Key Questions When Considering Outsourcing

How do IT managers know which activities to keep in-house and which to outsource? The answer comes from identifying your core competencies. IT/Biz Alignment columnist Steve Andriole helps you ask the tough questions.


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Posted February 12, 2002

Steve Andriole

Steve Andriole

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Are you outsourcing yet? If you're not, then you're in the minority. Most everyone outsources some part of their technology operation for all sorts of good -- and occasionally bad -- reasons.

There's no mystery as to why the IT services industry is clipping along at more than $1 billion per day in the U.S. alone: More and more companies have discovered the benefits of outsourcing relative to the recruitment and maintenance of large internal IT staffs.

In the early years, we all thought outsourcing was about saving money, but then we discovered the truth: Outsourcing it not only about saving money, it's about re-routing money from non-core to core activities.

One of the best arguments for buying a product or service is its alignment quotient: the extent to which the infrastructure or applications investment aligns with business strategy. This of course assumes that a business strategy exists and that the fundamental infrastructure and IT investment recommendations have been made. It's now time to decide how to source them.

Assessment of Core Competencies

This step is -- when all's said and done -- about whether or not you should build and maintain a large internal IT staff.

The core competencies drill is critically important to acquisition alignment. As your business evolves, you need to ask tough questions about maintaining the in-house activities you've supported for all these years. Remember that the assessment is not just about cost. Here are some questions for deciding what's core and what's not:

  • Does the activity support your "bottom line," defined in terms of profitability and growth?
  • Can the activity be replaced with little or no threat to the bottom line?
  • Can the activity be replaced with little or no additional cost, but with some measurable improvement in quality?
  • Are the second-order costs to maintaining the activities measurable, growing or shrinking (for example, the costs to maintain in-house IT personnel should include recruiting costs, retention bonuses, and training and education costs, among others)?
  • Does the re-assignment of the activity dramatically reduce "distraction" costs, that is, permit your organization to focus on other, more valuable activities?
  • Is the outsourcing of certain activities consistent with your vertical industry's perspective on core and non-core competencies?
  • You get the idea. The key questions have to do with finding your core business purpose and then matching all of the activities to in-house versus outsourced alternatives.

    Once you've determined what makes sense it's possible to step back and assess the kinds of IT products and services that might be outsourced. But just in case you think that all roads lead to outsourcing, make sure that you objectively assess the impact outsourcing will have on specific business models and processes.

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