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Drawing the line: When not to outsource

25 Oct 2012

Outsourcing is proving its worth to private and public sector organisations around the world, providing flexibility and cost savings for manufacturers, government agencies, retail chains and financial services organisations.

By leveraging the processes and expertise of their technology partners, these organisations are able to focus on their core businesses. They are no longer stretching their ICT resources to future proof system design, build networks or solve data storage and security issues.

So, in a reassessment of your ICT environment, do you need to draw a line, is there anything that can’t or shouldn’t be outsourced? Most probably, yes. But first you must understand your business and what you’re trying to achieve before you consider using external services.

Are you simply trying to reduce costs, or is your organisation changing its direction; are you endeavouring to create a more agile ICT culture to underpin these strategic moves; is environmental sustainability and corporate social responsibility a factor in your decision making?

While most technology-based components of your business can be contracted out to the broadening spectrum of managed ICT services, the success of that outsourcing must be defined and measurable if it is to be undertaken.

Drawing the line

More than ever, organisations are operating in highly competitive global marketplaces. Productivity gains are paramount. Transparency and accountability to shareholders, boards and customers rank highly in corporate governance structures.

To this end, it is perhaps wise to maintain internal control over ICT business strategy and enterprise architecture development. If you separate these by outsourcing, you run the risk of losing the connection back into the core business and the ability to match ICT to operational imperatives.

External service providers can only understand so much of your business. It is up to you, the customer, to bring to the table your culture, your current needs and ideas for the future.

While you hold on to your core applications and systems, you can, however, access the bigger picture through the expertise of your ICT partner, where you can benefit from best practice customer experiences from around the world, rather than going it alone. ICT is the service provider’s speciality. We’re immersed in the industry and can think outside the square for you.

Highly specialised, bespoke applications that are inherent to the core of your business should be kept in-house. Where you have critical components that are specific to your industry vertical, or data with sovereignty or compliance issues, these need to be kept close.

Experience suggests, however, that the longer and deeper your relationship with service providers, the more you will probably outsource to them. The ability to build trust in the partnership is absolutely essential for success.

It is also important to keep high level project management capability within your organisation. Maintaining an executive link between tactical initiatives and the overall business strategy is vital to sustainable success. Your outsourced systems integrator is able to wrap resources around individual projects and report into internal management that is the direct conduit to the business.

You can’t outsource if you can’t let go

When you decide to outsource components of your ICT infrastructure design, procurement, implementation and servicing, you need to prepare for major changes.

Every business has its own strengths, its own people with their particular passions, and satisfaction with existing, often long term suppliers. All these must be factored into any outsourcing venture.

Handing over direct control to an outside organisation requires a cultural mindset change throughout the whole organisation, not just the CIO, as it changes the end user experience. It’s important to consider the outsourcer as part of your internal team so you can work collaboratively together.

Committing to external resources requires a new look at how you assess and mitigate risks, such as a relationship failure with any vendor. You must build your internal tender design capabilities and contract negotiation skills. And there are not inconsiderable security and confidentiality issues.

Are you able to leverage the service provider’s global capability, skills and intellectual property as part of the outsourcing relationship? This may be a crucial question in determining if you ‘let go’. And if your outsourced provider can’t do things better than you can in-house, don’t outsource.

Setting expectations

Set realistic expectations for your contractors, delivery timeframes and returns on your investment to ensure the success of your decision. Irrespective of where any outsourcing line is drawn, you need to be outsourcing a solution, not your problems.

Timeframes and budgets are the difficult discussions that must be had between CIOs and CFOs, in consultation with providers. Resourcing the RFP process; the time it will take to build relationships with suppliers and transition to new ICT platforms; and the expense of staff terminations and asset redundancies are crucial costings.

Complexity also exists where you are considering multi-supplier relationships. You will need to determine who will be responsible for delivery and contract variations, and dispute resolution.

A matter of perspective

Your perception of what you want is based on your current knowledge, how you see your ICT environment. The greatest value in commissioning external expertise is the ability of service providers to introduce emerging tools and processes, to helpyour needs more appropriately.

Your perspective changes where the outsourcing line should be drawn. The more you know, the wider your view, the further you are able to confidently push that line to innovation, improved processes and success.

By Jo Healey, Managing Director, Fujitsu New Zealand Limited