Why Should A Company Outsource Their It Services?
If all decisions to outsource IT services were as easy as printing business cards
, this article wouldn't exist. However, because outsourcing IT services is a very complex and comprehensive initiative that can affect all aspects of business operations, it has to be approached methodically and with a tremendous amount of organizational introspection.
When considering outsourcing IT services, a company must first ask themselves what they expect to accomplish. Generally speaking, organizations choose outsourcing for one of the following two reasons:
1. Tactical Outsourcing - To eliminate cost, reduce investment or free-up resources.
2. Strategic Outsourcing - To gain strategic or operational value from having a third party manage their IT.
Certainly, most companies would say they want to achieve both tactical and strategic advantages from outsourcing. However, it's important to understand what the primary driver is in
determining an organization's desire to outsource.
For example, if cost is the primary driver, then it doesn't matter if the outsourcing provider is offshore or if headcount is reduced.
On the other hand, organizations that choose to outsource IT services for strategic reasons do so to focus on their core competencies while taking advantage of enhanced services, highly developed skill sets, tools and overall IT delivery and operations. Decisions to implement outsourcing for strategic reasons do not view cost reduction as the primary by-product. Rather, it would transform the company to a higher level of service delivery and operational efficiency.
The tactical and strategic methods of outsourcing IT services are discussed in greater detail below:
Tactical Outsourcing
Historically speaking, organizations first used outsourcing as a tactical method for solving business problems. Tactical outsourcing solved immediate or short-term issues for a business. Reducing or controlling operational costs and freeing up investment dollars or internal resource shortages, are all issues which can be solved through outsourcing IT services.
Businesses that choose outsourcing for tactical reasons are usually focused more on cost and less on service delivery.
Reducing internal staff and integrating cheaper foreign labor often occur in a tactical model.
Tactical outsourcing, while effective in the short-term, has proven to be more of a band-aid solution than a long-term, sustainable, operational model. Often, organizations enter into tactical outsourcing relationships to solve one of the above mentioned problems, stabilize the situation, and then regain control of information technology assets in-house.
Strategic Outsourcing
According to most IT analyst firms, companies today choose to outsource IT services to allow their IT employees to focus on strategic projects. This approach focuses more on long-term goals and is much more than a simple cost reduction strategy.
While companies still look to cut costs where possible, it is not their only motivation. In today's business world, relationships with outsourcers usually become more of a partnership as companies recognize that an outsourcing relationship will allow them to refocus or gain deeper domain expertise, secure a wider bench of resources and share regulatory risk.
Companies that choose to outsource IT services for strategic reasons seek to improve the business focus of their organization. These companies turn to outsourcing to free their existing IT department resources that have become bogged down in basic IT projects, upgrades and support, and instead allow them to focus on using IT in a manner that is more related to streamlining strategic operations. What's more, these organizations have access to experts who are trained and focused on specific domain verticals within IT, minimizing the chance of problems occurring as a result of an overstressed generalist's skill sets.
A great example of strategic outsourcing in information technology today is the outsourcing of a company's Enterprise Resource Planning (ERP) system. ERP systems are incredibly complex, expensive and require a handful of specialized resources to properly maintain and manage the system. A significant burden is placed upon organizations to maintain these systems and the associated technology talent.
Furthermore, organizations often can't afford to employ all the specialized resources required, so instead they hire generalists to fill in the gaps. This approach not only diminishes the return on investment (ROI) of the ERP system, but also produces lackluster results and stability issues while overstressing the supporting staff, leading to high attrition.
Rather than deal with these headaches, companies may choose to outsource for strategic reasons. Outsourcers can alleviate the day-to-day IT maintenance and fire-fighting, provide a more specialized talent pool, and allow redeployment of a company's technical resources to focus on more relevant, revenue generating activities.
A company may also choose to outsource IT services to offset risk from regulatory compliance. For example, outsourcing IT can be strategic in assisting with Sarbanes-Oxley audits if an outsourcer's operations are SAS 70 Type II compliant. These types of certifications are relevant to internal controls as they relate to an audit of financial statements, and can be leveraged accordingly by an organization.
Businesses that use outsourcing for strategic reasons are focused on leveraging the service provider's capabilities, skills and market maturity to further their own business activities. The relationship becomes more of a partnership than simply a cost cutting measure.
The different reasons for outsourcing IT services are driven by the different objectives and demands businesses have to fulfill. In some cases, a purely cost-based decision may be required to sustain the business. In other cases, an organization may need a provider that they can trust to manage their day-to-day maintenance activities.
Each decision to outsource IT services is unique to the short- and long-term requirements of the business. For example, it would be foolish to choose outsourcing simply to cut costs if the long-term business objectives were to focus on system availability. Therefore, it's important that before an organization asks if they can outsource, they should know why they want to outsource their IT services.
by: Chuck Vermillion
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