In the early days of technology outsourcing, the driving force behind an outsourcing strategy was cost savings -- culminating with many US firms going so far as to stake out offices in India. With the growth of the Indian middle class, the cost proposition has diminished significantly.
Today, outsourcing critics suggest that organizations are reducing costs through the replacement of expensive full time employees with less expensive contractors. This is not a viable long-term strategy.
In the organizations where I have worked, outsourcing was seen as a way to not only reduce costs, but add flexibility to the technology teams. Temporarily adding specialized skills to the bench allowed the firm to innovate, and enabled the firm's technology teams to focus on core business issues.
Today, IT services firms are expected to be strategic partners, invested in the success of their client, not just the project.
For as many reasons as there are to employ an outsourcing strategy, there are just as many reasons not to. Here is a quick rundown from a recent survey.
Reasons to Outsource
Reasons NOT to Outsource
Free up staff for more strategic initiatives
Outsourcers aren't innovative enough
Ability to deliver projects we did not have the skills to staff
Lack of confidence in IT service companies as strategic partners
Access to industry specific expertise
Outsourcers don't understand our industry
Costs are too high
Outsourcers produce a better quality product
Quality of work is inadequate
Smoother project delivery
Project delivery is unreliable
Ability to better deliver projects more quickly
Project delivery is unreliable, again
Better align internal IT organization with business requirements
Relationships too difficult to manage
Move IT from Capital to Operational expense
The bottom line is that any organization considering outsourcing needs to understand how the outsourcing business proposition maps to their specific needs.
Above reasons aside, here are the main drivers today behind outsourcing.
1. Cost Savings
From a cost perspective, the CEMEX outsourcing deal with IBM (press release), recently in the news, demonstrates the level of savings which may be achieved.
"This agreement is expected to generate CEMEX savings of close to US$1 billion during the life of the contract. Additionally, it will improve the quality of the services provided to CEMEX; enhance business agility and scalability; maximize internal efficiencies; and allow the company to better serve its customers."
The outsourcing deal is quite extensive, as it moves finance, accounting, and human resource functions to IBM. The net of the outsourcing deal is that it will allow CEMEX to focus on their core business, while the cost savings are significant.
2. Added Flexibility
When you talk to technologists today they will tell you that more work is expected to be completed with fewer resources -- stretching their bandwidth to the breaking point. They are fully engaged in the day-to-day work supporting their business, never mind the new projects that they are expected to work on.
Again, from the CEMEX / IBM deal:
"This agreement will bring to CEMEX the flexibility to face the new challenges in the building materials industry. IBM’s state-of-the-art IT infrastructure, business processes and applications will help CEMEX achieve its goals of becoming more competitive. We see our strategic relationship with CEMEX as a powerful example of building a smarter planet.” said Bruno Di Leo, Senior Vice President of Sales and Distribution for IBM.
3. Access to Specialized Skills
Skills that are in high demand can be, by definition, difficult to outsource. This may keep some organizations from taking on initiatives where they have little to no experience. Outsourcing a portion of a project or the entirety of it allows organizations to implement technologies they would not otherwise be able to.
“Together, IBM and CEMEX will implement state-of-the-art business processes, practices, and information systems developed by IBM. CEMEX will also leverage IBM’s worldwide expertise to accelerate and replicate innovative practices in CEMEX business units to achieve better customer service, increase process quality and sustain cost improvements.”
IBM's size allows them to deliver services on a global scale with a network of more than 70 Service Delivery Centers and more than 400 Data Centers, in 170 countries covering more than 40 languages.
As an aside, I continue to be amazed by organizations that throw work "over the wall." Haven't we learned the lesson by now? You cannot simply hand work over to an outside firm and expect it to be completed. Accountability does not end with the selection of the vendor. Firms need to be invested and involved throughout the entirety of the process to be successful.