Top Three Outsourcing Initiatives for 2009

1. Reviewing Deal Structures
Most current outsourcing deals and models are outdated and ineffective because they are people-based and not demand-based. Companies have a need for resources to do the work that is required; they negotiate a rate with a vendor; and determine contract durations. The contracts primarily follow a simple model: People x Rates x Duration.
2. Portfolio Rationalization
Portfolio rationalization has been one of the biggest trends in the application outsourcing market over the past two to three years. The industry has matured to a point where CIOs can now review their portfolio of outsourcing partners and set themselves up with better mixes of companies, countries and models. This is not an easy task, since every company is different and there is no cookie-cutter approach to finding the right mix of outsourcing partners.
3. Cost-Cutting
The combination of hard economic times and the maturity of the outsourcing industry will force and enable CIOs to find new ways of cost-cutting. It is important to realize that there is no silver bullet on cost-cutting and it is equally important to understand that the biggest levers for cost-cutting are not the rates themselves.

How can CIOs cut costs with their outsourcing initiatives?
Offshore to Onsite Ratios—this is by far the biggest lever in reducing the total cost of ownership of an application or suite of applications. The more roles that can be moved offshore, the more money can be saved. The industry benchmark is 80:20 (80 percent of resources offshore and 20 percent onsite), but most companies flounder with "fat" models and have too many people onsite. With mature processes and governance, there is no reason 90:10 cannot be the new benchmark. Plus, outsourcing companies make more money on offshore resources, so they will be eager to help CIOs reduce costs with better offshore-to-onsite ratios.
Time-to-Market—if products and applications can be delivered faster, companies will reap the benefits sooner. To do this, IT organizations must work with their outsourcing partners on better ways to execute projects, leverage reusable components and foster knowledge-sharing.
Quality Improvements—if products and applications can be delivered with fewer bugs and defects there will be less time and money spent on re-works. IT organizations must leverage the knowledge, experience, tools and processes of outsourcing companies.
Productivity Improvements—productivity is married-at-the-hip to the outsourcing model being deployed between the company and the vendor. If companies embrace the demand-based models depicted earlier, real productivity gains will follow because outsourcing companies will be forced to increase productivity to control costs.