12 Trends Shaping the Outsourcing Market
Rather than just seeking the lowest prices, buyers are relying on more sophisticated techniques.
Despite commenters who accuse me of being a "shill for India" because of what they see as my pro-outsourcing bent, I don't think outsourcing is always or even usually the the right way to address a business need. Like clothing that purports to be "one size fits all," outsourcing simply doesn't work for every company, all the time. One of my biggest beefs is companies that see outsourcing as some kind of panacea and don't conduct the kind of analysis they should to determine whether they'll actually lower costs or gain other benefits.
I'm not sure if that was the case with UK insurer Liverpool Victoria (LV), but it sounds like it could have been, based on a recent presentation given by the company's head of IT governance at CA World in Las Vegas. Even if its analysis was sound, the company made another big outsourcing mistake, not retaining enough staff to manage its outsourcing relationships.
Now the company is involved in a large-scale project to bring many of its outsourced IT services back in-house. Having a head of IT governance is a huge step forward for LV, which several years ago employed just two IT staffers to serve a workforce of 2,000. Expecting two staffers to handle outsourcing -- and everything else -- is "probably not the best way of running IT," admitted Steve Lewis, the governance executive.
LV was seven years into a 10-year contract with EDS when it decided to terminate the agreement early in the spring of 2008. While there's been a move away from those kinds of large, single-supplier deals, they still work well in some instances, such as deals involving highly commoditized IT services where suppliers can provide added efficiencies and economies of scale. In March I passed along some great advice from TPI's Danny Jones, who suggested breaking down large outsourcing contracts into more manageable chunks and building in contract flexibility along the way.
I especially liked Jones' three elements that should be in place for every outsourcing deal, no matter the size:
Some more good outsourcing advice came from Chris Montoya, director of information technology for El Paso (Texas) Electric, whom I interviewed at the Midmarket CIO Forum in March. Like LV, Montoya worked with a single provider and outsourced many of his organization's IT functions. Organizations must be careful to retain ownership of their strategic direction for IT, while outsourcing providers serve as facilitators and contribute best practices, Montoya told me. And carefully review internal processes before turning them over to an outsourcing company. El Paso Electric created swim lane diagrams for every process in the organization and spent time with its provider to answer questions such as when and where handoffs would occur. Said Montoya:
If you throw outsourcing around a bad process, you're going to fail.