that some element of back-filling will also need to be considered. The use of specialist consultants with new skills or to plug gaps in resource can be high beneficial; just as long as the organisation remembers that this is its project and the consultant will likely move on at some stage, so it cannot simply delegate responsibility and then forget about it.

That team will need to thoroughly understand the current internal service provision (both "as is" and desired future state) and its cost (the so-called "base-case") before engaging with the market to find a suitable provider. Suppliers will then use that information, whether provided in writing or presented through access to a data room, to work up their pricing. The scope of the services, transfer of existing assets and third party contracts, quality of the base case, required service levels, transferred and other risks, contract duration etc will all then inform that pricing. The importance of the quality and accuracy of the information that is provided to the supplier cannot, therefore, be overstated (in terms of ensuring that any premium that the supplier adds to its pricing to guard is as low as possible).

Of course, in the NHS there are the public procurement rules to also consider (competitive dialogue lends itself well to any outsourcing project, allowing exploration of solutions that might not otherwise have been immediately apparent) as well as potentially complex pensions issues, if staff are also transferring to the new supplier.

So, in a nutshell, what are the most likely conditions for success? In our view, having clear objectives, a sound business case, realistic expectations in terms of time, effort and resources, understanding supplier drivers, having a fair and balanced contract and investing in effective management are the most important determinants of that.