Is outsourcing the question or the answer?

outsourcequesanswerOnce upon a time, the answer to the question of what are the main benefits of outsourcing was cost savings based on labour arbitrage, but today that response would be superficial and incomplete.

I believe the main benefits of outsourcing are access to scarce skills, expertise and the latest technology, cost reduction, turning capital expenditure into operating expenditure, and the opportunity to concentrate resources on core business objectives.
If you think about outsourcing in this manner, you will not only start to realise areas within your IT organisation that would benefit from adopting it but also ways as a strategic leader you can add further value to your entire organisation by doing so.

The first big error people make when considering outsourcing is looking to resolve a problem without first looking to do so in-house – a problem remains a problem no matter where it sits.
Sensible outsourcing providers will often sniff this out during the RFP or other stages of the bidding process but others may look to take it on, hoping they can fix the issue(s) as a calculated risk whilst trying to win the business (the fact a vendor accepts this huge risk should really start ringing alarm bells for you as you both know there’s an elephant in the room).
Those that don’t take the business (and hopefully this is the majority) will likely make you consider going back and fixing the problem before re-tendering. Those who take it on will only delay the inevitable, leaving you not only with a larger problem downstream but also with the added bonus of a whole heap of complex contractual issues to sort out (which I imagine you will now discover were also not properly agreed or worded up front).
Many take this approach and get their fingers burnt with outsourcing, vowing never to return.
It’s a real shame, as outsourcing done in the right way is an extremely beneficial way to add to the value you provide to your organisation.

The second biggest error people make when considering outsourcing is to engage with and select a vendor by having only had a few live sales meetings/conference calls with a cursory glance over provided case studies. Coupled without ever having visited their operating/service centres to see them in action in a live environment or meet their staff that will be working with your team in person.
You wouldn’t do this if you were hiring permanent staff or running the project in-house, so why do this when exploring outsourcing? It makes no sense.
This often occurs when a company decides to outsource a small project or a portion of it to see if outsourcing works for them in an operational sense.
The vendor is often chosen just on labour arbitrage and due to this the work is often performed in Asia or Eastern Europe.
The ‘project’ is often then left with the vendor with scant and seemingly erratic communication and only poured over in detail once the deliverable is returned with obvious errors.
The end result is the project often has to be redone in-house, blowing the project budget, causing delays and delivering red faces all round.
Outsourcing is again blamed as the enemy with the lack of communication and poor vendor selection/interaction issues being swept conveniently under the carpet.

So, in reflection it may be outsourcing is not for you but you owe it to yourself and your organisation to try everything that can add value to what you deliver.
Outsourcing executed properly can provide real value when opportunities are identified, structured, communicated and managed correctly, so what are you waiting for?

This piece has also been posted on:
The Intel IT Peer Network in my position as IT Industry ‘Thought Leader’ and Featured Blogger
The Business Value Exchange in my position as CIO ‘Thought Leader’ and Featured Contributor
Outsource Magazine in my position as IT Industry ‘Thought Leader’ and Featured Columnist

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5 Responses to Is outsourcing the question or the answer?

  1. Get Smart 11th November 2013 at 5:48 PM #

    Total outsourcing transfers most equipments, staff and responsibility for delivery of services to a vendor. It is a major endeavour and no organization should do it without significant thought as these deals often span across long periods, usually more than five years. This is not to say that total outsourcing should never be contemplated, but that it should not be undertaken lightly.

    • Christian 15th November 2013 at 9:52 AM #

      I fully agree.
      As an IT leader you should only do what is right for your organisation rather than implement something just because others are doing it.
      Outsourcing is a major undertaking for any organisation and done badly can set you back significantly.

  2. Suzanne Keith 19th November 2013 at 4:21 AM #

    The early trend in outsourcing was seen in financial constructs where a function’s associated capital and personnel were sold to a vendor and then rented back over a series of years. Early benefits were a boost in expertise and efficiency as outsource vendors had more focus and capability in their specialization. As time progressed, the year 0 benefit was off the books, customer needs evolved and contracts generally aged poorly. Rigid contracts hampered the ability of customers to respond to emerging business drivers, and simultaneously tied the hands of the vendor’s team who was focused on increased efficiencies for static problems. The result tended to be additional “project” contracts for incremental changes in a monopoly environment. Many deals became contentious, and many customers have become very uncomfortable surrendering so much power to a single vendor. As the contract aged, it became increasingly difficult to even negotiate with vendors with confidence, because the customer began to lack any real knowledge of the cost structure of the function, or the competitive situation of the vendor.

    • Christian 19th November 2013 at 9:22 AM #

      I absolutely agree with a number of the points you raise. As I mentioned in my post, when outsourcing is implemented or managed poorly the customer will suffer and the knock on effects will be huge.
      The key when outsourcing is to target areas or functions where that method will thrive, find the right supplier and implement correctly. Target areas are typically low level repetitive tasks, labour arbitrage or bolstering skill sets that you don’t have in-house.
      This will then free up your organisation to concentrate on value and revenue generating activities.

  3. Corinne Horne 8th December 2013 at 1:00 AM #

    One of the strategic tools healthcare executives used to meet the cost-saving target is outsourcing. Even though outsourcing has many benefits, outsourcing will fail if not managed successfully. Hospital executives must choose outsourcing providers who hold the necessary leadership capabilities. Managing outsourcing requires an understanding of outsourcing strategy, the benefits and risks of outsourcing, the evaluation process, and the methods to managing outsourcing providers. With appropriate management, strategic outsourcing should provide healthcare executives with a viable strategy for controlling costs and maintaining quality patient care [ 4 – 6 ]. The most outsourced functions in healthcare are information technology (29 percent), finance (20 percent), and support services (19 percent) [ 7 ]. By outsourcing, hospitals can reap the benefits of medical device reprocessing without assuming additional staffing and compliance burdens. Outsourcing enables hospitals to implement a medical device reprocessing program quickly, with no capital investment and minimal effort [ 8 ]. Before negotiating any outsourcing transaction, hospital executives should carefully analyze the legal and regulatory implications, which will vary according to the type of services and the vendor involved [ 9 ].

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