When to outsource IT services and why

Dr Richard Williams MSc asks: 'outsourcing may be the answer - but what's the question?'

Outsourcing is about taking something that isn't an organisation's core competence and getting a specialist to run it more efficiently.

The essence is to try to take advantage of a specialist provider's knowledge and economies of scale to improve performance and achieve the required service, usually at a lower cost.

In reality there are many reasons why organisations decide to outsource and more often than not it's a question of cost.

However, there can be other drivers.

A common mistake is to outsource something that's perceived to be 'broken' in the hope that the subcontractor will be able to fix it.

Frequently all that happens is that the same problem is shifted somewhere else.

As with many things, it boils down to knowing exactly what to do and why.

In the case of outsourcing decisions, the critical thing is to understand at the outset exactly what the outsourced service needs to provide to an organisation and how this provision will need to evolve over time.

It is just as important to know how to communicate these needs to prospective service providers.

If someone doesn't know what their business needs from its outsourced services then there is no rational basis for selecting the most appropriate provider.

It also will not be possible to measure true performance.

In reality this can be a difficult, multi-faceted question to answer.

In many cases organisations fall back on one-dimensional considerations of cost rather than understanding the real business value of what's on offer.

Cost is and will remain a key driver for improvement through outsourcing.

But using outsourcing as a means of cost reduction without an eye to the longer term needs of the business can be seriously self-defeating.

To make outsourcing more than just a short-term cost-based band-aid, it needs to be placed within the context of a wider plan for change and improvement of an IT service provision.

The decision of whether or not to outsource IT services should be one element in a wider integrated transformation vision that is designed from the outset to move a business to a healthier place.

In practical terms, this means asking many questions.

The starting place should be a clear view of what the in-house IT function, or existing service provider, is giving to the business and what the business perceives is missing or could be improved.

This should not be expressed solely in terms of the traditional performance metrics of the kind that appear in SLAs.

These rarely measure the true capability of IT service provision, which is what is needed.

Broader business-based metrics need to be looked at, including the ability of the services to change to reflect the evolving needs of a volatile business environment.

Analysis work of this kind often exposes some important and illuminating gaps between what the IT company perceives it is providing and what the business thinks it's receiving.

There may be a fundamental mismatch of language and mindset.

It also forces everyone, IT and business alike, to talk to each other and to introduce clarity into the conversation.

Most importantly, it can lead to significant re-assessment of what should be delivered, highlighting areas for improvement in the current service portfolio and pinpointing where savings could be made through eradication of activities that are surplus to requirements.

The second step is to understand what the business requires of its IT service provision to be successful in the future.

Again, this isn't a trivial question and the answer should not be expressed solely in terms of familiar performance metrics that will provide too one-dimensional a view.

The customer must understand and characterise the service capabilities that will support the changes, opportunities and constraints a business will face moving forward.

Once these steps are completed, the business will be in an excellent position to make rational outsourcing judgements, but the exercise may look daunting - because it is.

There will be a great deal of data to assimilate, gathered from outside and from within an organisation.

There is no shortage of such data, but the problem is how to force it all into a coherent shape that all stake holders can understand and act on.

The best way to do this is to simplify the problem.

Business and IT leaders within the organisation should collaborate to create a model of the business that spells out, in clear common language, the relationship between the key value-generating business processes and the IT services that support them.

This is easier than it sounds.

The model itself will consist of a relatively small set of strategic measures - things that are important to know about the behaviour and capabilities of IT services and business processes.

Some of them may already be measured as part of regular management information activities.

Once these measures have been agreed, the important next step is to define how they are related, so projected changes in business behaviour can predict corresponding changes in IT service requirements.

The model does not need to be complex or completely comprehensive - less than a dozen measures will do.

It just needs to be detailed enough to point a company in the right direction.

The model can be changed over time to reflect changing business circumstances.

Such practical working models are not common in businesses right now, but they should be.

Armed in this way, a company will be able to specify whether outsourcing is the answer and to specify the question.

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