Insourcing and Outsourcing
A key area I would like to discuss this month is this trend we see of our larger enterprise customers moving either all IT functions or key IT functions back in house from being outsourced. Many of the larger organizations that we work with have long ago adopted outsourced models for their IT in which they have outsourced the overall responsibility for their IT and particularly for the IT infrastructure—their servers, storage, network, helpdesk, and key applications environments. And by overall responsibility I mean it includes the high level and high value functions of architecture and engineering as well as the day to day operational responsibility of running the environment. This may include the actual infrastructure technology, in terms of ownership, or a combination thereof. The technology may sit at the enterprise location or at the location of the outsourcer. But the bottom line is that someone else has responsibility for the technology for the IT infrastructure and resources associated with operating that infrastructure.
Why did organizations do this? It was a very big trend of organizations in the 1970's, 80's and 90's first and foremost to reduce costs. Let someone else run these environments of IT infrastructure technology so that they do not have to. After all, these outsourcing organizations are very efficient and skilled at what they do; that is their expertise. It's logical that organizations would move in that direction and lots of them did. And it makes perfect sense as to why.
And BTW, as I write this I have nothing but adulation and respect for the organizations that provide IT outsourcing services. I believe it's a testament to them that they can so efficiently and cost effectively run an organization's IT environment and become ingrained within that environment in a way that becomes invaluable. These IT outsourcers have a proven, systematic way of providing their services that helps companies save money and become more efficient. However, it's because of this long standing systematic approach and the constant changes of technology and IT trends today, that organizations are changing their thoughts and views on outsourcing.
We see that organizations that have outsourced are investigating whether it still makes sense to outsource, and if so, do they still outsource all of the functions that they had in the past? Why are they reevaluating this? There are many reasons. Are they truly still saving money in the ways that they had anticipated when they originally decided to outsource? Sometimes it could be just a change of key personnel at the top of an origination who are looking to reevaluate everything—including IT resources and technology. Or could be something as simple that they want to gain control back around these key functions, and therefore want to bring them back in house.
As I mentioned, many have outsourced their architecture, engineering and operations functions. This means that the high level functions of architecture and engineering are owned by someone else outside of the firm in an outsourced capacity. The architecture and engineering functions are generally considered to be high level, high value functions that help organizations in driving innovation and differentiation in the market. Some organizations are just not comfortable anymore in leaving these important functions with an outside firm, versus having them in house.
Another reason organizations have voiced as to why they are looking to reconsider the outsourcing of these functions is the inflexibility of these outsourcing contracts. Outsourcing contracts tend to be very aggressively and attractively priced for the exact functions and technology covered in the contract. But when something needs to be done that is outside the terms of the outsourcing contract, a PCR is initiated and it is billed as a separate project or sub-contract. This on the surface makes sense—and to be clear: organizations are very much aware of this when they sign these outsourcing contracts—but when an organization needs to change, move or react quickly due to market demands, these changes can be unanticipated, costly, prohibitive and slow to implement. And if we have all learned anything in our years in IT, is that things change, and they can and do change quickly. That's pretty much a given in what we all do and these changes can happen in ways we don't anticipate. And these ways we don't anticipate and difficult to consider when we are signing these outsourcing contracts. This is giving pause in the way organizations approach outsourcing in the future.
So this what we see organizations considering as they look towards the future and the outsourcing companies that they work with. We recommend considering either keeping or bringing the key high value functions of IT architecture and engineering in house so you have control over their direction, and utilize an outsourcing firm to handle the day to day operations.
I know that many of you reading this are saying, wait, what? Didn’t you just spend a good bit of time writing that organizations are leery on wanting to outsource? Yes, but we see that they are now reevaluating how and what to outsource. We believe that organizations should considering outsourcing part of their environment—the day to day operations.
And I believe our recommendations bear repeating: We recommend that organizations consider keeping the high value functions of IT architecture and engineering in house, and let an outsourcing firm handle the day to day operations. And bringing or keeping these high value functions back in house might also mean using an outside vendor for help when needed, but not have them own it for you. As for the operational day to day functions, we believe it can be more cost effective for an outside firm to handle this versus keeping this in house, especially in working with a firm that focuses upon efficient IT operations. And this is particularly with the rise of Cloud Computing. But that is blog post for another day.
So as you are out considering your plans of outsourcing versus insourcing—either all or some functions—consider what makes the most sense for you and your organization. You'll find the approach that works for your organization and your specific needs. And that is an approach can't be outsourced.