Why does anyone outsource IT functions? This may appear to be an absurd question, but do we really know? The reason most often wheeled out in business is that you should outsource any function that is not a ‘core competency’ and therefore should be managed more effectively and efficiently by the ‘experts’.
This argument is perfectly rational for certain actions within the business. For example, if your company makes tractors, why employ someone to make sandwiches when an outside contractor can make better sandwiches for less money? Even companies that specialise in a particular product – Nike with sporting goods and clothing being the classic example – have discovered that it makes sense to outsource manufacturing and other menial work to low cost countries.
Is the decision to outsource IT quite as straight forward as this though? Large companies have departments that are so big that they are operated almost as separate businesses, and the skill of management is in weaving these departments into one cohesive whole. Therefore, whether the ‘department’ is in-house or outsourced makes little difference to the management.
Smaller companies can also see the benefits of outsourcing. A survey by IT services company Parity confirms that companies see outsourcing as offering a competitive advantage. 33 per cent believe that the best way to bring in external expertise is to outsource, while a quarter say it saves money. Given the evidence and the clear logic behind outsourcing, why is it then that 40 per cent of the people surveyed by Parity have so far resisted its charms?
Perhaps they are sensitive to the steady stream of stories in the press describing the collapse of outsourcing projects – where a lack of ROI sees a clamour to bring the work back in-house. While this reaction may be true in some cases, the majority of people trusted to make a major decision regarding whether or not to outsource would surely understand the risk/reward gamble that they were taking.
The more likely explanation as to why so many companies are still resisting outsourcing is that they understand better than others the delicacy of IT.
Put simply, running IT is not like making a training shoe. There are so many business intangiables and personality quirks within each company that must be taken into account. The equation is more complex than working out your annual IT costs, comparing it to the figure quoted by the outsourcer and seeing how much money you are going to save. Are you considering how the deal will impact your users? How easy will it be for them to get support when they need it? Sure, you could point to the SLA built into the agreement, but what if the SLA is broken? Will the support staff understand your people and your working culture? Just by looking at the user experience, we can see the number of questions that could be asked of outsourcing and of course there are many other facets of IT that impact the business which must be considered.
Maybe it’s taking this argument too far, but it’s worth challenging the assumption stated at the beginning of this article about outsourcing IT because it’s not a core competency. Is IT so entrenched in the business, so bound into each and every facet of its inner working, that trying to compartmentalise and ultimately separate them would be like digging up half the roots of a plant and trying to grow it in a pot a few miles away? The argument goes that no-one can understand the relationship between IT and your business better than the people working on it everyday, and can you afford to lose this insight?
IT is a completive differentiator today in much the same way as customer service is. Therefore, it makes sense to look at some of the many bad experiences that companies have had with offshore outsourcing, and the subsequent customer backlash to see that there are limits to what you can and should outsource. The problem is that, just like in customer service, the connection between IT and the success or failure of the business is not well enough documented or even understood.
The mistake is to view IT as just another business ‘function’, just like making sandwiches or patrolling the office building at night. The role IT plays and the expectation customers and partners have now when coming into contact with your IT has changed. And unless you can put a bottom line cost onto the impact of this change in attitude, how can you sensibly make the judgement to outsource?