Author: Yogi Schulz
Outsourcing of IT functions continues to grow at a significant, perhaps record, pace. However, some organizations are engaging in excessive outsourcing and throwing the core baby out with the outsourced water. If your organization is pursuing outsourcing for whatever reason, it’s important to recognize core IT functions that should never be outsourced under any circumstances.
Outsourcing the core IT functions described below creates various undesirable consequences. First, when the customer abrogates responsibility for the core IT functions, the resultant vacuum will undermine progress on the business plan. Second, managing the outsourcing vendor becomes impossible. The vendor will have so much scope and influence that distinguishing the customer from the vendor becomes difficult.
Organizations that retain control of the core IT functions of strategy, leadership and architecture will be happier with their outsourcing relationship and with the contribution IT is making to the organization.
When an organization outsources the development of the IT strategy, the contribution that IT can make to the achievement of the business plan suffers. The outsourcing vendor can not know the customer’s business as well as the customer. Remember that the outsourcing vendor was hired for their expertise in the operation of the IT not their expertise in the customer’s business realm. For example, what could the outsourcing vendor expected to know about the future of retailing toys, grocery distribution, publishing newspapers or designing women’s fashions to name just a few?
An organization is better served if the IS department retains clear responsibility for IT strategy, staffs the function and participates actively in the business strategy process.
In all outsourcing arrangements, the vendor accepts operational responsibilities and participates in some fashion in the IT projects that strengthen the infrastructure and the application portfolio. When the customer fails to provide sufficient leadership, then the outsourcing vendor will start to make up assumptive answers to current issues and problems in an effort to be pro-active and to avoid collapse of the infrastructure or slowdown of the projects. For example, when the outsourcing vendor guesses at whether to provide priority attention to the ERP project as opposed to the B2B web project, what is the likelihood that the vendor will make the correct decision?
No matter how skilled and experienced the vendor staff is, the answers created in a vacuum will be wrong part of the time. When the customer becomes aware of the undesirable consequences, the customer’s management will become irritated. They will blame the vendor who then feels unreasonably and perversely beat-up for a genuine effort to pro-actively solve problems.
For an outsourcing relationship to succeed, the customer must provide continuous leadership with regard to problem resolution, service levels and priorities.
When an organization outsources or ignores the development of the IT architecture, undesirable consequences begin to occur. Most outsourcing vendors have alliances with various hardware and software suppliers. Also, the staff of the outsourcing vendor will have more expertise in, bias toward and comfort with the products of some suppliers as opposed to others. This combination will, by default, determine the IT architecture of the customer over time. For example, the outsourcing vendor may prefer the desktop products of Lotus over Microsoft or the servers of HP over IBM or the routers of Nortel over Cisco.
For an outsourcing relationship to succeed, the customer must maintain the preferred IT architecture and communicate its details to the vendor.
Beyond these three IT functions, an organization can successfully outsource the remaining IT functions. Frequent candidates for infrastructure outsourcing include desktop management, server acquisition and operation and telecommunications operation. Good candidates for application outsourcing include software package implementation, custom software development as well as maintenance and support of the existing portfolio.
Successful reasons for outsourcing include access to skills that are difficult to retain within the organizations., piggy-backing on an existing IT infrastructure to accelerate time-to-market, containment of capital investments in IT and a desire to investment management energy in business objectives; not IT issues. Cost reduction is emphatically not on this list of reasons.
Regardless of the reason for outsourcing some IT functions, an organization that outsources the core IT functions of strategy, leadership and architecture will be disappointed by the short and long term consequences.