SURVIVAL GUIDE: The O-word that IT fears

SURVIVAL GUIDE: The O-word that IT fears

Some words inspire terror. Their mere mention causes blood pressure to rise, mouths to dry, and skin to shed beads of cold sweat. Words such as vampire, final exam, orthodontist.

To the IT community, orthodontist isn't the most terrifying word starting with O. Far more dreaded is one that is spoken only in whispers - when the fluorescent lighting is bright enough to drive away any shadows, so they cannot hear ... OutsourcingIts mere mention is enough to strike terror in the hearts of IT staff, conjuring images of layoffs for many and sweatshops for those who remain behind.

The reality, of course, isn't usually so disastrous. Most employees don't even change desks after their employers outsource IT. They may get a bit more money and a bit less vacation. More unsettling is the change in their relationship with their former fellow employees. They often treat their just-outsourced brethren with the same mixture of pity and disgust usually reserved for those with a particularly urgent need to consult a dermatologist - pity because they've been victimised and disgust because they are, after all, outside contractors.

Outsourcing is badly misunderstood at all levels. Executives outsource IT for the wrong reasons, IT employees dread it for the wrong reasons, and most significantly for you, IT management often takes exactly the wrong steps to prevent it.

The usual reasons given for outsourcing a corporate function are that it's either (a) not strategic, and consequently not a "core competency"; or (b) less expensive to contract out than to handle in-house. Neither of these reasons stand up to scrutiny.

The old saw about handling strategic functions internally and outsourcing the rest is easily debunked after a quick look at what should be the most strategic functions in any company: those that directly affect customer relationships. We're talking here about sales, marketing, and customer service; the functions that have direct customer contact. Companies routinely outsource any or all of these. Independent distributors frequently handle sales; more companies use ad agencies instead of handling all marketing functions internally; and there are plenty of call centres for hire that handle everything from outbound telemarketing to software technical support.

On the other hand, very few companies outsource accounting, which rarely has any strategic importance (unlike finance, which does). Clearly, strategy and outsourcing have no correlation - neither positive nor negative.

As for saving money, that's also questionable. An argument in favour of outsourcing is the fact that a large outsourcer enjoys economies of scale not available to relatively smaller clients, and can move employees with high-cost skills, not needed on a daily basis, among multiple clients. But outsourcers need to turn a profit. They need to cover both corporate overheads and taxes while still making 15 per cent or so. That's a big hill to climb.

Further complicating the matter is that compared to the formal standards of operation adhered to by most outsourcers, many of the companies that find it attractive will shamefully under-invest in IT. It's hard to save money when you aren't spending enough, and even harder to explain the value of outsourcing when the first thing you need to do is increase IT spending to make it work.

So unless corporate IT is managed quite badly, there's only one way to save money in outsourcing: reduce service.

I don't mean the overt services that are easy to identify and keep track of. They can't be reduced because they'll be spelled out in the formal contract. What's lost are the minor services and the untracked favours that lubricate the relationship between internal IT and the rest of the business. An end user might previously have called a buddy in internal IT for advice or help with some troubleshooting. Now that same end user will just have to do without after IT is outsourced, as all requests for service are funnelled through the formal prioritisation process specified in the outsourcing agreement.

And here's an irony: Many CIOs, having read about the importance of well-defined processes and formal metrics, work hard to prevent exactly these kinds of favours. Here's another: by implementing charge-backs and adopting the notion of "internal customers", many CIOs work hard to make their organisations look just like an outside service provider, making outsourcing a very easy transition.

Why would they want to do that?

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