The pros and cons of outsourcing to a service provider

Introduction and toxicity

Outsourcing: for some it’s a dirty word, but it can also be a benefit to an organisation looking to move forward without being bogged down by jobs that others would be much better suited to.

According to a survey of IT directors by Mood International, 52% of IT directors’ spend with outsourcing suppliers is focused on reducing the cost of IT, while 21% of IT directors and their teams cite cost reduction as the area where the outsourcing partner’s use is the most critical.

But 76% of IT directors said that their internal clients’ expectations are not aligned with what the outsourcing suppliers perceive they are contracted to deliver, and 58% of them believe it has become more difficult over the last year for their suppliers to deliver within the agreed budget.

Whatever your thoughts on outsourcing, it is here to stay and sooner or later you will need to consider it for when you have a project that needs working on, or are looking for a more long-term partnership.

Outsourcing to a service provider has a number of advantages for your organisation, but there are also drawbacks. Here we consider some of the pros and cons to think about before you decide to outsource your next project or business process.

Toxicity

Has the very word ‘outsourcing’ become too toxic to mention?

“I dislike the term outsourcing and never use it with clients or within the industry,” says Brian Borack, chief operating officer at SoftServe. “Instead we use the term technology partnership. Clients are choosing a partner they want to bet on with a skillset they cannot find elsewhere.”

Despite his disdain for the word, Borack says that it is a way for businesses to find skills quicker which will help them get to market faster and give them a competitive edge. It can also be a route to a global market as businesses can scale quicker and source skills with no geographical barriers.

“We often find that technology partners are given more ownership of results and are given a product management role. This makes sense as often the technology partner will have more technical knowledge than the in-house team and so is better equipped to manage the process,” he says.

Fear

Another issue for companies contemplating outsourcing is fear.

Jaroslaw Czaja, founder and CEO of Future Processing says that he finds that clients entering the outsourcing market have a few common fears. “Firstly, they fear losing control; secondly, they fear losing quality. Finding a partner that will put processes in place to protect both of these is vital.”

He says that the best way to tackle both of these issues is through good communication, particularly where retaining control is concerned. This is often where location becomes more of a deciding factor, since maintaining good communication and understanding is much easier when parties can speak to and visit each other regularly.

While some think that outsourcing can work as long as communication is maintained, others disagree and say that outsourcing IT development offshore no longer works for businesses.

“Agility and speed are now more essential than ever, and teams needs to be closer to enable the digital transformation required by mobile-oriented customers. Offshore outsourcing simply can’t keep up,” says Robbie Clutton, Director at Pivotal Labs.

He adds that teams are also unable to collaborate effectively, “which is borne out of the constituent parts of a team working closely, instantly and reactively”.

“We need to ‘go see’ a problem in order to fix it effectively. An offshore team is spread across the globe, so individuals will only ever be able to apply theory to a problem, rather than the nous required for a fast solution,” he warns.

Dangers and cloud-tasking

Going backwards

When applied incorrectly, outsourcing can take an organisation’s capability back by many years and can even cause firms to become uncompetitive in the market, according to Ashish Gupta, executive vice president and head of EMEA, HCL Technologies.

“Very often, we find that organisations make assumptions of ‘outsourcing’ being the panacea pill that will solve all their problems – which it never can be. As such, getting a good understating of what it has delivered to other organisations in the market and aligning expectations before starting any outsourcing activities is a great place to start,” he says.

Czaja says that companies could mitigate any risks of outsourcing by beginning new engagements with a short test project first, if possible.

“We offer three to four month engagements to begin with; a much smaller investment giving the client the chance to get a feel for our methods, and for us both to iron out any initial kinks. We also set up regular milestones within projects, so we can consistently check and review the direction in which the work is going,” Czaja notes.

Cloud tech

Digital

Dr. Katy Ring, research director of Cloud & IT Services at analyst firm 451 Research, says that the future of IT outsourcing lies with the “out-tasking of digital process services”. She adds that cloud technology enables a different approach to sourcing services.

“[This is] because the virtualisation and layers of abstraction that it provides mean that IT service providers can more easily be used to out-task digital process capabilities in an agile way, to directly deliver differentiating business outcomes that are part of a company’s core competency,” she says.

Ring says that the requirement for continual service improvement in the digital age also suggests that a ‘cloud-tasking’ collaborative model of working with external service providers will be most appropriate, rather than the ‘transform, lift and shift’ model that the IT outsourcing market uses.

“And since many organisations view IT as a service (ITaaS) as their strategic direction of travel, the internal capability to manage cloud services is being developed within enterprises around their cloud management platform,” says Ring.

In the end, the decision to choose an outsourcing partner is a tough one. If it goes wrong, it can have a negative impact on an organisation’s agenda for transformation. Get it right and it could be the start of something beautiful.

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