Is outsourcing IT departments such a good idea?

There's more to the decision than cost-saving, says Paul Ingevaldson

In 1989, management guru Peter Drucker penned an article in the Wall Street Journal titled "Sell the Mailroom". In it, he made the case for shedding those elements of your business that "do not make a direct and measurable contribution to the bottom line". These he listed as "clerical, maintenance and support work."

Drucker argued that such departments would have a much better chance of improving their productivity, if they were part of an organisation whose job it was to do that kind of work. If those departments stayed in-house, he wrote, the people working in them would have "little incentive to improve their productivity".

Somewhere along the way, senior management – always intrigued by ways to reduce expenses – determined that since IT was a support department, it was a perfect candidate for outsourcing.

What they missed is that IT supports the very heart and soul of the company. If the cafeteria doesn't open on time, or the maintenance crew fails to show up, or the outside attorneys lose a case, the company still goes on. But let IT systems – hardware or software – be compromised and the business could shut down.

Yet, look at what is happening in so many IT shops. CEOs are challenging CIOs to look into outsourcing as a way of saving money in these tight financial times. Outsourcers prepare enticing proposals filled with promises of cost savings that most senior executives would have a hard time walking away from. And when a proposal is accepted, the company usually ends up transferring some or all of its IT people to the outsourcer.

Drucker's old pitch is delivered again, with the executives told that the people in IT will have a better chance of advancement when they are working for a technology company. But what no one seems to realise is that the best people will now be employees of someone else and at some point will be taken off your account.

If, down the road, something happens, who is going to know how to fix it? If we want to know how something works in the system, whom are we going to ask?

By outsourcing, we are losing some of our best talent, the people who understand how our systems work – and therefore how the company works. Their knowledge is so deep that it's not a stretch to think that among them could be the people who might lead the company in the future. But they're gone now, turned into someone else's assets.

Of course, there have been many examples of outsourcing nightmares, both in the private sector and in government. At times these disasters are precipitated by communication problems, difficulties in managing people working in widely disparate time zones, as well as the loss of face-to-face discussions.

There are also many examples of companies that decide to drop their outsourcing relationships and reabsorb the work back in-house. In trying to make a bad decision right again, these companies face daunting costs and problems as they try to rebuild their IT infrastructures in a short time.

As the economy begins to improve, my prediction is that the underperformers in business will include a disproportionate number of companies that decided the lean times called for the drastic measure of outsourcing IT. In the past, post-recession periods have led to a strong demand for IT systems that could enable companies to take advantage of growing markets and increased access to capital. The companies that have active and thriving IT departments will definitely hold a competitive edge.

Of course, that assumes the outsourced cafeteria opens on schedule and the IT people get their coffee!