Panel questions strategic value of outsourcing

Panel questions strategic value of outsourcing

Big-bang single-vendor IT outsourcing has been largely succeeded by a more selective attitude among businesses of outsourcing only those functions that can be more or less commoditised, with outsourcing to several vendors with specific expertise increasingly common. But a panel of users, vendors and analysts at the MediaConnect seminar in Australia's Hunter Valley last week has cast doubt on whether outsourcing has become truly "strategic".

Gartner analyst, Rolf Jester, said outsourcing decisions were not very different from the investment decisions that businesses took every day.

"You invest in what promises you the biggest returns," he said. "For those parts of the business that I am particularly good at I will invest in myself; if someone else is better at some functions, I will look at outsourcing those. It should be a decision governed by business sense, not emotion.

"A new generation of business leaders is setting up the criteria to judge what is better kept inside the company and what should be moved out - not only in IT but in business processes," he said.

These types of outsourcing are growing in Australia according to survey measurement, by about 8 per cent per year, the latter slightly less so than the former.

Others, however, doubt that most businesses are quite that competent at truly strategic outsourcing

"Most organisations can't measure their total cost of ownership and don't know the true value of processes - or their importance to the business," outsourced service provider Dimension Data representative, Scott Petty, said.

Looking at it cynically, he said: "The less the client understands, the bigger the margin you [the supplier] can make."

A strong IT infrastructure and architecture is necessary for the client to begin examining what elements can be separated out for outsourcing.

The client should look to outsourcing for an improvement in service, he said. Often an outsourcer would just provide a replacement at current service levels and the user was content with that.

The outsourcing scene was very different from that of 10 years ago, said lawyer Nick Abrahams of Deacons. Businesses were focussing on shorter-term deals to give themselves the flexibility of backing out if outsourcing was not working.

Often, however, the scope of the agreement is poorly defined and responsibilities for such areas as regulatory compliance are hazy. The outsourcing business is not simply purchasing a service, but entering into a partnership. One of the things they certainly don't expect to be landed with is the cost of conflict resolution.

Outsourcing described at least three different kinds of deal, Jester said: With a "utility" deal, where the outsourcer provided some straightforward commoditised service, the client's job was to keep them up to scratch and a fair amount of tension in the relationship was expected. With the "enhancement" deal, the client was looking for specific improvement and some new ideas and the relationship had to be more constructive. And where genuine "business transformation" was expected, the provider and client were in the full role of partner and both parties were expected to behave in a way that recognised that.

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