Outsourcing 101

There are about nine “Billion Dollar Babies” companies that were expected to sign billion-dollar outsourcing deals in 1994. Companies such as the Xerox Corp., with a $4 billion plus outsourcing deal, McDonnell Douglas and General Dynamics all joined the hype.

There are definite advantages in outsourcing – but only in doing it right. Outsourcing is a dangerous playground especially to the unwary executive or corporate counsel. It is a “make or buy” decision applied to your company’s information systems and technology functions.

“Should you hire your own systems staff, acquire your own facilities, develop own systems, maintain owned hardware, develop documentation processes, contract your own telecommunications network, etc.? Or should I leave it all to outsourcing firms who have already achieved the so-called economies of scale, attracting the best full-time systems professionals and get the most processing power and developmental capabilities and tools for the least per unit cost to do the job for me?”

Pros and Cons

The promises outsourcing is very attractive due to the continued cost-cutting measures employed by the companies, downsizing, reducing software development backlog and re-engineering like the following:

• improved service and performance;
• expert resources and staffing;
• shorter systems development cycles;
• better management control;
• elimination of personnel problems;
• stabilized or reduced costs;
• improved business focus;
• possible "tax" advantages;

However, opposing realities and factors also put limitations and frustrate such anticipated gains:

• nickel-and-dime syndrome ("I have to charge you extra for this, and this, and that");
• contract termination problems;
• inflexible contracts that limit your ability to accomplish your stated and changing business strategies and objectives;
• loss of control over your key information resources;
• ineffective corporate or project management - they're no better than you in running a business (i.e., fighting their/our bureaucracy, turnover, etc.);
• loss of in-house expertise (including the fact that while it only takes 3-6 months to dismantle your corporate data processing department, it takes 3-4 years to rebuild it);
• conflict of interest (when push comes to shove, they make a profit by serving many customers and their own management - at times, possibly to your detriment);

With all these factors coming into play, it is very important to choose the right outsourcing vendor and the relationship be managed correctly.