Since the dawn of the Information Age, IT leaders have wrestled with where, how, and even why to outsource services. Even today, a wealth of data seems to prove that businesses are still struggling to find balance.
According to Computer Economics Journal’s 2013/2014 report, outsourcing as a percentage of total IT budget actually declined compared to the previous period — reversing a four-year trend. Yet in another recent study, Whitelane Research reported that out of 1,300 organizations polled, 42% “will outsource more IT” in 2014.

While these seemingly mixed messages reflect the myriad reasons for outsourcing, I suspect they also reveal a failure on the part of many business leaders to properly analyze their situations.

Why Outsource?

Determining whether to outsource, what functions to outsource, and the specifics of the outsourcing deal itself are not for the feint of heart. There are a few situations where outsourcing can, in fact, reduce costs — but the main advantages of outsourcing are more strategic. By outsourcing correctly, companies can:

  • Free up internal resources for more critical, knowledge-based tasks
  • Boost capacity
  • Acquire technical resources that were difficult to procure otherwise
  • Add knowledge workers to a depleted IT staff
  • Bring in specific, hard-to-find expertise

Having sat at both sides of the table as an outsourcer and as head of an in-house IT organization, I firmly believe that the best agreements involve selectively outsourcing specific, targeted services — and avoiding the huge, multi-service deals of the past.

So, once a company knows why it wants to outsource, it must then choose what functions to turn over, and how to pick the right partner on the right terms.

What to Outsource

The often-overlooked first step is to identify areas where outsourcing can help the organization meet its strategic objectives. Selective outsourcing works in the same way we manage our personal lives. Most of us don’t fill our own cavities, but we brush our own teeth. But unlike with personal outsourcing, the options in IT are less clearly defined, and the potential costs are too great to simply trust one’s gut. Enter the independent advisor — a neutral, third party expert who can help assess the needs, define objectives, and analyze the options.

How to Outsource

For larger outsourcing initiatives, I can’t recommend an outside advisor enough. Vendors are a bad source of objective information when it comes to the day-to-day management of the deal. That’s because they’re in business to sell outsourcing services. So, providers will always underestimate — or even fail to disclose altogether — the amount of oversight required. At the same time, they will minimize accountability, avoiding issues like exception processing and “gap” management. In other words, the outsourcer will act in its own best interest — leaving the client responsible for reading the fine print.

Case in point: An IT vendor presented a proposal that promised a 17% reduction in IT costs, representing a savings to the client of $17 million. An independent agent analyzed the company’s current costs and service levels, comparing them to the proposed agreement. After factoring for exceptions, maintenance fees, and other hidden costs, the advising firm revealed that the outsourcing deal would have cost the company 10% more. What looked like a $17 million savings would have actually cost the organization an additional $10 million.

Buyer Beware

I’ve seen many situations where hiring a specialist would have resulted in a better financial deal, a smoother startup, and a healthier relationship. In my experience, companies looking to outsource can be somewhat naive about what it really takes to manage the arrangement. Internal organizations can be overly optimistic — so they may lose sight of functionality that could fall through the cracks. What’s more, it will always take more time and effort than expected to manage billing and service discrepancies. Even after the deal is done, the mere task of negotiating the inevitable ups and downs in the relationship can be confusing and tedious. These issues can easily diminish (or even wipe out) some of the benefits of outsourcing.

Buy Now or Pay Later

Bottom line, it pays to hire a third party to help design the right outsourcing plan, analyze options, and negotiate a fair deal. Quite simply, the price of finding the right relationship can pale in comparison to the potential cost of getting it wrong. An expert can level the playing field and weed out potentially bad deals. By trusting the skills and insights of an outsourcing “agent,” your organization can become a smarter, better-informed consumer of IT services — so you can accomplish your goals more efficiently.