CEO's View on IT Outsourcing

In the past weeks i heard two CEO's from different companies state the fact that having an in-house IT department is a large burden for them. I consider that to be ample reason to investigate the managerial view of outsourcing.

I come from an engineering, IT focused background. In the engineering world the prevailing mentality is: "why let someone do something, when i can do it myself". But this is becoming increasingly expensive, especially in the world of reducing margins, and managers are fighting to maintain or increase profits.

I've had the opportunity to do an informal interview with a CEO of a ICT consultancy company and delve deeper into the topic of outsourcing IT from a manager's point of view.

From the managers point of view, there are three reasons for outsourcing

  • costs are too large - the internal IT infrastructure or personnel costs are affecting the bottom line, and there are available alternatives that guarantee better costs management and costs projection.
  • resources are insufficient - the internal IT personnel is not sufficient to properly operate the infrastructure, and increasing this personnel is not possible due to unplanned costs
  • too much complexity - the company is not focusing on it's primary business, since it spends too much time managing it's parts.
  • resources are much more valuable if used on another task - the internal IT personnel will probably do the job better then the service provider, but the company will benefit much more if they are focused on other activities.

As expected, all four reasons boil down to the same goals - profit and manageability.

And yet, CEO's admit that there are benefits having an internal IT:

  • Excellent understanding of the business technology - an outsourced service provider will certainly have excellent general understanding of IT operations, but will rarely have an understanding of the inner technology operations of a company. This is especially true for a company in regulated industries - Banking, Pharmaceuticals, Pension funds etc.
  • An "our service" mentality - a benefit of the engineer mentality. The internal personnel will go to extra lengths to maintain or optimize the service, and will quite often do it with minimal resources and even without overtime pay.
  • Good security awareness - internal IT personnel will not focus only on providing the acceptable service level. They will usually try peculiar scenarios, think out of the box, check and triple check, in order to see whether there are security risks or breaches

After the discussion, the following conclusions emerged:

  1. A company should focus all it's resources on core business and core targets. A leaner organization is more efficient and easier to manage. If the IT resources can earn much more by being focused on other projects, by all means use them in such projects. This will be beneficial for all, since the company will reap profits, and the IT resources will understand that they are valued.
  2. Outsource services to dedicated service providers. This will provide cost savings and good capacity management. It will also keep the service provider on it's toes to provide a good service and competitive prices. An outsourced supporting solution sends a clear message: If we outsourced once, we can change you and outsource to someone else
  3. When outsourcing, do not throw out the IT. Key IT personnel should be maintained in-house and their role should be migrated from operational to strategic/tactical. This way the company will always maintain a firm grip on what services they are utilizing, and maintain an expert overseeing mechanism on the outsourced service provider

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