Strategic Outsourcing: Testing the Outsourcing Waters and Staying Afloat

Before Gertrude Ederle began her historic swim off of Cape Griz-Nez, France, she
underwent extensive training for endurance and technique—even though she was
already an accomplished record-breaking swimmer with Olympic medals to her
name. Outsourcing IT may not garner the same attention as being the first woman
to swim the English Channel, but it is no less important to gather as much
experience and knowledge as possible on a small scale before diving in for the big
swim.

The trend toward IT outsourcing is increasing dramatically. According to a report by
Foote Partners, as much as 45% of North American IT work will be outsourced by
2005. And there are good reasons behind this trend. Bruce Caldwell, principal
Gartner analyst believes companies can generate 20-30% savings through
outsourcing. This substantial savings potential isn't easily overlooked, yet it isn't the
number one reason companies are choosing to outsource right now. In a recent
survey by The Outsourcing Institute, the primary reason behind outsourcing is to
improve company focus. Other motives include freeing up internal resources,
accessing top-notch capabilities, and accelerating time to market. The survey also
indicated that 55% of firms who outsource do so within IT—more than any other
area.

As more companies begin outsourcing some or all of their IT function, it becomes
difficult to ignore the competitive pressure. With competitors achieving their IT
needs at 20-30% less cost, and getting ahead in the market because of increased
focus within the company, those who ignore the outsourcing trend could potentially
lose ground very quickly.

At the same time, outsourcing horror stories abound. According to Gartner research
firm, half of the current outsourcing projects will not meet the company's
expectations and will be considered failures. While the vast majority of these failures
are only minor disappointments where the company decides to outsource to another
vendor, certainly a few are major catastrophes. An anonymous case study in IT
Metrics Strategies discusses a CIO who chose to outsource to beat competitors to
market. The outsourcer had promised to meet a deadline his staff had said was
impossible. When the outsourcer failed, the CIO couldn't rebuild his team fast
enough to finish the job. In the end, the product never got to market at all.

So how do you secure all the benefits of this outsourcing wave without getting
dragged into the undertow? The key is strategic, selective outsourcing. According to
Corey Ferengul, VP of the IT research firm META Group, an increasing number of
companies are choosing to outsource non-core IT tasks. Common responsibilities
going to third-party providers include Web hosting, call centers, data storage, and
database administration.

"There's a learning curve and a life cycle to outsourcing," said Caldwell, "and it can
be expensive finding the right vendor, as well as going through the transitions of
taking your operations to that vendor." Stable, yet customizable IT functions provide
an excellent training ground for outsourcing. Any function with known benchmarks
for performance and results, as well as available, reliable outsourcing partners is a
good place to start.

Ultimately you may want to outsource your entire IT department, but first you need
to get a handle on managing an outsourced process. Some companies may discover
they don't need to incur the risks and organizational chaos of switching to total IT
outsourcing. By nimbly carving out and outsourcing small pieces of the IT function
that deliver the most cost and quality benefit, companies may find they are already
receiving maximum savings at minimal risk. However, they will have done some
carefully planned and executed experimentation before making that decision.

Gertrude Ederle once said of the sea "I never feel alone when I'm out there." The
channel became her ally as she swam her way to England in record time. By starting
on a small, strategic scale, you'll turn IT outsourcing into your ally rather than a
cold, tumultuous, foreboding sea.

Jenne Wason

Jenne works for The Pythian Group, a leading database management firm.

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