What is Outsourcing?
Just to be sure we’re on the same page, let’s look at an Internet definition of “outsourcing”: Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another.
Especially in times like these, when retail and other organizations are unable to continue to pay salaries and benefits due to the economy, outsourcing may be the way to go. This could be short-term or long-term depending on your particular needs. Outsourcing is not just about hiring individual people from outside your company but also outsourcing can be in the form of whole services.
I’ve been outsourced, and I’ve done the outsourcing. For example, after 18 years with one of the largest theme parks and being responsible for teams that maintained every single point of sale with literally billions of dollars of revenue flowing through, I was outsourced. It was painful, and I thought it would never happen to me. Yet it happens.
Whether you like it or not, outsourcing is here to stay, and we need to learn how to leverage and manage it wisely to receive the full benefits. The two main reasons for outsourcing are:
- To acquire knowledge not available in the organization
- To create cost savings for the organization
Outsourcing simplifies the organization by decreasing the overhead required to perform the tasks internally in a world where good, talented employees are hard to come by. So, if it is not the core or strategic portion of your business then you should consider whether it can be outsourced.
What to Outsource?
For each organization, outsourcing strategies will be different. Let’s take for example a retail startup that acquires other stores to grow. Starting from the ground up, here are some of the services you can outsource:
- Servers and Data Center (infrastructure or the entire data center)
- Network as a Service (firewalls, network connectivity/VPN)
- Internet Connectivity (network aggregator, ISP consolidation, NOCs and SOCs)
- Security Alarms and Surveillance systems (single outsource provider)
- Help Desk (I would be careful with this one – there is a big difference in Help Desk team members solving a problem vs. reading and following a script)
- Security Testing and Compliance (network penetration testing, PII and PCI scanning)
- Software Development (this requires a lot of oversight)
- Human Resource Systems and Support
- Accounting Systems and Support (payroll, cloud-based CRM, etc.)
- Business Intelligence Reporting and Analysis
Let’s use an example: You’re the CIO at a retail startup demonstrating rapid growth. You have a great opportunity to keep your IT staff small if you put outsourcing processes in place from the beginning or as early as possible. Because you’ve wisely selected systems that scale, as new stores are acquired, you can integrate them into your outsourcing structure more easily.
None of these outsourcing structures or processes can be built overnight. It takes time to research and find the best solution for your circumstance, negotiate contracts, create processes and procedures for adoption, and ensure future integrations are easier. The outsourcing companies need to provide references, show a proven track record, and make sure that they meet or exceed the current level of support that you currently give your customers or employees.
When to Outsource?
There is no better time than the present to start evaluating your systems and looking for an easy win. Look at your current systems and see which one would be the easiest to outsource. Remember, if it is not the core of your business or a strategic initiative, then it may be an opportunity for outsourcing. It takes effort to find the right outsourced vendor or partner.
The outsourcing process can take years, depending on your organization’s needs. If at all possible, make sure your team members affected by the outsourcing are provided opportunities. Some team members would make great vendor governance specialists or the outplaced team members can join other areas of the IT organization to help make a difference in other key areas.
How Far Can Outsourcing Go?
You can take outsourcing as far as you comfortably feel that it enhances your organization and does not become a detractor. From my experience working at Disney, Tijuana Flats restaurant chain, and Smart Financial with retail mergers and acquisitions, there are just some areas in IT that I would not consider outsourcing.
For example, any strategic initiative in which you may gain a competitive advantage, I would think twice about outsourcing. If there are sections of the project or program that are not strategic but can be considered a commodity or can be segmented in a way outsourcing can enhance a part of but not be privy to the whole initiative, you may consider it. You need to have key team members that have the company’s interest at heart instead of vendors who may have conflicting interests with your companies. One pitfall I would strongly recommend you avoid is having one vendor manage or govern another vendor (unless the other vendor is sub-contracted with the main vendor). That is a formula for disaster.
What Are Some Areas In Which You Should Consider Avoiding Outsourcing?
- PMO – Project Management Office (oversite of all projects)
- Governance (HR, Standards Project, Security, Infrastructure Architecture, etc.)
- Compliance Point Person (SOX, PCI, PII, Governmental, etc.)
- Strategic Projects and Oversite (projects/programs that give your company a competitive edge)
- Vendor Management/Escalations
My conclusion is that outsourcing is not the Holy Grail. It is a good way to enhance your current team and perhaps replace whole IT services with the proper governance in place. It will not solve all your problems. In fact, in some cases, you will be trading your old problems for new ones. Vendor management for one. You will need to gain skills or have team members who know how to interact effectively with vendors, a skillset you may not have or have needed before.
There are many more items that need to be considered before outsourcing, but this is a good place to start.