Thought for the day: The outsourcing balance

There is no need to take an "all or nothing" approach

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There is no need to take an "all or nothing" approach, says Ben Booth





Michael Gough, chief executive of user group the National Computing Centre, has argued for a reversal of the trend towards outsourcing, likening the practice in some cases to "asset stripping".

Gough questions the notion of IT as a commodity, and argues that it could be a source of competitive advantage. Users must re-gain control of their business, he says, challenging the focus on cost-reduction alone and recommending that business applications be brought back in-house.

IT directors will find many of his remarks resonate with their own views. The argument that IT is a commodity and offers no competitive advantage is a seductive one for businesses looking for an easy solution to the "IT problem". However, this runs counter to the conventional wisdom that problems should be resolved before they are passed to an outside agency.

Economic necessity will at times mean that cost reduction is top priority, but this is only part of the equation, and businesses must be prepared to invest when the opportunity arises - technology will be one of the areas to invest in. Above all, businesses need to take control of what is in many cases the second largest cost after staff.

All or nothing?

But is it really a question of all or nothing - outsource everything or do everything in-house - and what of the role of offshoring? The prudent CIO will assess the available options and form a portfolio of responses to provide for different areas of the business. Only in specific circumstances will complete outsourcing be indicated: a new start-up with a clean slate might want to outsource all its IT, for example.

There are many organisations where the decision to outsource is not so clear cut, and many would also question the wisdom of doing everything in-house. Outsourcing is just one of the tools that a business has at its disposal. Cost will be an element in the decision, but beware the "low-cost" deal that turns out to be costly when changes are required, or where the level of service is below what is acceptable to users.

Some aspects of technology lend themselves to outsourcing, for instance, telecoms management or desktop support, but an outsourced helpdesk needs to be carefully matched to the culture of the organisation it supports.

Application development is often outsourced because of peaks and troughs in demand, and because many firms are too small to maintain a development team. Most would prefer to keep in-house those aspects of the IT mix which are unique or differentiate.

Size matters - large enterprises have the purchasing power to ensure quality and value in their outsourcing, and for small businesses it will not be viable to have an in-house IT operation. Those in the middle have a choice, but may not be able to cut a good deal because they lack financial clout.

The offshore lure

Offshore outsourcing purports to offer substantially reduced costs, delivered through a skilled workforce, whether in India or further east. But what are the realities of this proposition?

Again, scale is important. As a rule of thumb, to be viable the operation will need about 10 technologists at the offshore facility, plus a local manager. In the UK, a representative of the outsourcing firm will need to be engaged full-time in managing the offshore operation, and the client will need at least one full-time manager to look after the contract.

Even if these criteria can be met, and the result is financially viable, there are still limitations. There may be difficulties in communication, and offshore workers tend to be good at doing exactly what they are told. Uncertainty is not handled well, and time differences may cause delays in getting back to the client for clarification. Also, costs are rising as providers realise they can charge more. Nevertheless, some organisations are able to make this formula work very effectively for them.

Outsourcing is a powerful tool, which in various forms is applicable to all sizes of business. However, careful judgement is needed to select the most appropriate arrangement, and rigorous management will be necessary to ensure that the deal continues to deliver value. In particular, the apparent cost savings of offshore working need to be carefully assessed, together with the potential downsides.

Ben Booth is chairman of the BCS Elite group and IT director at research group Mori

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