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.
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."
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.
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.