The Outsourcing Pendulum Swings Again: Are We Learning our Lessons?

July 31, 2007

It was a taboo to mention word outsourcing 15 or more years ago. Back then, outsourcing meant taking your IT department, ripping it out of your facility and giving it to the IBMs or EDS’ of the world to run.

Though outsourcing was an option many chose, we began to see that having an entire department pulled from an organization was too painful to the business and to complicated to set up. Vendors did not have the institutional knowledge needed to run your shop outright. It took too long for them to get up to speed.
From there, we decided that tighter contracts and more service level agreements (SLAs) would smooth over the outsourcing glitches. Realizing soon after that any vendor can meet SLAs, we asked ourselves this: Can the SLAs really capture the essence of what services need to be delivered? Absolutely not! SLAs are a component of achieving top service delivery, but clearly not the only necessary piece of successful outsourcing.
What happened next? We then migrated to taking everything back in house.
Then, 10 years ago, we realized it is too expensive to manage everything internally. It was time to look again at outsourcing. But this time, we told ourselves, we will outsource differently.
Gartner came up with a study that stated the best method of outsourcing is to select a best-of-breed path. The process was to pick the vendor that is the expert in help desk, accounts payable, telecomm, or whatever the need requires and let THEM run YOUR environment. The theory was these vendors will have the expertise to run your environment more efficiently and increase your return on investment. Fabulous idea, but most of these solutions were still a hybrid where a business utilized its facility to run these functions.
Well about seven years ago, we take another way (a very familiar one) down the outsourcing path. We asked, why are we doing these hybrid solutions? Let’s outsource everything and not just take it offsite. Let’s take it offshore. We can save money on facility space, resources, etc.
And offshore we did, but many encountered some of the growing pains of offshoring, such as language issues, turnover and communication costs. For some businesses, offshoring caused so many challenges they took the functions back in house.
In conjunction with the offshore push, many businesses decided to domestically offsite all help desk, data center, NOC environments and even other BPO operations, which means we are now facing many of the same communication and transition issues we had 15 years ago.
So I have to ask this: Are we learning our lessons or are we just swinging back and forth from one extreme to the other?
I feel that outsourcing offers the greatest advantages in a hybrid solution, which is a path we are heading toward again. Why not look at companies that can outsource a particular IT function for you and manage it from a people and process perspective? No matter what, you are paying for facility costs either directly or your vendor has buried the cost in the rate. The same goes for the environmental, hardware and software costs. The only variable is your people and the processes used to run the functions. Those are the critical, fundamental factors to consider in outsourcing. The hybrid outsourcing method gives a business the flexibility to focus on those two components while increasing productivity, minimizing costs, and, most importantly, increasing return on investment.
So businesses can choose to run the gamut of outsourcing options from decade to decade or take the many lessons from the years behind us and put the best of outsourcing to work for them. I know which path I favor.