Most of the times outsourcing is a nightmare. Companies outsource the activities that are not their core activity nevertheless needed for business to get the job done as cheap as possible. They look at it as some necessary evil, something that would better be not to know all about, forget the details and have it been done. Many times IT is outsourced with this mindset and causes disaster. The problem does not lie in the fact that IT itself is outsourced. It is the mindset. IT can be outsourced and in many cases this is rational to do. The problem is that management many times does not realize that only the T (technology) is what can be outsourced but no I (information).
When you outsource Information Technology running your business outsource only Technology but never Information!
Note that in the expression “information technology” the work “information” is an adjective to “technology” therefore when we speak IT outsourcing we do speak about the outsourcing of the technology and only the handling of the information.
If you are a manufacturer IT is not your core business. If you are an insurance company, or a bank IT is not your core business. If you are doing anything except IT, probably IT is not your core business. You have some system that does the book keeping, resource planning, customer relationship management and so on. This is the technology. Your business can be running fine even if you do not own the knowledge that runs these systems. Does it help you to be a better manufacturer, bank or whatever you are if you own the information technology? Probably no. It does not give you business advantage. If your book keeping is as good as your competitor’s then this is ok as a foundation to compete on other grounds.
The information, however, how you run your business, what makes you a better manufacturer, bank, whatever than others is important to own. That you should not outsource. How you produce , what are the best business processes in your company, how you can adapt to market changes are core business. If you do not care about that and you outsource these core activities to a software technology company they most probably will not provide the best fitting solution for you and the cost may increase, profitability lowers, and your general competitiveness weakens. This task needs business knowledge and companies can outsource this only to companies that have the knowledge and skills. Some software companies do, but in this case these companies are not only software companies but rather consulting-and-software companies. Sometimes you can not tell where the border is. You can hire a consulting company, or you can hire experts as employees. The difference is paper work, sometime taxation. You need the knowledge and you should get it to serve your business goals.
Having all that said, let’s focus on the technology outsourcing assuming we know where business information ends and technology starts.
The major point to outsource IT is to save cost. The outsourcing company can do it cheaper. I have seen many times that on the decline huge companies cut off the IT department, formed a new company, sold and contracted this company for IT outsourcing. The next Monday everybody was sitting at the same desk, doing the same work. How could it be cheaper than some nasty taxation tricks, less benefits from the new company to the employees and similar effects? In some cases such IT companies cut off the body of a huge corporation can survive, but I have never seen any. They inherit the company culture of the corporate that I do not say is wrong, but may just not be the best and most competitive for a small IT company. They stay alive for many years and know one that is alive for more than a decade and is a success story. Whenever you see such success stories remember that:
To have a success story you need success and story. One of them is optional.
Really successful IT companies, as I see, come from small and grow big. They learn, as they go how to do IT in a professional way. Focusing the core, working for multiple clients gives the real advantages. The solution at the end of the day can be cheaper using the resources more effectively, having better distribution and better skill matching.
If your problem needs 7.5 person, you can not hire that amount. People are not really effective when chopped into half. You should hire at least 8 persons and find some occupation for the “half” person. An IT company can find that occupation more effectively. They can also easily allocate 15 persons each half time if that may be more effective. If somebody does not fit the task you need not fire the person, the outsource company will find the person that fits best and a task for the person that fits his/her skills. These are possibilities when outsourcing is done right.
If the people of the IT company work only for you and they never submerge into the culture of the mother company then you loose the advantage that comes from knowledge gathered. If the outsourcing company just hires people and sells them out right away they are simply slave traders. That is not the way. If outsourcing is “Let’s get others to do the work that does not mean much to us as cheaply as possible.”, then it is wrong. If it does not mean much to “us”, we should not do it. We should not outsource it. It should rather be eliminated. If it can not be eliminated, then it does mean much.
Just as much as it means for the outsourcing company. Your business depends on it.