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10 things to consider when you outsource IT

Some IT organizations are reverting to an 'in-sourcing' model because outsourcing hasn't met their needs. Here's a look at both sides of the equation.

Organizations have been outsourcing pieces of IT for decades, but only recently have we seen large enterprises reconsidering their outsourcing strategies -- and beginning a countertrend of in-sourcing.

New in-sourcing activity by no means portends a significant decrease in outsourcing. But it is compelling IT to take another look at this area, as factors besides "least cost" become more important.

Here are 10 things to include on your due diligence list if you are considering outsourcing IT.

1: Quality

Quality when you outsource can be greater or less, depending on what you're outsourcing. Many enterprises opt to outsource IT functions when there is a shortfall of U.S. skilled labor or in the skill sets of their existing IT employees. In other cases, menial or non-strategic IT tasks are outsourced because they can be done for less.

The decisions in cases of skills shortfalls come about because enterprises are getting the quality they want at the prices they like. This has worked well for many companies, and it's one reason why outsourcing has thrived. On the other hand, you sometimes get what you pay for. Outsourcing customer support for IT-related functions is a prime example. Here, enterprises might pay only a fraction for the services of offshore tech support reps (when compared to onshore workers), but their customers bear the pain in the form of language barriers and extended resolution times for tech issues.

2: Follow-the-sun IT

Outsourcing gives enterprises enormous opportunities to truly have a follow-the-sun workforce that never shuts down. "This worked great for me," said one former manager of a U.S. telco. "We developed the specifications for a large system we wanted to build, and we outsourced all the programming work to a contract programming firm in India. By the time we got to work the next morning, all of the previous day's programming tasks were complete and waiting for us. The work was excellent. It exceeded our expectations."

3: Communications

Outsourcing can present unique communications problems that not only encompass language, but also culture. In some cases, onshore managers tasked with managing an offshore outsource firm relationship should receive special training in cultural sensitivities, and CIOs should plan for this. It is also a good practice to put all work instructions in writing, to avoid language difficulties that can arise when instructions are given verbally. Finally, any development project that gets outsourced (e.g., a new software system) should include comprehensive documentation of the software itself. The outsourcer should take responsibility for specifying how the documentation should be done -- and the outsourcer should plan to QA the documentation as well as the code. This is the only way an outsourcer can ensure that it will be able to take over the code if it ever needs to.

4: Staff morale

When companies outsource all or part of IT, onshore staff morale takes a hit. This is why it is extremely important for IT managers to explain to staff why a particular project is being outsourced -- and how this fits with IT's other strategic goals. The more staff understands about why decisions are made, the better they can come to terms with those decisions and assess where they stand as long-term employees. They might not always like the answers they come up with, but at least they're not in the dark.

5: Company Perception

U.S. unemployment has remained high throughout the economic recession, so when enterprises make a decision to move work offshore and citizens hear about it, there can be significant backlash that affects enterprise reputation and sales. CEOs, CIOs, and CFOs need to be aware of these potential revenue and corporate "good will" impacts when they consider outsourcing.

6: Ability to hire and retain employees

New IT areas, like business analytics and Big Data, are driving the need for talented IT workers who are in short supply. If enterprises want to compete for this talent, they have to be perceived as good places to work by those they are trying to attract. Getting employees to sign on can become more difficult if an enterprise has a reputation for outsourcing. Retaining employees can be equally challenging, especially if they have skills that are in high demand.

7: Intellectual capital

Anytime you outsource work, you risk losing the intellectual capital invested in the project. There are two "risk" repercussions: 1) You may never be able to develop the internal know-how to extend on an application you outsourced, because that knowledge is with your outsourcer; or 2) You incur the risk that the concepts behind your work products might turn up in work that the outsourcer does for others, and that can erode your competitive advantage. One of the present drivers now for companies that are moving toward in-sourcing is a concern that they no longer have the internal know-how in their own IT staffs to run their businesses.

8: Agility

Outsourcing can both help and hinder corporate IT agility. It helps when IT lacks the internal talent or the time to complete a major project that the company needs done. It hinders when intellectual capital is lost that limits a company's internal ability to respond to new business conditions with IT. A CIO considering outsourcing must weigh these pros and cons against each other.

9: Global events

Outsourcing can give an enterprise 24/7 global presence and a follow-the-sun workforce, but it also carries inherent risks when natural disasters, political events, or other disruptions to work occur. Any enterprise IT organization that off-shores should have in place business continuity and failover plans for work as well as for IT data center operations.

10: Resource management

It is more difficult to manage a geographically distributed workforce than it is to manage workers who are in relative geographic proximity. Different time zones are one barrier to project collaboration. Another is the inability to have valuable face time with staff -- something that online collaboration tools, instant messaging, and email still can't replace. IT managers considering outsourcing should have a well-conceived plan for project management and communications in place before they initiate a work relationship with an outsource firm.

About

Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President o...

