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Outsource everything….at your peril

Outsourcing is a bit of a yo-yo for a lot of companies: depending who is in charge, none, some, or all requirements are considered at one time or another for placement with service providers.

And the levels of outsourcing vary over time, depending on variables as broad as the state of the economy or as narrow as personal preference.

Donovan Jackson attempts to determine where to draw the line, therefore, answering a ‘how long is a piece of string’ question…

Technically, most businesses can outsource almost everything. It’s not that absurd a proposal either; in the popular book ‘The Four Hour Work Week’, author Timothy Ferriss makes the case for personal liberation through the application of the Pareto Principle.

By focusing efforts on the 20% of activities that create 80% of value, he posits, results in an optimal outcome for the individual – and, arguably, for the business, too.

So what goes into the typical business? A great deal more than the activities which actually earn money.

From seemingly arbitrary functions such as cleaning – necessary for every company – to more specific ones like payroll and administration, there are a considerable number of services to make it all work. This being the 21st century, information technology is something just about no company can do without.

Of these functions, should you outsource it all? Or, rather, could you outsource it all? These are not questions with simple answers; indeed, it is a moving target, agrees Stace Hema, MD of Oxygen IT.

“The lines are always moving in this area. It all depends on the individual customer,” he says.

As an outsource service provider, he gives a little insight into how to make the decision:

“We have a pretty thorough client request sheet that, when entered right at the time of consultation, shows the clients some projections for outsourced versus owned," he says.

"It helps decide where to draw boundaries and limits wishlists; it also helps us to provide useful recommendations.”

Outsourcing is a bit of a yo-yo for a lot of companies: depending who is in charge, none, some, or all requirements are considered at one time or another for placement with service providers.

And the levels of outsourcing vary over time, depending on variables as broad as the state of the economy or as narrow as personal preference.

Donovan Jackson attempts to determine where to draw the line is, therefore, answering a ‘how long is a piece of string’ question…

Going too far

Stace Hema, MD of OxygenIT, concedes that outsourcing often doesn’t end up being the optimal solution, depending on just how IT is used to create value within the organisation. A chat with Darrin Harper, IT manager at retailer Noel Leeming, provides insight into how outsourcing everything wasn’t the best idea.

“Right now, our Intel environment is outsourced to Gen-i, including [application] development and support," he says.

"However, our IBM AS/400 [now System-i] environment is kept in-house."

The System-i environment was also initially outsourced, continues Harper.

“However, because this platform is central to our business as opposed to the somewhat commodity Intel environment, it turned out that having it outside of our direct control was not optimal," he says.

"When something is core to the business, it is just better to have your own guys look after it.”

What makes it a better option, he says, is that synergy is achieved between developers and the ‘tech guys’ running the systems.

“And where outsourcing delivers benefits is that we have access to Gen-i’s resources at volume," he says.

"We pay a fixed amount and get well looked after, something which was borne out through the Christchurch earthquakes.

"Having the clout of a service provider like Gen-i meant being back in business far faster than we could have managed on our own.”

Companies that themselves provide outsourced services, make use of outsource service providers where appropriate. Wayne Pointon is operations manager at Debit Success, which provides direct billing services.

“Deciding what to get rid of and what to keep in house requires looking at what your core functions are," he says.

"Anything that isn’t should go on the radar for outsourcing."

Included among the services that his organisation leaves to experts is software development and data storage.

“We don’t specialise in software, although software is key to what we do; doing the development itself is just not worth the investment,” Pointon notes.

Where data storage is concerned, he says specialist is able to provide SLAs for disaster recovery scenarios in accordance with performance levels expected by various elements of the business.

“Should anything go wrong, there are some elements which must be up in 2 hours, others 48 and yet others in 72 hours," he says.

"Achieving that is not something we are equipped to do in-house.”

Selecting a service provider, he says, didn’t depend primarily on cost, but on the ability to provide the necessary guarantees – and proven track record.

Outsourcing is a bit of a yo-yo for a lot of companies: depending who is in charge, none, some, or all requirements are considered at one time or another for placement with service providers.

And the levels of outsourcing vary over time, depending on variables as broad as the state of the economy or as narrow as personal preference.

Donovan Jackson attempts to determine where to draw the line is, therefore, answering a ‘how long is a piece of string’ question…

Where innovation lives

No discussion of outsourcing in the modern world would be complete without (yet another) look at cloud computing. This is arguably the pinnacle of innovation for outsourcing today, says Gerhard Nagele, Business Manager IAAS & Security at Gen-i.

“Cloud is one of the most powerful influencers on the outsourcing game today," he says.

"Whether businesses are moving into the cloud for their IT sourcing is no longer a measure of when, but rather if."

While noting that cloud service delivery has matured for providers globally, he says it is probably more important that customers have matured.

“A few years ago, customers didn’t even know what it was, if it could be trusted or if it actually worked," Nagele continues.

"That’s all changed now."

Cloud computing is the very definition of innovative outsourcing, he stresses. Even banks, those most historically risk-averse especially where security of data is concerned, are using cloud services to run certain aspects of their businesses.

Outsourcing is a bit of a yo-yo for a lot of companies: depending who is in charge, none, some, or all requirements are considered at one time or another for placement with service providers.

And the levels of outsourcing vary over time, depending on variables as broad as the state of the economy or as narrow as personal preference.

Donovan Jackson attempts to determine where to draw the line is, therefore, answering a ‘how long is a piece of string’ question…

It’s not all one way traffic

Not every company wants to leap headlong into cloud sourcing – and there are typically good reasons for that. Noel Leeming’s Harper is a case in point.

“We’re looking at this thing with our eyes wide open," says Darrin Harper, IT manager at Noel Leeming.

"Part of that is considering why and how each IT function is done through a strategic lens.

"It’s fair to say we are tiptoeing on the edges of cloud, looking at those items which present relatively low risk to the business- like payroll and email.

"We’re seeing what will work there [in the cloud] and what won’t; our executives certainly need that visibility,” he explains.

The issues which he believes need to be resolved to the satisfaction of those executives include reliability and security.

“There are systems so critical to the business that as an IT manager, you feel like you’re putting your life in someone else’s hands," he says.

"It comes down to a question of how much you trust that third party.

"With things like email, if it goes down occasionally, we could live with that.

"Point of sale? Not so much.”

OxygenIT’s MD Stace Hema is on the same page as Harper.

“When outsourcing to the cloud, we are totally comfortable with it with most customers," he says.

"It does depend on weighing up the risks, the pros and cons.

"And the cloud is only as trustworthy as the provider you are choosing.

For Hema, the real risks lie in unproven service providers. “You get a lot of people claiming they offer cloud, but in reality, where is your data? It’s easy to rent data centre capacity somewhere, where the client has no control over it or their data," he says.

"In such scenarios, you’ll find yourself relying on a long and faceless value chain – not an ideal scenario if a business critical system goes down.”

More Mr. Nice Guy

What is abundantly clear is that outsourcing often achieves advantages for the businesses that obtain their resources in this way.

Just as Timothy Ferriss’ book is not universally considered gospel (he was once described as ‘the greatest snake oil salesman of all time), outsourcing everything remains an unlikely option for most companies, since value-creation happens at various levels and with the manipulation of various resources.

However, through careful analysis which can involve some hit and miss, most companies find the sweet spot.

“We learned the hard way how outsourcing can get a bit of a bad name [with the AS/400 environment]. Be a careful about what you choose to outsource and do it strategically,” is Harper’s last word.