Outsourcing is Wonderful Part 2

In my post last week, I looked at some of the cost-related arguments for outsourcing and why they are flawed. This week, I’ll look at the remaining arguments.

Focussing on the core business.

It is tempting to take the complex and messy activity of IT, package it up and hand it to an external organisation with the intention that management no longer needs to focus on messy and supposedly non-core activities such as IT. But who can argue nowadays that IT is a peripheral activity for any major organisation? Just look at the recent impact of British Airways IT failure. Tens of thousands of passengers stranded, financial impact estimated over $100 million, huge reputation damage. BA say the failure was not related to the recent outsourcing, but did the outsourcing mean management didn’t need to focus on the failure? Hardly, it just makes the resolution more complex when multiple parties are involved and each naturally looks to avoid or at least minimise their blame.

Nearly every key process is underpinned by computer systems; orders flow seamlessly from a customer portal through pricing, credit check, logistics, invoicing, cash collection and so on. Does senior management really absolve itself of interest? Of course not; if there are immediate or long-term system issues, then these are very material to the corporation. There is also the added complication of outsourcing, particularly around contract renewal time where this requires huge focus and effort.

Gaining access to scarce skills and knowledge.

This can certainly be necessary for a small / medium size company that cannot justify the cost of niche technical experts, but a major multinational will have the scale to do so for most roles. Very niche skills can be bought in where necessary for key stages of a project or for an operations crisis; the corporation will have sufficient leverage with hardware and software suppliers to request experts in either event. In any case, in my experience, in house staff are often more skilled than ‘experts’ offered by the supplier or other parties. Plus of course, when you outsource you give away a huge pool of expertise that can otherwise feed through into the rest of your organisation.

Dealing with problematic projects or operations.

Sometimes outsourcing is invoked as a way of addressing an ongoing problem with the current organisation, applications or infrastructure. Layering the complexity of outsourcing over an existing problem is however likely to make things worse rather than resolve it. Better to deal with the issue first while management has direct control, then outsource a stable platform if you really must.

What do you think? What’s your outsourcing experience? Please comment below.

Next week. Why consolidation and globalisation fail to deliver business benefits.