Future Focus - Tomorrow's Insights for Today's Decision Makers 


To Outsource Or Not, Is That The Question?


March 2004

Aaron Kumove -- Managing Director, Horizon Consulting


For many IT organisations this is indeed the million dollar question or more accurately in many cases, the multi-million dollar question.  In theory it sounds great.  Give what is not a core activity of your business to someone else who will undertake that activity on your behalf for whom that activity is core business.  As the theory goes, they should be able to do it both better and cheaper than you can.  Better, because the activity which you are outsourcing is a service that someone else is a specialist in, and theoretically cheaper because you can leverage the use of outsourced infrastructure and services which have their costs spread over many clients.

Sounds great in theory, but if that's the case, then why are so many organisations unhappy with their outsourced IT services and why in many case have costs gone up rather than down?

The easy answer is to point the finger at IT service providers and to say that they are some combination of incompetent, greedy or lazy, but this answer is far too simplistic and in many cases unfair (although there may be cases where some of those attributes could be fairly applied.)

The real answer has more to do with the manner in which many organisations choose to outsource and the control that they lose of their own destiny as a result of the manner in which outsourcing is undertaken.

What am I saying exactly?

I am saying that in many cases organisations are outsourcing the wrong things at the wrong time for the wrong reasons with limited understanding of the consequences or the alternate courses of action that may have been more beneficial. 
I am saying that the way in which outsourcing is sometimes undertaken is too haphazard, lacking in good analytical and decision-making frameworks, too coarse grained, and commercially entrapping. 

I don't think we can blame the service providers entirely here.  If a client of theirs chooses to outsource more than is optimal, wants to get it done quickly, sacrifices some analysis in the process and ends up with a deal that is sub-optimal can you blame the service provider for taking the business?  Business that is likely more in their favour than it needs to be.  Of course not.  They are in business to make money and they are not going to turn down any free steaks that are thrown their way (especially when they had realistically set their sights on pork chops for dinner!)

It is incumbent on those of us choosing to outsource to ensure that we fully understand:
  • Why we are outsourcing
  • What we are outsourcing
  • What benefits we expect to reap
  • What additional costs may be incurred
  • How success will be defined and measured
  • Commercial practices that are in our interest
  • How exceptions and problems will be dealt with
  • Under what terms and conditions the agreement can terminate and that mechanisms to ensure that a smooth transition occurs upon termination are in place.
In short, we need to put ourselves in the driver's seat and the way that we can do this is by having a process that allows us to methodically assess and answer the points above.  I will examine these points in next month's column, but for now it might be worthwhile considering the reasons NOT to outsource a function or service.
Some of the more common bad reasons to outsource include:
  • To get rid of a problem
  • To solve a problem that is not understood
  • When the environment has become too complex to manage effectively
  • To save money
  • Because you are in a hurry
  • When functions are not under control
If you are contemplating outsourcing for any of these reasons, hold off, at least until next month's column where we will continue this discussion and look at some frameworks to enable us to make more effective sourcing decisions.

Aaron Kumove -- Managing Director, Horizon Consulting
Want to comment on this issue?  Perhaps you would like to add to the views expressed here, or even disagree violently!
Either way we welcome your thoughts and would be happy to include your views in upcoming issues.

Read Past Issues

Would you like to SUBSCRIBE or UNSUBSCRIBE?
Future Focus is a regular feature in MIS Magazine.  An additional archive of previous Future Focus articles can be found there. (Just type 'Kumove' in the search box).
PRIVACY:  We do not provide our mailing list or details of any member to any other party under any circumstances.
Copyright © 2004 HORIZON CONSULTING

Horizon Consulting is a leading provider of successful strategy and management implementation services for knowledge economy organisations.  Our clients are world leaders in obtaining strategic advantage through eBusiness and Information Technology. 

Horizon Consulting PO Box 2252, Wellington, New Zealand; Tel: 64 4 939-9944; 
Email: service@horizonconsulting.co.nz