10 comments
Deadly Ernest
Deadly Ernest

the outsourced organisation. I know of one company that came up with what was then a radical application of some of its existing IT technology and hardware. However, the company involved had been bought out by a major corporation just over a year earlier and had outsourced all the coding and software development done within the corporation as they didn't see it as a core function. Well, the project was placed with an outsourced software development mob with all the appropriate contracted safety clauses. Once the completed project was done, tested, and paid for it had the promise of putting the company two years ahead of their competitors. Within a few weeks of the software being made available a competitor's product that worked exactly the same was on the market for only two thirds of the price. Lengthy investigations resulted in the outsourced company having to pay hefty penalties, but the penalties were only about ten percent of the lost profits caused by the rival product. What had happened was the company the work was outsourced to had hired extra local staff to work on just that project, but never had them sign confidentiality agreements with penalties as that wasn't common in that country. So after completing the project for the first company they made another version with slightly changed code and sold that to a competitor for a huge profit. Lesson learned, when you outsource work you have no idea or control over who the service supplier hires or how they go about the work.

mdwalls
mdwalls

Outsourcing any IT function (whether down the block or overseas) can make good business sense. However, most analyses ignore a major risk issue -- what do you do if the outsourcing deal doesn't work out. If the scope is one project, you can cancel the deal and regroup (though that may be quite damaging). If the scope is a major chunk of IT infrastructure, you may not be able to just cancel. You "sold off" the hardware and support staff and at best it may take many months to replace those critical resources. More importantly, you no longer have the accumulated experience with the technology and the organization that your original staff had accumulated.

urkiddinme
urkiddinme

I have found that outsourcing (hiring those from another country) can create many issues, especially in programming. The never-ending mentality of "I'm always right" and "The men are dominant" by those outsourced can be a constant headaches for those who are actually employed by the company. Not to mention the differences in programming standards. For instance, 0 = True and 1 = False, not placing necessary comments to help others that may take over the project, placing multiple (20+) stored procedures on one page, and multiple functions in one script. It's encountered on a frequent basis. A company may think that they're getting a great deal by hiring the lowest bidder, but the headaches it can cause to those who maintain the applications can be enough to cause your valuable developers to find work elsewhere.

Pete6677
Pete6677

What will outsourcing REALLY cost? Outsourcing the entire IT department of a medium/large business to a single vendor such as IBM or Accenture will almost always end badly. The upfront cost may sound low, but once they have you locked in the fees will only escalate. The first time the contract comes up for renewal, the fees will practically double. The business will concede and pay more, as the cost of switching to another vendor or bringing it all back in house would be prohibitive.

Regulus
Regulus

Assuming 'Outsourcing' = Offshore, Will your business be perceived as Un-American. (Are you now, or have you ever contemplated, at any level, Outsourcing jobs to any other country?)

CodeJoe
CodeJoe

That's a great read especially for anyone who'd be having any doubts as to what factors should come into play whenever making IT outsourcing decisions. I work in an IT outsourcing firm based in Romania(dotnear.com) and we also have a new trend that makes outsourcing better, we also speedily fly developers to any corporate premises whenever there's a fire that needs to be put out promptly by experienced and ingenious professionals.

Caladan607
Caladan607

Very straight-forward article that lays out the basic issues to consider. Well done Mary! I manage offshore developers in projects I oversee in the US. The need for a local English speaker who connects & communicates frequently with all team members is critical. The need to understand the client and their needs is primary to any project. Maybe not as good as an insider, but much better then relying on a foreigner who has cultural, language and perception challenges that often leave clients feeling misunderstood, bypassed and frustrated. While I am often tempted to go back to perm or even onsite work for financial stability, I love managing multiple projects and working with US clients and offshore developers. The points made about reasons to in-source are also spot-on. The project and company needs determine which is the better methodology for each project. There are valid reasons for both in & out sourcing work, depending on the company, project and current needs. When off-shoring is selected, I believe a good local project manager enhances the likelihood of success though sometimes cost and simplicity might negate the need for such oversight. I just wish more companies could make the commitment to telecommuting. This world would be a better place if more companies moved some of their workforce to part time telecommuting. We all know the advantages - less traffic, happier & stronger families, more efficient workers, lower costs, stronger neighborhoods, etc. Pie in the sky? Perhaps, but the advantages cannot be denied for many organizations. Rob

2000421348
2000421348

I'd differ from what you mentioned. The 'I am always right' and 'dominant' attitudes are mostly personality, and individual differences rather than 'Programming' (of course) - and that can happen anywhere and everywhere, not necessarily in an outsourcing scenario, but also in case of a new (FTE) hire. Now to mention about the coding / programming standard differences – it is exactly that! A lack of established coding standards, and that again differs from programmer to programmer, and firm to firm. Practically no one, who has basic education into computer science / programming, would ever use 0 = true and 1 = false. Programmers learn those basics with Binary codes (and practically while learning their basic Mathematics :-) ). Not commenting properly, unstructured code, naming conventions – is all about following best practices, and laid out coding standards; and if you’re a programmer – you’d almost certainly find those different in the code written by your peer sitting in the next cube (we don’t need to search for peers across oceans and lands to find those examples and differences). The instances you mentioned are all about a decent individual, matured programmer, and established processes – or rather lack thereof; and none to do with leveraging the potential of outsourcing which = Smartsourcing!

agajaria
agajaria

It is pure economics. Would the manufacture of Honda or Toyota cars in USA be considered un-Japanese? It is all Multi nationals, they have business everywhere and they pick the best solution from all the places to maximize productivity and profits. They find cheaper labor in India, and E.Europe to develop software.