Outsourcing - Management View
Gerben Otter, CIO of Adidas, commented in the CIO-Managzine of March 2003
that Outsourcing is an Instrument that needs to be handled with extreme care.
Actually Outsourcing must be seen as a management instrument to support
certain (selected) organizational changes.
If Outsourcing is not used as a management instrument for organizational
change, then only those tasks should be outsourced that are well under control,
well documented and only require "hands". Ž
Outtasking
Outsourcing as a management instrument has many faces
The reasoning for outsourcing can be very different depending on the company
situation:
Outsourcing is sometimes seen as a "universal cure" for all sorts of
organizational problems. The reasons listed above are very valid but some of
them are also very dangerous if the outsourcing is done in the wrong contractual
context and/or with the wrong mindset.
Besides the required Service Levels (SLAs) there are two main factors that
determine the cost and setup of your outsourcing deal:
Keeping in mind that you will only receive what you pay for, there are a few
possibilities to limit cost in an Outsourcing Setup.
Limiting Cost means finding the right balance between Service Levels,
Flexibility and Influence.
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Outsourcing is the perfect instrument to stop dynamic development within your
IT-Department. This is one of the "built-in features" of outsourcing.
With limiting Flexibility and "internal dynamics" also your IT-budget
will become controllable, if you at the same time create a stricter
cost- and budget-awareness with your users.
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Outsourcing will by default reduce the headcount on your pay-roll. It will
also reduce your direct influence on staffing and skill.
If the need for Headcount-Reduction comes with "Cost Reduction" and "IT
Freeze" it will be the right action in the situation.
As soon as your business will require fast and demand-driven response, your
outsourcing setup will be challenged. Keep an eye on the duration and
exit-conditions of your contractual setup. Otherwise you might be limiting your
business by missing responsiveness to changing requirements.
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In a long-term planned centralization of the IT-organization, outsourcing can
be a very valid option to re-locate and/or remove local staff without too much
HR-hassle.
It must be taken into consideration that the flexibility during the
centralization will be very limited.
This step should then go in line with a central construction of an
"outsourcer-type" organization internally.
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Is one of the high-level fairy-tales most outsourcers try to tell during
sales negotiations.
Reality usually shows that "economies of scale" are a synonym for service
(level) reduction and standardization to the outsourcers' standards.
Utilizing "economies of scale" with an outsourcer means that there is nobody
any more who feels responsible for solving - not even detecting - problems, as
there is nobody any more dedicated to technical issues of your environment.
If there are economies of scale in your organization, that can be utilized,
you will be able to utilize them without an outsourcer. If you decide on the
outsourcing path for this reason, you are running down a very dangerous path
unless you do not require IT to run your business.
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If you have a situation where your IT-Department does not deliver as the
business requires and you allow sufficient time for the turn-around, then
outsourcing will help you to get your mind free to concentrate on the re-built
under the following conditions:
- Your contract is set up professionally.
- You have dedicated and experienced delivery and contract management
resources to handle the day-to-day nightmare.
- You allow sufficient budget to partially run two departments (internal
and outsourcer) in parallel.
- Your contract termination is carefully adjusted to your
rebuild-planning.
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The most sensible way to achieve this goal is
Out-Tasking to
very skilled specialists. They will in return be willing and able to support you
with building up the required knowledge internally.
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Is another one of the high-level fairy-tales most outsourcers try to tell
during sales negotiations.
Outsourcing will in general not increase service reliability!
Service levels are primarily improved by
- process discipline,
- skill and
- motivation.
Outsourcing will only improve process discipline.
Process discipline, Skill and motivation are directly linked to management
skill. Maybe there is a less painful cure for your problem than outsourcing.
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The most risk-free version of outsourcing is out-tasking of well documented
well known and controlled activities.
Outsourcers are very good at executing repetitive tasks according to agreed
instructions.
Out-Tasking implies that the overall Responsibility and the Overall
Management still remains with the customer - with you.
Quoting Gerben Otter - CIO of Adidas: "Don't loose the ball during the game!"
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