Sourcing: Out and In
While many executives in developed nations think of outsourcing IT services and business process operations as a way to cut costs, global experiences show that outsourcing initiatives don't always yield the expected outcomes or values. Organizations and senior executives must address many factors when deciding where best to source IT or other services.
The December 2006 issue of Cutter IT Journal attempts answer the pressing question, “Sourcing – out or in?” and examines from different perspectives the pros and cons of outsourcing and insourcing.
The discussions in this issue start with premise that “outsourcing may no longer be an issue primarily of cost, but rather one that involves a more complex set of business issues,” and highlight the following:
§ "When outsourcing, the relationship between client and vendor has to reflect the role of the outsourced service,” and outsourcing a strategic project calls for additional caution.
§ "Outsourcing is neither simple nor a transaction -- it is a complex strategy for managing the delivery of services. The relationship should be part of that strategy, not an unintended consequence of executing a contract."
§ Key factors in building and managing these relationships include communication, culture, planning, behavior, and measurement.
§ Cultural fit is a critical success factor in outsourcing deals. “Differences in corporate culture and business priorities were significant factors in the ultimate project failure in the new outsourced environment” of a of a previously successful software development project. Even though many of the project personnel remained the same -- as the team was transferred to the outsourcing company -- the new corporate environment helped contribute to the failure.
§ Decision to insource or outsource “is more likely to be driven by availability and the ability to train and retain qualified human resources and coordinate work than by other factors." Most often it depends on the skills, strengths and weaknesses, and experience of people -- both the client’s and the supplier's.
The articles in this issue provide suggestions for how executives can go about making decision on sourcing IT services and share some experiential knowledge. A common key theme in these articles is that “regardless of which way you might go, the governance considerations are usually larger in scope and magnitude than most companies estimate.” Other themes are: “outsourcing initiatives are not necessarily easier, cheaper, faster, or better than insourcing” and “consideration of core business attributes is a fundamental decision factor.”
Critical success factors include achieving excellence in the areas of communication management, cultural management, and delivery on commitments.
Now back to the question, “Sourcing -- should it be out or in?” The choice seems to depend on “the capabilities and attitudes of people, the business practices used, and the culture and relationships of the participating companies.”
Perhaps a simple answer is, neither “out” nor “in,” but the both – “Sourcing: Out and In” – as the Guest editor and consultant David N. Rasmussen, concluded.
What is your answer? We look forward to yours.
-------
San Murugesan, Professor, Southern Cross University, Australia
