Feature

Outsourcing love-in may end

Economic downturns throw a different light on everything - outsourcing and strategic partnerships included

The business logic of IT outsourcing remains sound. Let the outsourcing partner deliver better-value IT, so that the business can concentrate on business.

But during the e-commerce boom there were additional benefits to outsourcing, which will now have to be measured again as the business climate changes.

In the boom, IT user companies with large outsourcing contracts were able to pass on their skills shortages to someone else. Likewise they could gain faster access to the new electronic channels if they made use of platforms already tried and tested by outsourcing firms.

As the economy slows down and pressure on budgets increases it is worth looking again at the perceived benefits of strategic relationships with IT suppliers - in particular those whose profits from services have soared while software and hardware revenues have dived.

Speed to market now matters less than getting it right in the long term. Likewise, as recruitment becomes easier it is the outsourcer, not the user firm, that gains the benefit of being able to make long-term investments in human capital.

The fundamental idea behind outsourcing is the removal of low value-add areas of the business. In an economic slowdown what seemed like low value-add may now look like a solid earner.

The biggest danger with strategic relationships in a slowdown is that IT suppliers stop investing in the products that user businesses rely on. It is hard to change strategic suppliers - and messy to sack an outsourcing firm - so managers will have to work harder to make the relationship work.

As strategic partnerships have boomed over the past decade they have often been compared to marriages. If we're approaching hard times, it's worth remembering, as the song says, "When hunger taps at the window, love flies out the door."

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This was first published in May 2001

 

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