Outsourcing's Seven-Year Itch - Page 1

Feb 25, 2008

Julie Craig

While we laugh about the alcohol-based tonics sold from the backs of wagons in the 1800's, who among us has never placed a bet at a blackjack table? And, while we scratch our heads trying to imagine why anyone would send their retirement savings to a stranger in Nigeria, most of us have been taken in at some point by promises that a stock will rise, a real estate venture will succeed, or a tax cut will really put money in our pocket.

Hope springs eternal, and the promise of getting something for nothing is almost irresistible.

Let's be clear here—I’m not calling outsourcing snake oil. What I am saying is that, in the past, it has been approached by some as a magic potion that will cure all ills. IT executives are as susceptible to the quest for a magic bullet as everyone else. However, the vision of lowering costs, maintaining or improving service quality, and decreasing service management oversight is a myth at best, and one right up there with the likelihood of consistently beating the house at blackjack. (There is a good reason why Las Vegas is crammed with billion-dollar casinos.)

Transfer of Execution, Not Responsibility

According to Wikipedia, outsourcing is "the transfer of the management and/or day-to-day execution of an entire business function to an external service provider." Obviously, this definition covers a broad range of products and services. At one end of the spectrum is software as a service (SaaS), in which an outside company assumes the execution of a given service, such as ERP or CRM. At the other is wholesale outsourcing of an entire IT operation. This is often a case in which an outsourcer "hires" a company's IT employees and, in return, is contractually obligated to deliver IT services at a specified cost.

There are multiple gradations between the two, and these gradations offer a broad menu of options for IT organizations looking for ways to optimize service delivery. The important thing to keep in mind when considering outsourced services is that every company is different. There is no "one-size-fits-all" outsourcing strategy. Picking and choosing from the multiple offerings on the menu requires business knowledge, understanding of the industry vertical in which the business operates, the kinds of IT services needed to stay competitive in that vertical, and the availability of skills and expertise.

This is where today's CIOs have an opportunity to earn their keep, because this "big picture" perspective is one that requires significant experience, knowledge and judgment. Within high-performing IT organizations, strategically selecting outsourcing options, and skillfully combining them with in-house expertise and services, is high art. Such organizations understand what outsourcing is and what it is not: an opportunity to cede responsibility.

While execution can be outsourced, responsibility cannot. And from a management perspective, many can testify that outsourcing creates as many challenges as it solves.

Managing contracts, service levels, and acting as an intermediary between IT and the business are all activities that have to be resolved. These activities fall on IT organizations traditionally focused on technology and geared towards delivering services rather than managing them. This can result in both a skills and an expectation gap.

If IT doesn't have the skills it needs to manage this new delivery model, and, as a result, expectations of the outsourcing's benefits go unmet. Once this happens, the bloom fades from the outsourcing rose, reality sets in, and the company struggles with a whole new set of challenges that bring with them multiple unfamiliar roles.

Where Outsourcing is Successful

General Motors (GM) is the poster child for outsourcing, and has been since the 1980's. At that time, GM outsourced virtually its entire IT organization to Electronic Data Systems (EDS). Over time, as GM's outsourcing model has evolved and diversified to multiple providers, one thing has stayed the same, GM's internal IT team.

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Tags: XML, services, Microsoft, telecommunications,

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