While virtually every business now relies on information technology (IT) to help provide services or deliver products to the marketplace, things have rarely been more precarious for in-house IT professionals. This is so, despite the conventional wisdom that IT is acknowledged to be more strategic than ever.
Increased market competition, more demanding customers, tighter margins and shorter product life cycles have caused businesses to examine where they may be able to focus better on core competencies, reduce risk and costs, and become more agile and competitive. For many companies and small businesses across all industry segments, outsourcing IT is the only answer.
Outsourcing lowers operating costs, eliminates backlogs, improving data input quality, production and document availability. And, in the end, outsourcing adds profits to the bottom-line.
But outsourcing is far from a panacea. How an outsourcing relationship is managed – internally and externally – is as important to its ultimate success as the execution of the outsourced tasks themselves. Given that industry analyst Gartner recently reported that outsourcing can trigger an employee backlash, what do organizations need to know to make outsourcing a win-win for all concerned? How can a company best manage the firm that it has just retained? What project management issues does outsourcing solve and what challenges does it entail?
Outsourcing on Paper: Cost-Effective, Valuable, Efficient
Outsourcing IT isn’t only (or even primarily) about costs. In terms of hard dollars, outsourcing isn’t always a decisive win over the in-house approach, although it usually is. The real advantages can be seen in the “soft gains” that accrue — the opportunity costs of not having to reinvent the wheel, and the efficiencies that arise when enlisting a company that specializes in doing the heavy lifting of IT.
Quality is an issue as well. In the hosting market, for instance, a company could hire five system administrators to run their network in-house, and find the collective wisdom limited to the specific experiences of that small team. When a third party assumes control of servers and infrastructure, that firm brings real world experience, gleaned from facing an array of problems across a diverse customer base. Dynamic learning occurs more rapidly because the outsourcing firm is simply in a better position to benefit from — and propagate — “best of breed” practices. outsource
Managing and retaining IT staff is challenging enough in prosperous times; in a down economy, the challenges intensify – and the management responsibilities in outsourcing likewise increase. Keeping IT staff motivated, focused and incentivized is perhaps the most formidable challenge. If an organization’s IT returns on investment is on the order of 20-30 percent, reinvention and retraining are apt to be continuous. Accordingly, whether the market is up or down, the case for outsourcing persists. By contrast, if the organization has kept IT entirely in-house, it becomes considerably harder to double, triple or even cut staff, should the need arise. An outsourcing relationship ensures a constant pool of talent.
Outsourcers are occasionally brought in to “clean up” unfinished business left by in-house teams that, for whatever reason, didn’t see a project through to completion. It is always difficult for organizations to have to cut staff or downsize IT operations, especially for professionals who are accustomed to bigger budgets year after year. And when the mandate comes down from the CEO or whomever that IT budgets aren’t going up — and the only way the company is going to make its numbers is to let go of some of its people — doubt looms large. That is the environment in which the quality of the management of outsourced relationships makes all the difference.