It is Still Time to Consider Outsourcing

February 14, 2008

This is a reprise of an essay I had written on an old (now defunct) personal web site. It is still applicable. Although since this was written, The term “right sourcing” has been coined – and I like it better.

Now is the time to consider xSourcing

By S. Elliot Ross

October 2003

It is hard to read a business technology publication today without reading an article, or editorial, regarding business I/T outsourcing. The outsourcing trends discussed usually cover just about all components of I/T. These components include infrastructure operations, such as asset or seat management, help desk operations, data-center, and network operations, all the way to software maintenance and development. Each of these published outsourcing agreements seems to primarily be a strategy aimed at reducing service costs. Yet in the same publication, we can frequently find that there will be a second article on a different business, the second article describing how an outsourced I/T process was returned in house, – again for cost saving reasons. How does a business technology manager reconcile this paradox?

In spite of, or possibly even because of, this seeming paradox, now is the time for business technology managers to seriously look at I/T infrastructure outsourcing. Even companies that would prefer to maintain I/T infrastructure services in house for reasons that could include velocity (rapid reaction to change) or competitive advantage can benefit from this research. Nevertheless, after performing this research you may choose to continue with an I/T infrastructure outsourcing strategy, or you may choose to maintain that infrastructure internally with an in-sourced service model. The key point in reviewing I/T infrastructure outsourcing is that the research you do on outsourcing practices will require that you look holistically at the I/T support processes that you currently have in place.

At least at an intuitive level we realize that I/T infrastructure systems are inherently complex. The character of the technology environment, its systems, plus the interactions among them will usually come closer to chaos theory than any rational sense of order. Unfortunately complexity causes instability, instability causes breakage, and breakage causes downtime and costs money. What business technology managers can often overlook is that trying to reduce the complexity of this infrastructure through change and configuration management processes can greatly assist in reducing costs. Cost reductions can be gained through less re-work, reduced exception handling as well as improved communication and standardization. Lets look at a common example. Traditionally one of the most common business processes that have been outsourced by organizations of all size has been a payroll process. A payroll process is generally stable, mature and measurable; therefore this kind of process is usually outsourced successfully because businesses, whether they are large or small, tend to keep a sharp eye on the steps that send out that money. The process usually consists of a definite input, usually being payroll information from a time sheet or clock, various documented checks and balances, then a definite output, a paycheck. Any or all of these steps can take place inside or outside of your companies walls.

While a systematic process is usually easily visible in a payroll situation, many businesses do not have this same type of process visibility into their I/T infrastructure costs. A business that relies on ad-hoc or seat of the pants management of their I/T infrastructure may find large increases in I/T operations spending, just to keep the lights on, and that their maintenance costs are much higher than average. These organizations will often have an environment that is not stable or measurable, and that has poorly defined or constantly changing requirements. When this happens, the few cost details available are reviewed and a decision is made that outsourcing will reduce this cost. I would argue that these organizations are putting the cart before the horse in attempting to outsource without a firm knowledge of their costs per process. If you cannot clearly define your requirements and have the appropriate measurements and metrics in place, it is very difficult to meet those requirements! We can then say that outsourcing is of a primary benefit when system complexity is reduced and the environment stable. Non-existent or ineffective processes will remove a lot of outsourcing advantages and create a possible lose-lose outsourcing partnership. This is because a non-existent or ineffective process makes it difficult for a business:

• To compare statistics, metrics or costs to properly evaluate an outsourcing agreement
•To have a framework to qualitatively monitor and measure an outsourced partners performance

A common argument against trying to implement a process management framework within an I/T organization is that the knowledge worker field of I/T does not readily lend itself to setting process management objectives. In reality, if work is being done, and it is done more than once, there is an available process. A business that uses an internal or an external (ISO, ITIL, Six Sigma etc) process management framework will often find process benefits that they can apply to their I/T operations infrastructure. The primary benefit of introducing a process management framework will be reducing the complexity of the environment, which will increase stability and measurability, which in turn will assist in reducing costs. Not to mention providing a view into the efficiencies (or lack thereof) that exist. Once this process efficiencies view is available, statistics, metrics and costs can be directly compared when provided internally versus in an outsourcing partnership.

In your research of the outsourcing market, you will find that the companies which provide I/T infrastructure outsourcing services are now well beyond the early adopter stage. They have taken the time to develop an I/T infrastructure strategy that reduces complexity and thereby, reduces costs. This has provided business technology managers with an extensive tool set of best practices, optimized processes and software tools that allow the most efficient and cost effective management of I/T infrastructure. In order to make money, outsourcing companies have had to ensure that the most efficient and effective processes are in place to keep costs down. They can do this only by reducing the complexity that is inherent in managing this infrastructure, through simplifying the steps, or processes, within the environment.

Statistical analysis theories in removing the complexity of manufacturing systems has been written about since the 1930’s so there are really no new theories to assimilate, just applying modified versions of old theories in new ways. While there are no analytical rules or formulae to guarantee outsourcing success, doing our homework on these best practices and reducing the complexity of the I/T infrastructure environment will enable business to view direct and comparable measurements, metrics and costs. The end result can go either to an outsourcing partnership, or an in-sourced model, in one case the business will realize that with enough process improvements and the proper software tools, enough cost reduction can be found that maintaining an in-sourced I/T infrastructure makes more economic sense. While in another case, an I/T outsourcing partnership will be the preferred solution. Some businesses will outsource, others will in-source – and both can save money.

So compare your processes and costs with the best practices that are available. This will resolve the in-source versus outsource paradox as a greater understanding of where costs are occurring within the I/T infrastructure systems appears. Improving the stability and measurability of your I/T infrastructure operations is a Win-Win situation, in-sourced, or outsourced, or as mentioned in the title xSourced.

The real problem is not whether machines think but whether men do.

– BF Skinner

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One Response to “It is Still Time to Consider Outsourcing”

  1. […] I have written before that IT systems are inherently complex. […]

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