Talent Drain

How to avoid losing your best and brightest in an outsourcing deal.

When crafting an outsourcing plan, companies frequently make three workforce mistakes: They don't pay enough attention to the types of technical skills being transferred to the service provider, they don't plan for the potential loss of institutional knowledge within their own companies, and they don't pick the right IT staffers to manage the outsourcing relationship.

"One of the key problem areas is talent drain," says John Kennedy, a partner in the technology transactions group at Morrison & Foerster LLP in New York. "In their rush to rid themselves of noncore functions, some companies later realize they are shedding core knowledge." A lack of in-depth knowledge about a company's IT and business requirements can become problematic if senior management later decides to restore those activities in-house, Kennedy adds.

How do you avoid losing all your best technical workers? Robert Zahler, a partner at Shaw Pittman LLP, who heads the law firm's outsourcing practice in Washington, advises clients to focus on retaining technologists who have a rich knowledge of the organization's IT architecture, design and platform standards. "What you outsource are the arms and legs" of the IT department, says Zahler. "Console operators and tape hangers are fungible."

Still, he acknowledges that companies have a tough task choosing which personnel to retain. "We advise our clients not to cherry-pick the best people and send over the bottom two-thirds, because you want the supplier to be successful," Zahler says.

Another talent-retention tactic can be built right into an outsourcing contract. According to Shawn McCray, a partner at Technology Partners International Inc. in The Woodlands, Texas, some of the firms he represents include in contracts the right to hire back former IT workers or even hire specific vendor employees once the outsourcing deal has concluded. "That's one way that companies try to hedge their bets when transferring out this talent," he says.

The Emotional Component

Talent can be lost in other ways as well: Top performers left behind during an outsourcing deal could quit because they no longer feel loyalty to the company. According to a June 2004 Gartner Inc. offshore outsourcing report, organizations should be careful not to neglect the IT staffers who remain. They will be under stress as they watch their co-workers lose their jobs. Some companies use incentive programs to ensure that valued staffers are taken care of .

Institutional knowledge - those nuggets of information about how a certain program was written or how that cranky machine works -- is important to hold on to. The hard part is figuring out which staffers have it.

Commoditized IT operations such as desktop support require little institutional knowledge. But strategic insights about the steps that a company takes to harness business intelligence about its customers should be carefully documented, says Stan Lepeak, an analyst at Meta Group Inc. in Stamford, Conn. For example, business analysts who have insights into how a company obtains competitive information about its customers' purchasing habits are valuable.

"You shouldn't allow that institutional knowledge to reside in just a few heads," he says. And prior to outsourcing, senior IT managers should ensure that they document as much as they can about the processes that support business performance, such as data mining efforts, adds Lepeak.

McCray also advises companies to ensure that their outsourcing vendors provide ongoing training and job shadowing so that critical institutional knowledge isn't lost if an IT worker were to leave the outsourcer.

It's also important to make sure that the outsourcing vendor keeps IT workers who retain cultural knowledge about the work that individual employees perform, says Gartner Inc. analyst Diane Morello. "Outsourcing customers tend to think about the knowledge being about technology, but it's much broader than that," she says. For instance, some Gartner clients that outsource IT activities "come to the sharp realization that they've wrapped up and packaged away people who were central to critical decision-making."

Watching the Outsourcer

When companies outsource a big chunk of their IT operations, they typically retain a handful of senior IT executives to manage those relationships. The problem is, the people who are kept rarely have the skills to manage outsourcing relationships that are laden with contractual, service-level requirements, says Lepeak.

"We suggest that you should be spending 5% to 7% of the outsourcing spend on managing the relationship. But it's hard to get that across" to cost-focused senior executives, he says.

The skills needed to manage an outsourcing relationship are different from those needed to manage relationships with product vendors, says Morello. "It's a different animal," she says. "You need people with service delivery experience." Indeed, project managers of offshore outsourcing efforts should have strong contract management skills, as well as international experience and language and human resources skills, according to a May 2004 IDC report.

It's also a mistake to assign people with experience managing functions such as application development or data center operations to manage outsourcing relationships, says Zahler. "Many times they become micromanagers," he says. Instead, Shaw Pittman advises clients to give the job of managing the outsourcer to someone with corporate expertise or to someone who has experience managing relationships with third-party services firms.

But sometimes, all the worrying about workforce issues is for naught. Some organizations outsource after benchmarking or other metrics help confirm that an in-house IT activity, such as data center operations, is performing below expectations. "In some cases, there isn't that much knowledge to lose," says Lepeak.

Copyright © 2004 IDG Communications, Inc.

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