Outsourcing's Seven-Year Itch

He cited multiple problems. The time difference made it difficult for U.S. staff to collaborate with offshore resources. They ended up putting in long hours during the day, then putting in additional hours at night to meet with Eastern European personnel. Travel was a problem, both in terms of time and expenses, since there was typically a U.S. manager on-site. The trip required multiple plane changes and executives lost a full business day to travel. This particular company was happy with software quality, but multiple companies have reported quality problems that had to be fixed down the line.

A Scientific Approach

Vital Roy and Benoit Aubert wrote an excellent analysis of the pros and cons of outsourcing in their paper entitled, A Resource-Based Analysis of IT Sourcing . In the paper, they cited some of the less tangible outsourcing costs that, nevertheless, impact a company’s short- and long-term revenues.

One is loss of competitive advantage. Especially in today’s very competitive business climate, IT is increasingly a business differentiator. Far from Nicholas Carr’s “IT is dead” philosophy, there are multiple companies in which IT is breathing life back into the business. We are especially seeing this in companies that have leveraged service oriented architecture (SOA) to enable a level of flexibility previously unknown in the business world.

SOA has helped banks respond more flexibly to ever-changing regulatory and customer demands. It has helped telecommunications companies to dramatically cut the effort required to bring new customers online. And it has enabled healthcare companies to develop new products, such as medical portals that connect pharmacies, medical records, and doctor’s offices.

The competitive advantage SOA brings with it is so marked that the world of business is increasingly being divided into technology “haves” and “have nots.” The “haves” are well-positioned as industry leaders with a solid foundation for future growth. The “have nots” find themselves left behind and facing a gap that grows wider with time.

Loss of the ability to innovate, loss of confidence by high quality employees who have their choice of jobs elsewhere, and loss of brand equity can all be fallout from outsourcing critical business services. CIOs considering outsourcing would benefit from reading Roy and Aubert’s paper, as it is well thought out and features a matrix that is useful for determining appropriate sourcing strategies for specific IT services.

Conclusion

Like any development in the IT industry, outsourcing has evolved to the point where, in many cases, it can provide significant business value. Like in any relationship, it appears the early excitement is giving way and IT is developing a more realistic perspective. They are seeing outsourcing as what it is: one of a variety of offerings that can be leveraged to provide high quality IT services to the business.

Developing a strategic mix of internally- and externally-supported business services is as much an art as a science. In the end, there is no substitute for good management, business-focused technology expertise, and keeping high quality personnel and strategic assets in-house.

Julie Craig is a senior analyst with Boulder, Colo.-based Enterprise Management Associates, an industry research firm focused on IT management. Julie can reached at [email protected].