At some point in a CIO's career, he/she is likely to face the question of whether to outsource or not, or an outsourced environment may have been inherited. Outsourcing involves special relationships between IT and external organizations that provide services-services that critical business processes often depend upon. Successful CIO's must therefore ensure that these special relationships are properly managed and controlled, and need to understand the different types of outsourcing. We will discuss:
- What is outsourcing
- Why outsource
- What CIO's must understand prior to outsourcing
- What are the options
Outsourcing is work done by non-company staff to be performed, completed, tested, and integrated back into some program or system. The decision to outsource can be brought about by a number of factors within the organization, or as a result of forces beyond the control of the organization. For instance:
- Heavy workload for IT organization
- Unacceptable cost to perform service(s
- Lack of time or urgency
- Lack of expertise or experience
- Gain knowledge base
- Transition to new technologies and/or existing technologies
- Improve service levels
- Add to existing staffing levels quickly
- Address operational, functional, or technical shortcomings
- Return the focus of staff to core competencies
- Accelerate benefits by rapidly implementing services or projects
- Reduce costs in a specific functional area;
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Reduce capital costs - Reduce repetitive operational costs
- Enable business strategies and or transformations
- 24x7 availability
- Defined and stable requirements
This is why the CIO must clearly understand what outsourcing is about. Therefore, the CIO:
- Must also understand the company's overall strategies
- Must be aware of the views on outsourcing
- Must see the potential impact this decision can have on the IT organization
- Must see the impact on the company as a whole, in terms of morale, effectiveness, financial options
- Must be aware of the long or short-term goals across departments
- Must understand what parameters are driving him down this path
- Must foresee the outcome expected
- Must establish a timeframe in which it should be addressed
- Must understand what services are available, who can do it, where can it be done, how quickly it can be achieved and at what price.
Once the CIO must then decide which option(s) compliments best the company's overall mission. Realistically, a one-size fits all solution simply does not exist, no matter how badly the outsourcing vendors may want the CIO to believe it, but it can certainly improve a situation if managed correctly. The options are:
- Onsite/Project Support
- Offsite/Offshore
- Offsite/Onshore
- Functional Support
Onsite/Project is also known as consulting or contracting. A consultant is there to provide guidance and/or options without prejudice and has a much broader understanding of the business, the technical and functional environments, and the work to be performed, but he/she may not necessarily be the subject technical expert. A contractor is there to perform a certain defined task as the subject technical expert.
This work is performed at the customer's premises and is typically located with the project, program, or functional team for a set period of time. Staffing methods can vary from hiring independents to hiring a team, either independently or from a professional organization directly. The advantage is that it can indeed fill some short term needs, costs will be at market rate, and customer has flexibility to terminate the contract as and when required as long as terms and conditions set forth in the contract are met.
Offsite/Offshore services have become very popular. Its popularity was driven by cost-effectiveness, the need to develop solutions very quickly, and the availability of technical resources on foreign soil. Overall, savings can be gained, if the project is monitored and managed correctly. The CIO is still accountable at the end of the day to ensure goods are delivered in the time promised and excellent project management skills and people communication skills are developed to ensure successful completion.
Conducting business globally has also broken borders and boundaries due to availability of 24x7 infrastructures. This option of offsite/offshore can be a viable option for a CIO.
Keeping in mind the realness of political and economic instabilities of countries involved especially with terrorist activities on the rise and the possibilities of sabotage. The risks must be weighed equally with other alternatives.
Offsite/Onshore really means outsourcing to another organization within the same country or region. The benefits are the development or work to be done is removed from the customer, thereby saving the cost of infrastructure to support the work effort.
This option can be used as a stepping-stone for some CIO's to eventually go the full offsite and offshore model, as processes can be tried out and ironed out. This onshore option can also be used as an alternative to onsite consultants.
Some outsource companies offering this solution claim lower regional cost in various parts of the country, but beware of shared resources; the lower cost may be derived from the outsourced resource working multiple projects, when they should be working on one customer's project. In the case of technical infrastructure staff this practice may be acceptable, but if deadlines are not met it will be hard to prove whether the resource was actually working the requirements, and/or what lead to the delays.
Very large companies benefit because of multiple divisions served by a corporate-owned IT organization. The money stays within the corporate entity but not necessarily within the division that spends it, and each division is responsible for its own and can use it at its discretion. If the IT division has a location nearby and can provide the services offsite, this may become an attractive alternative to either onsite or offshore sourcing, depending on the work to be performed.
Functional support means to outsource an entire function. Outsourcing an entire function or service has its own set of advantages and disadvantages. Each CIO has to weigh the options pertaining to his/her own corporate culture, its needs, and requirements, taking into account the corporate political climate and what changes are needed. It's best to use this option if the function is not:
- Strategically important
- Required 24x7 support
- Within the core competence of the IT group
- Too small to support or geographically challenging
- Experienced
A CIO should assess the situation and the potential impact on the entire organization is fundamental. If a function is outsourced, be prepared to manage the relationship as with any outsourced work. Manage the provider and don't let them manage you or your staff. Also remember, when selecting your functional support provider, that his entity will become an extension of the IT organization, and as such will also carry your business knowledge.
Outsourcing is an option that goes back to cultural fit, company politics, and past experiences in this realm. There are no defined best practices that can be taken to ensure 100 percent success. But weighing all the factors and options presented and then taking a course of action suitable to the particular situation, the CIO can remove at least some element of risk.
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