In this day and age there is an assumed maturity in the way initiatives within a business are sourced and out-sourced. When it comes to IT applications and their development and maintenance, there are 4 possible scenarios that companies deal with:
- Insource - Maintain control internally (usually for reasons of intellectual property, privacy, or strategic responsiveness)
- Staff Augmentation - Save money while maintaining responsibility for application support and maintenance activities
- Co-source- Leverage external cost structure benefits and expertise while maintaining an appropriate level of control
- Outsource – Delegate IT (or selected functions therein) to an external organization for which it is a core competency
With this industry evolved over the years, the rationale for IT outsourcing decisions has shifted from cost being the sole consideration to include a number of strategic factors. No doubt cost is still top of the mind, especially with this economy. But a lot of other considerations are in play:
- Strategic Importance
- Relative impact of a service area on the company’s revenues and overall profitability
- How strategic is the function to my organization today? How does it fit
into our future plans?
- Current Capability
- Relative strength of a service area’s technical & business know-how, processes, and tools
- What are the capabilities of the function? How do those capabilities compare to our requirements, and to our peers?
- Perceived Value / Cost
- Perceived value of a service area relative to the costs incurred
- What is the function’s capacity to adapt and change?
- Ownership Preference
- Relative preference of management to own, share, or transfer out IT assets based on company beliefs, values, and sourcing experience
- How easily can the function be transitioned to another sourcing strategy?
Business Quarterly indicates 75% of US executives considered financial motivations as secondary to other strategic objectives when outsourcing. Business Week reports, “The really smart business owners have figured out how to use outsourcing as a strategic tool instead of simply looking for savings.” CIO magazine reveals strategic value rivals cost reductions for outsourcing motivations.
Based on some reports by The Outsourcing Institute the top reasons for outsourcing look as below:
No matter what the goals, the key success factors of outsourcing are always:
- Be clear about objectives– cost, process improvement, and the ability to focus on the core business are the most common
- Incorporate business outcomes as a performance measure from the outset of the arrangement
- Look beyond price and promises of cost reductions for an outsourcing provider that brings a wide set of skills and strengths, and a long-term track record of delivering results
- Give as much attention to performance measurement and the quality of your relationship with your provider as you do to the contract
- Use active governance to manage the outsourcing relationship for maximum performance
- Task talented executives with optimizing outsourcing arrangements