The outsourcing of IT operations has emerged as a growing trend amongst public and private sector companies globally. As with the outsourcing of any operation, both businesses and clients can benefit from outsourced IT services. However, there are also pitfalls that any company considering this approach should be aware of and try to avoid if possible.
One of the reasons for this increase in IT outsourcing is the financial constraints that have been placed on organizations during the economic downturn. Undoubtedly, large and small businesses all over the world are looking for ways to cut costs. Outsourcing, therefore, can provide a means by which to provide the same level of service — or even improved service levels — while keeping costs down.
WEIGHING THE OPTIONS
Neil Stephenson, CEO of Onyx Group, the specialist business and IT solutions provider, believes that organizations of all structures and sizes are increasingly recognizing the benefits of IT outsourcing and turning to this model to provide their IT needs.
“In-house IT management is complicated, time consuming and requires the finance, resource and capacity that businesses, especially following the recession, simply don’t have — something which is not set to change any time soon,” Stephenson explains.
Removing such a function from within a company can free up time and budget, which can then be channelled into the core areas of the business. It is vital though that before this decision is taken, all the risks and alternatives are weighed up.
Iain Monaghan, partner and outsourcing expert of law firm Pinsent Masons, highlighted the importance of planning in the outsourcing of any operation in his report, ‘Developing Outsourcing Strategies’ (September 2009). Monaghan outlined the factors that should be addressed prior to taking the decision to outsource.
Among those is assessing the risks and considering the alternatives. The two, of course, are linked as, in weighing up the alternatives to outsourcing, you are also likely to be weighing up the risks involved.
“Some organizations looking to outsource give their existing in-house departments the opportunity to put forward a competing bid, while others conclude that the benefits available from outsourcing could be obtained more economically by changes in internal processes; for example, increased standardization,” says Monaghan. He adds that an organization needs to understand fully the internal function that is to be outsourced before going ahead, citing IT as an example.
“Several studies of projects in the public and private sectors have shown the danger of trying to implement an ambitious new IT system when the users who are to operate that system are not organized in the way that was assumed by its designers,” he explains.
A GOLDEN AGE
Despite the potential pitfalls, IT outsourcing is undeniably on the up.
Stephenson explains that it was Seymour Pierce analyst Caroline de La Soujeole who said just this year that we are seeing an anticipated ‘golden age of outsourcing’. That prediction is based on figures that suggest approximately £80 billion of public sector services are currently outsourced. However, by 2015, this is likely to exceed £140 billion.
“What we will see is a large increase in outsourcing by government bodies as they can no longer afford to manage IT in-house,” he adds.
Britain’s coalition government has been quick to jump on the bandwagon, announcing proposed IT spending cuts. This leaves the government with little choice but to outsource those IT functions.
Stephenson recognizes that there are consequences for IT workers. “The £95 million axe that will be taken to IT spending will have left many government IT departments wondering what the future holds.”
He believes that what is becoming more apparent is that IT departments will need to streamline their structure, and increase efficiency while tightening the purse strings.
Remembering the client in all this is vital, as customers stand to be one of the main beneficiaries of IT outsourcing. Consequently, clients are also a measure of how successful the outsourced service is. In his article, ‘How’s your outsourcing? Ask your customers’, part of a series based on “A Basic User’s Guide to Outsourcing”, Monaghan explains that measuring the success of an outsourcing should be based on business value and customer satisfaction. In turn, the customer expects two things: “the quality of services must improve while the charges for those services must fall”, says Monaghan.
With outsourcing an ever more popular solution to IT management, the scope for the industry is far reaching. Stephenson believes that this presents a huge opportunity to SME IT suppliers as both private and public sector IT contracts become readily available.