Outsourcing has been a staple of corporate strategy for years, but CIOs may be getting weary of it – and wary of its consequences, says silicon.com editor Steve Ranger.

Outsourcing has long been a standard component of business strategy, a popular choice for firms keen to get rid of tech infrastructure that provides little competitive advantage.

The idea is that outsourcers – with their scale and greater experience – can deliver IT as a service more efficiently and cheaply than their customers ever could through having their own IT staff. Add in offshore support and the cost savings really start to pile up, so the argument goes.

It’s persuasive and the idea of getting someone to take away the complications of owning and running IT, and replacing it with a predictable cost for a service, has been highly attractive to boards – and CIOs – for years.

CIO and staff

CIOs worry about what outsourcing – and particularly offshoring – means for the longer term health of the UK IT industryPhoto: Shutterstock

A significant proportion of outsourcing has been about two things: cutting costs, and offloading a problem – for example, an IT department loaded with expensive staff serving a creaky, ageing tech infrastructure.

It’s rarely about innovation. I’ve seen very few companies bragging about how their IT outsourcing strategy has cost more than doing it inhouse, and still being happy with the additional cost because it’s boosted their capacity for innovation. But perhaps I just missed that case study.

And maybe it’s because the narrow focus of outsourcing has been on cutting costs and offloading problems that I’ve been picking up on a lot of outsourcing fatigue among the CIOs I’ve been talking to.

Perhaps this is from a small sample, but I hear CIOs and IT directors expressing doubts about the wisdom of outsourcing, on a number of levels.

Now, such reservations aren’t new in themselves but rarely have I heard so many CIOs and IT directors sounding so uncomfortable about such a key element of business strategy.

First, they complain that it doesn’t always work. As soon as you announce outsourcing plans, you lose your best people, who don’t want to stick around for all the pain and uncertainty of the restructuring. And when the outsourcing deal is done, outsourced workers and their new managers are far less loyal and no longer willing to go that extra mile for your business. Those attitudes make IT innovation far harder.

Secondly, at a more personal level these CIOs argue that outsourcing often means…

…accepting IT is no longer an enabler – and that the board would prefer to get rid of it rather than make it relevant. For these CIOs it’s a defeat because instead of being a source of opportunity, IT has become a problem to be fixed. And these are people who enjoy building teams, not breaking them up.

Thirdly, there is an increasing worry about what outsourcing – and particularly offshoring – means for the longer term health of the UK IT industry and the country in general.

That’s because while outsourcing and offshoring may make sense for an individual organisation in cutting overall costs and a big chunk of capex too, when replicated across a country the effect on skills and employment can be quite different.

Several CIOs pointed to increasing youth unemployment, and worry how much their own actions in offshoring entry-level jobs are contributing to the problem. It’s an issue that’s worrying many. If UK businesses are giving the impression that IT is irrelevant and to be outsourced as cheaply as possible, why would anyone want to train for a job in IT?

I don’t see outsourcing going away. Not all IT has to be done inhouse, and there are compelling economies of scale especially in commodity services – cloud is eating up a chunk of the IT department, too. But it might be that more nuanced, smarter hybrid approaches to outsourcing will become more popular.

And yet it’s worth pointing out that, while these CIOs were depressed by outsourcing, they were still positive about the future of the IT organisation. Yes, it’s likely the IT department will get steadily smaller because what was once complex will become simple – automated into the cloud or outsourced.

But the idea of driving innovation through technology isn’t about to vanish – and having CIOs building brilliant teams of smart people who can come up with those ideas, and implement them, is going to be key.

Steve Ranger is the editor of silicon.com and has been writing about the impact of technology on people, culture and business for over a decade. You can find him tweeting @steveranger.

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