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3 Mistakes to Avoid When Choosing a IT Service Provider

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IT Service Provider

In the growing popularity of outsourcing, the right choice of contractor for your project is a key task
According to a recent study in 2010, companies that use outsourcing services have spent for them 7.1 percent of their total IT costs. In comparison, in 2009 this indicator was 6,1%, in 2008 – only 3.8 percent.
It appears that the trend for more active use of external providers will continue next year, and this means that the choice of an appropriate service provider and the signing of a contract well prepared, will be an important issue for more IT directors. According to a survey over 100 IT projects worth about $ 7 billion, have experienced mistakes in the choice of outsourcing partner. Here’s what they are:

1. Single supplier – the lack of competition eliminates the possibility of a bargain

This error occurs when IT managers base their choice of outsourcing partner on a previous experience with a company. For example, if a CIO has a positive experience in cooperation with HP, IBM or other major IT company, he/she again selects the company, but sometimes forgets that the previous time the good cooperation was achieved based on well-designed formal processes. In most cases, IT managers will receive quality service, as large suppliers maintain prices that allow them to invest in people, processes and technology – something that suppliers who would be selected primarily on price indication cannot afford. The disadvantage of this approach, from the point of view of an experienced consultant, is that if you rely on only one partner it is very likely to bargain for a price 30-40% higher than the prices of the other products on the market. If you are negotiating with at least two suppliers, even if the second has only 10% chance of being selected, the transaction will be fair.

2. Absolute price

These CIO, who are most eager to conclude the most advantageous deal for their companies actually achieve the opposite effect. The representative of the provider will promise you “all the stars in the sky” for “no money at all”. His/her next step will be to explain to his/hers company how such prices are justified. Usually the decision is to reduce the number of professionals involved with the project and other similar measures. Sometimes the provider decides that it is more profitable to abandon the deal rather than to continue to lose 10% per year.

The conclusion of a transaction, which is beneficial for both parties, requires an understanding of the market for IT services. This means to understand what it costs for an IT organization to deliver quality services. You must have a clue of how much the maintenance of desktop systems, management of servers and routers and so on costs. You should also appreciate the value of the external management of the services. Ultimately, you should consider that companies that offer the lowest prices fail to provide quality services because of the limited budget.

3. Disclosure of information – too much or too little

Information that is crucial for the preparation of the contract with an outsourcing company, obviously, reveals statistics for all your IT assets: desktops, servers, routers, printers and other equipment. Many organizations also show the number of their IT staff. In 60% of the cases, this in no way affects the parameters of outsourcing.

Another important issue is the level of productivity. The IT Director should clearly define the requirements for this level, considering the prospects for growth of the company. The provider must know what performance he/she is required to provide. There is no need to tell what is the current level. Each provider of IT services, knowing how many people you have and what is your performance, can easily determine how many surplus or deficit associates are there in your company. However, how the staff worked so far is not a question that is relevant to what you want from the supplier at this point.

Providers will continually ask you about your expenses. Try not to give this information. You want the outsourcing company to offer services at a competitive price not to save you from your current expenses.

George Peterson works for one of the leading providers of CRM softwareWebCRM. You can also find some of his posts in popular blogs such as Small Business Branding.

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