In this paper, Ian Hayes explores the
circumstances that make outsourcing a viable and sensible option for an IT
organization. He also examines the different types of functions and
activities that an IT organization may want to outsource, explores the
various implementation options available today, provides guidelines on how
to select a suitable outsourcing candidate and describes an approach for
scoping and bounding an outsourcing project.
For IT, outsourcing is not a new concept.
It is based on the simple premise that no one can be perfect at
everything. Today more than ever, companies must focus on the disciplines,
functions or operations in which they excel -- their "core
competencies" -- and consider outsourcing the rest to experts.
Initially driven by cost/efficiency gains, outsourcing is now a necessity
to compete with a new crop of "virtual" corporations,
particularly within the e-business realm.
Within IT, creative outsourcing
approaches -- from application leasing to Web site development -- are
theoretically available for every functional and operational area. For
practical reasons, however, outsourcing may not be the best option, or
even a viable option, in a given situation. Considerations ranging from
project definition and timing to the level of internal politics determine
whether outsourcing is more effective than existing practices, and if it
can provide the desired benefits. At the highest level, IT organizations
really have just three options: to maintain the status quo, leaving things
working the way they currently are; to outsource some or all functions to
an outside entity; or to insource, a technique that uses outsourcing
methods but relies on internal staff to perform the actual tasks. Many
factors at play within an IT organization, and the company itself, will
influence whether outsourcing is a viable, sensible choice.
If outsourcing appears to be the best
option, an IT organization must take the time to fully understand the
ramifications of its choice. Outsourcing is not a simple endeavor. The
mere consideration of outsourcing will have an enormous effect on existing
staff. Negotiating and inking the deal will require legal expertise, and
the final form of the arrangement will reflect tax and other financial
considerations. Constraints and restrictions placed on one or both parties
may also complicate the whole process and affect the ultimate structure of
the deal.
Outsourcing may take many forms within an
IT organization, and come in a variety of implementation options.
Outsourcing may range from the full-scale outsourcing of all aspects of a
company's IT division to the more modest outsourcing of a single
application. In between, outsourcing is also applied to platform
operations and support, functional area support and business process
support.
Implementation options have become
notably more complex in recent years. Every outsourcing engagement will
involve the transfer of ownership and responsibility for one or more
corporate assets. These assets include people, hardware, internally
developed software, licenses to commercial software, physical property and
equipment, and intellectual property such as methodologies, processes,
etc. Selecting an implementation approach for these components will
involve one or more of the following options: staff provision / staff
acquisition, asset acquisition, onsite / offsite outsourcing, and onshore
/ offshore outsourcing. A variety of considerations will determine when
each of these options is appropriate.
While many functions or processes could
potentially benefit from the use of outsourcing, a company must ultimately
select the right candidate or candidates from the pool. Many factors
influence this decision. The level of benefit, and the difficulty of
obtaining it, will vary significantly from candidate to candidate. The
most obvious candidates may not be the most successful nor provide the
highest benefits. Selection of the wrong candidate can doom an engagement
before it starts; even the best outsourcer cannot make a winner out of a
losing project.
Depending on the motivation for
considering outsourcing, candidates may be selected from a project or
policy viewpoint. The project approach seeks to achieve specific
objectives for a given process or function, and evaluates outsourcing as a
way to meet those objectives. In this case, outsourcing is chosen if
it meets the requirements of the candidate. In the policy approach,
outsourcing has already been selected as the desired corporate tool to
achieve one or more business objectives, such as cost containment or
concentration on core competencies. In this case, a candidate is chosen if
it meets the policy profile for outsourcing.
Scoping the outsourcing project is a
critical and difficult task. The scoping stage defines all of the
parameters by which the outsourcing project will be implemented, operated
and measured. As an initial matter, the IT organization must fully
understand its current state of affairs in order to define the scope of
the outsourcing project. It does so by capturing every task being
performed, identifying every deliverable and hand-off point, realistically
estimating the cost of performing the work -- whether in terms of time,
money or resources -- and measuring how much work is being performed. If
this self-assessment is not done up front, then the IT organization cannot
hope to negotiate an accurate or fair outsourcing project, and as a
result, the outsourcing project will suffer from mismatched expectations,
incompletely specified requirements, poorly set service levels, and a
rocky transition.
An IT organization that scopes its
project prior to soliciting outsourcing bids must look at a variety of
things, many of which are obvious. The challenge lies in scoping them
correctly. Major scoping issues include the size of the project, major
functions, assets, locations and constraints.
When looked at as a whole, the scoping
effort may appear overwhelming. The best way to tackle the problem is to
divide things into smaller, more manageable pieces. This paper advocates
using a building block approach to break down the outsourcing engagement
into a set of smaller pieces. By using the building block approach, a
company can identify the crucial components of the interface layer between
itself and the outsourcer. This interface layer will make or break the
outsourcing relationship. Here is where timing, communication and
cooperation are critical. Hand-offs must work properly; the right amount
of work must come in and the right amount must go out. Here is also where
service level information is collected and performance measured.
Outsourcing is clearly an idea whose time
has come. In an era of brutal competition and increasing specialization,
it only makes sense for companies to strengthen their operations by
outsourcing to industry leading service providers. But, despite its
strengths, outsourcing is not the universal answer for all functions, nor
are all functions suitable for outsourcing. Careful selection is required
to ensure a successful match of project and technique. This paper explores
those situations where outsourcing can provide value and examines the
characteristics that will make a project viable.
