CIO Symmetry

Apr 22 2008   5:09PM GMT

Justifying IT expenditures: Outsourcing isn’t always the answer

Roger Crawford Roger Crawford Profile: Roger Crawford

Accountability, budget constraints and cost of provisioning services – these are all issues that CIOs hear about when presenting IT budget numbers. “Why does this cost what it costs?” and “Can’t we outsource some of these functions?” are both questions that you’ve likely encountered when justifying expenses to your bosses.

The Naked CIO argues that outsourcing and offshoring IT projects isn’t necessarily the right move to make. In fact, he thinks it may cause more problems than it could potentially solve:

“Cost-based models drive a wedge between business and IT and this type of services-based arrangement makes business alignment more difficult.”

Keeping a project agile through a grass roots-style approach is, in his opinion, the route CIOs should go.

From where I sit, this makes the most sense. When contracting an outside company to do the dirty work that you need done, improvisation and adaptability is necessarily curtailed. In most cases – unless a contract is reworked – the company tapped will produce what you ask for and deliver it, hopefully, in a neat box with a bow on top of it. But project parameters are often subject to change and having the flexibility to address new needs is key for a CIO, not to mention IT on the whole.

I’ll give you a real-life example. A friend of mine works for a large hardware company whose name you would know if I mentioned it. Half his team is stationed abroad in the Middle East, and the other half is located right here in the Bay State. Because of cultural, religious and time zone differences, the half of the team that is abroad works on Sundays, while the Massachusetts-based cohort does not. Changes in his project are often subjected to approval from managers on both side of the Atlantic, and just getting a simple OK can be an ordeal. My friend has occasionally been called into the office or forced to work on a Sunday afternoon to sync up with his team, while the foreign contingent sometimes takes conference calls in the late evening local time.

The company has an internal instant messenger client that, in theory, should allow team members to speak to each other when they are all online over the course of the day. Yet still, my friend’s project has been delayed numerous times. Some of those delays are because of the problems inherent with developing a new product. But to think that the location differences and the limited communication doesn’t play a role into the delays is just naive.

Now translate that to your organization. My friend is working with co-workers who, albeit in a different country, draw their paychecks from the same source, teleconference regularly and communicate daily. When CIOs outsource a project, a direct line of communication is often lost. I doubt that when you have a question about why an application or piece of hardware isn’t working properly that you get to speak directly to the programmer who designed it or the tech who built and maintains it. My friend does. He still experiences delays and setbacks.

It might look well and good on the bottom line when a CIO produces numbers that cut costs because an outside contractor is doing the majority of the work cheaply. But what those numbers often time don’t include are the cost of delay in rolling out the project due to communication snafus and the cost of ironing out wrinkles that always seem to appear.

Have I got a solution for you? No, I haven’t – but if I did, I’m sure I’d be making the big bucks advising CIOs on how to keep projects in house without driving up costs. But ultimately, when you go to the bigwigs with the purse strings, you have the option to tell a couple of different stories. One involves up-front platitudes about the lower cost, while hidden snags lie around the corner. The other involves using the staff whom you’ve likely hired, whom you trust and with whom you can speak directly to develop whatever solution your company needs.

The question is really: Which are you going to tell?

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  • AlexFrench
    [B]Outsourcing is admitting you can't manage your own IT Infrastructure, nothing more. [/B] Then, not only are you admitting failure, you are allowing another company to make 10% - 30% profit from your inability to manage your infrastructure. [B][I]Ask yourself this question: If you couldn't manage your IT infrastructure within your budget, how is a third party going to do it when you (a) pay them less than your budget and (b) take up to 30% as profit. [/I][/B] [B]Simple - they won't[/B] Whilst there may be fewer dollars going out the door as part of contractual agreements on day 1, the outsource company WILL make a profit, and they will do this at the expense of your business. Lost productivity of your workers due to downtime, delays on projects, money spent with governance 'negotiating' every single line of the contract, ridiculous charges for anything outside of the contract, increased timelines negotiating even the simplest projects, renegotiations when the project scopes change in the slightest, requoting and resubmitting any changes for financial approval before they continue. Then, let's put the customer-facing staff out in a country where english is a second language - and make them talk technical to people who are frustrated they can't get their presentation done on time. Let's pass the problem tickets around teams so no-one takes responsibility, the outsource teams being measured on the time they work on the ticket - they meet their internal SLAs but the problem isn't resolved. Let's have a 24-round trip time on emails because they don't work the same hours as you. Frustrated customers but contractually nothing can be done. Lost productivity in an attempt to save money. No-one gets something for nothing. IT is a service and it costs. Good IT services costs more, but it enables your business to do business. Outsource and you're history. Outsource = DISASTER FOR YOUR BUSINESS.
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