The think tanks of the IT industry usually ponder which part of their IT function could be outsourced and which part needs to be outsourced and which to keep in-house. In the process of retrospection, they ask themselves, does this IT operation give you a strategic advantage, or is it one commodity that cannot differentiate us from competitors. In case the operation is a core service, they would keep it in-house. It is one commodity – mainly one that a supplier says he/she would be able to provide for much less than their IT department – it is better they outsource.
However, all IT think tanks understand that’s not as simple. Between the year 1990 and 1994, the IT businesses around the globe were struggling with the issue of outsourcing IT functions. Most businesses concluded that, in maximum cases the problems and disappointments came from strategy-versus-commodity approach.
IT outsourcing services could seem lucrative, yet it has met with numerous failures. To gather the understanding of failure of this approach, understand the underlying assumption – managers could come about placing big bets regarding their markets, technologies that would come in future, capabilities that suppliers come with and the motives with a high deal of certainty. The fact is managers can’t as the world is too complex, unpredictable, and turbulent. There are instances where managers have signed five or ten or even longer years of contracts not considering the fact that often business conditions can be predicted even for two years – forget about the technological changes. They have to look to outside providers so as to gain access to best of technology plus talent at a low price where they can’t even take into account how to maximize a provider’s profits so that outcome is influenced.
Most of the Managers are Challenged in terms of Understanding or Managing IT
Owing to those reasons, the issue whether your IT operation is a commodity or strategic is secondary. Any company should have an overarching objective to maximize its flexibility also control for it to enable maximum flexibility plus control so that it could pursue different options as it understands more or as the circumstances change. The method of maximizing both control and flexibility is to enhance competition. Managers should further make onetime decision if they should outsource or should not. Rather, they need to create an environment where potential suppliers both outside companies also within internal departments of IT are non-stop struggling to give IT outsourcing services.
There has been an explosive expansion in the IT industry that has enabled businesses to create this kind of competitive ambiance. In early 1990s, when businesses were trying to leverage IT operations to outsource in bulk, there were just a handful of large suppliers to pick from. Now there are many more to pick from. Apart from that, companies like EDS, IBM, and a host of niche companies that offer specialized services like application development, implementing new technologies, applications developments, also network management. Hence, organizations possess the option of segregating their IT requirements into smaller pieces and giving them away to multiple providers. This approach enables it to be much less expensive to switch over to the suppliers or to get a service back in-house in case a supplier is disappointing.
The managers of several countries have already accepted a selective approach towards outsourcing. However, even they still feel their acts forward. They understand that the commodity versus conventional strategic approach comes with flaws, however, they lack a feasible framework of replacing it.
While conducting our research, we looked for some individual practices to source IT. Not a single company, had however combined all of these into a blueprint that could be used by others. Equally important if not more, none came up to construct an analytical framework to explain why these practices worked. What would be the exact look of such a framework?
For those businesses that follow strategic systems, the priority would be maintaining high levels of service. Some of the activities were found to be too critical for outsourcing to an outsider. For instance, the core functionalities always need to be entrusted to the in-house team. Moreover, certain parts of the task force in IT might be too critical to hand over to others.
Picking up the suppliers
After having decided, what to outsource, the first step was to design a process. The team was then of the opinion that seeking comparatively short contracts was great idea. It was also decided that businesses would need soliciting separate bids for every service. By adopting this approach would make sure that business would tap the strength of the supplier and prevent any single supplier from taking too much power.
Constant learning
In order to manage certain IT functions of the company, your business would need to understand the level of difficulty of the job. At times your team would need to shift their base from the expertise they possess and come to learn something new. Otherwise, the technical glitches would again have to be maintained by an outsourced team. Though outsourcing may seem a better option, having learnt the new language or technique would eventually save a lot of money and cut down on cost.
Selective outsourcing
While considering outsourcing, there were several challenges. The team of management had no clue who to outsource and which part should be exclusively outsourced. Further, if you are a global player and have maximized flexibility plus control, the managers would have to seek bids from several suppliers. After carefully considering what your suppliers are extremely good at and can manage without interference, you need to be selective in outsourcing your functions. However, careful considerations must be taken to outsource even when you have been able to select the specific functions you wish the third party to consider.
What kind of IT in-house team would you need to ensure you receive the most from the IT contracts?
Once your company has decided which portion of the systems or services it should outsource and has managed to negotiate contracts, it would require another team that would serve as contract administrator and system or service integrators. Certain team members would ensure that suppliers provide the services they have been agreed upon and maintaining that the user’s reasonable requirements are satisfied. They challenge the suppliers if the terms of the contract are not met, deal with all the disputes of the interpretations also assess all the penalties. The assigned team also gets to decide when the users are seeking too much or too less to the suppliers. There are several players who fail to take advantage of those suppliers have agreed they would provide. Such teams mostly save companies money by asking their managers to think twice before they insist on extraordinary services.
The crux is, in this case, is, business first needs to take care of their personal research and understand carefully what they would require specifically to outsource to the IT outsourcing companies and how they would monitor plus regulate these functions to receive maximum output while having to work minimum on these functions and save both time and cost.
