Outsourcing was cool then, now it has gone cold, with companies calling off large outsourcing contracts only a few years into a long-term deal. What were the advantages? Why has the climate changed and if outsourcing is no longer the golden answer to everything, what are the alternatives?
Any organisation that outsources its complete IT department is taking enormous risks. Those that do so for anything longer than two years are committing commercial suicide. It is like giving away your crown jewels.
The argument that it reduces hassle and allows an organisation to "focus on core business" may apply to short-term arrangements, but not to five- and 10- year deals. Also, IT is the core business in any and all companies.
Forward thinking companies put IT at their heart and conduct business around this core investment. Direct services, by phone and the Internet have proved this, transforming whole business sectors, while improving customer service and retaining the flexibility to add new products and services faster than their traditional rivals.
If you need any further convincing, look at the problems arising in long-term outsourcing arrangements.
Why does this happen? What goes wrong?
- The company loses control over its IT and corporate strategies
- The world is changing faster than ever - no one can predict what IT will be like in one year, let alone five or more
- Companies need ideas and innovations from their own people to use technology to long-term advantage
- The original financial savings do not look so attractive. As costs rise, disagreements grow and the focus moves to the relationship, rather than the competitive advantage
- Long-term outsourcing is done for the wrong reasons - short-term cost savings or pleasing political masters.
There is nothing wrong with outsourcing as a strategy, as long as you take care and are clear on what you want.
Total outsourcing for long periods of time is destined for disaster.
There are other ways.
Find out what your peers in similar companies have done - seek advice on best practice. Look at the evidence. What seems to work and what does not?
In the early 1990s, as a result of so many companies reeling at the disasters caused by downsizing, areas of technical support were outsourced. Some high-profile deals were signed for 10 years or more. Now these are being pulled back in- house, as leaders realise infrastructure and its associated skills are mission critical.
This followed in the late 1990s with the latest buzz - outsourcing applications development, with areas of project teams and development being passed over to third parties. This trend lasted four years.
The IT director must adopt an independent role and go for best of breed and not just ask, "Who shall I outsource to?" Internal staff, often not considered, must be in the frame.
The answer may be entering into a supplier partnership, perhaps allowing for growth in demand or to outsource on a modular basis.
IT leaders must shake off the technology and adopt a role as masters of change within their organisations. So-called business people will scoff at that statement, arguing that the company must set its business goals first and IT must meet these needs. Today, there is no difference.
Skills that are crucial to business advantage should be present in-house. IT departments and leaders need to retain control and strategic ownership, even if large areas are outsourced and cannot do this if all knowledge is passed out.
Traditional methods of sourcing decisions are out-of-date and do not meet the needs, challenges and demands of the future.
To survive and thrive, IT departments must drive the future of their organisations. Leaders should source on a considered, independent and modular basis that has little to do with the latest trends, and everything to do with best business.
Successful outsourcing needs choice, clarity and control. It is a decision with many options.
Whatever you decide to outsource, make sure it is not your own destiny. Remember, if you don't control your future, someone else will.
David Taylor's Inside Track, a provocative insight into the world of IT in business, is published by Butterworth Heinemann. Tel: 01865-888180
Should you outsource?
To decide the right approach for your company, ask the right questions and involve business partners:
- n Which areas provide real value to your organisation?
- n Where are you having the biggest problems of staff skills, training and retention?
- n Which activities do your staff find motivating and which demoralising?
- n What areas give you the greatest problems and headaches?
The successful IT department of the future will focus on best sourcing. In doing this, they will ask three questions and adopt three roles:
- n What is best for my company?
- n Who will bring about the most effective change, fastest?
- n What skills do I need to keep in house, to ensure that I can keep control?