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Once 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