Outsourcing — debating the pros and cons

Handing over the running of IT operations to someone else isn't a decision to be taken lightly. Sandra Rossi and Helen Schuller report

Outsourcing shouldn’t be seen as a short-term tactical measure to reduce costs, but as a way to improve an organisation’s market position.

That’s the view of Vincent Nair, Australia-New Zealand managing principal of Indian outsourcer Wipro.

He says organisations have five options. They can insource, co-source, outsource, nearshore or offshore. But Nair believes, when it comes to outsourcing, most organisations are still going for the “low-hanging fruit”.

In the Asia-Pacific region in 2004, A$84.6 billion (NZ$99.5 billlion) was spent on IT services, Nair says, but only 0.3% of that amount was offshored.

“It’s offshoring and moving up the outsourcing scale where companies can generate significant returns,” he says.

By 2009, IT services spending will rise to A$121 billion (NZ$142 billion) with 1% of that total offshored, says Nair.

Gartner research vice president Jim Longwood says there has been a strong shift to best-of-breed outsourcing. However, “so many deals have been driven by short-term gain”, he says.

So how committed are IT leaders to outsourcing? One CIO who is a huge fan is Ken Matthews of Newcrest Mining. He says it reduces risk and allows for greater flexibility, whether there is an upturn or a downturn in the business.

“Our job is to create value and lead the company, not just focus on the CEO’s desktop and network outages,” he says.

Michael Enriques, IT manager at Travel.com.au, believes anything non-strategic can be outsourced, including the helpdesk.

“Infrastructure is not so easily outsourced and is essential to our business strategy. But, wherever someone else can do better, let them,” he says.

For Chris Tayler, IT manager at Box Hill TAFE (technical and further education) college in Melbourne, outsourcing is definitely on the agenda.

He is currently undertaking a review and cost analysis to identify areas ripe for outsourcing in the next six months.

“We don’t have the resources to do every project, so we will probably outsource mostly in the area of software development, due to a lack of internal resourcing,” Tayler says, adding that security is another area suited to outsourcing.

Geoff Lynch, IT manager at Countrywide Food Service, says, “We outsource so we don’t have to hire experts. “We outsource our websites, IT infrastructure support, security and specific applications. We find it very cost effective instead of hiring people as permanent employees.”

Lynch says the company’s IT strategic plan is reviewed every six months and outsourcing is reviewed as new projects arise, which can be as often as every month.

Peter Nikoletatos, CIO at the University of Newcastle, describes outsourcing as a dirty word.

He prefers to use the term “co-partner”, which is what the university does when it’s short on internal expertise.

Nikoletatos began outsourcing in November and is looking at forming more strategic partnerships. However, some areas need to remain inhouse, he says. An example is security; the university recently appointed a security specialist following an extensive audit.

Wayne Ruckley, information services and technology executive director at the New South Wales Department of Corrective Services, is currently engaged in a far-reaching ICT renewal programme. Ruckley says a closer working relationship with other parts of the organisation is central to the programme.

“We need to transition our plans to business outcomes [and] we have a strong conviction that we want to become business experts, not just IT experts,” he says. “To do this we have to look beyond our organisational boundaries, and that includes outsourcing, but as part of this process we are being very open and transparent with the unions. We see an ongoing role for our own staff, for contractors, for consultants as well as outsourcing providers.”

Ruckley says that in recent years, the department has outsourced data-centre management as well as application support and maintenance.

“But there are still risks — you cannot outsource ultimate responsibility,” he says, adding that there are specific areas more suited to specialist outsourced providers.

He favours the selective-sourcing model, because no single organisation can cover the entire IT landscape and, he says, he wouldn’t outsource security. “Correctives is security-based and is not something we would be comfortable placing out of house,” he says.

Len Gemelli, information services manager at Peter MacCallum Cancer Institute, supports outsourcing, but only if it works for the business. “There is an ROI in a corporate environment but I’m not sure how responsive it would be in healthcare,” he says.

Matt Cammell, Asia Pacific network operations manager at recruitment firm Spencer Stuart, sees no need to outsource. He says security concerns have prevented the company from outsourcing and thinks it’s important to have a solid rapport between helpdesk and end users.

“Inhouse support is more personalised and you can’t guarantee service with an outsourced product. However, we do outsource project management, to get access to skill-sets we don’t have internally,” he says.

In the six years Cammell has been in his current role, outsourcing has been constantly debated, he says.

RSPCA Victoria IT manager Peter Blanker warns that outsourcing won’t cure the ills of a badly run IT department and can be costly.

Philip Smith, IT and telecommunications manager at WFM Motors, says the arguments for and against outsourcing have gone on for many years.“It works for non-core and non-customer focused areas of IT. For example, I wouldn’t outsource the helpdesk,” he says.

“If something is a key differentiator you want to keep it yourself, to maintain a leading edge. I wouldn’t want anything that is customer-sensitive to be in the hands of someone else.”

Stanley Chapman, MIS manager of agricultural distribution company AGCO Australia, doesn’t outsource at all.

“We have a very specialised type of business and a small team of five people dedicated to Windows, systems security and our dealer system. I think we are a low-cost group and it would be an enormous task having to teach an outsourcer how the business operates,” he says.

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Tags outsourcingmanagementpros and cons

More about GartnerMISPeter MacCallum Cancer InstitutePeter MacCallum Cancer InstituteTAFETravel.com.auUniversity of NewcastleUniversity of NewcastleWipro

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