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Outsourcing of resources December 16, 2008

Posted by Jeremy in Business, Business Focus, Business Solutions, Efficiency Process, Green Business, Resourcing.
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Many people really have problems with the outsourcing of resources.  That is especially prevalent in the IT arena.  Many people feel that they can hire some IT resources and get a project done faster and cheaper.  Yet, in many places we don’t even consider that as an option.

First, I have to give a clarification that many people make a mistake about. Outsourcing and offshoring are NOT the same thing.  I am discussing outsourcing in this article Here is my general definition of the two terms:

Outsourcing – Hiring a external specialist to complete a task

Offshoring – Outsourcing that occurs overseas

Ran across an article that discusses this concept on ZDNet called “Why are you managing your own power plant?“.  In this article Mr. Frome discusses how many businesses automatically think about managing their own IT resources and in many cases it might have been a better decision to outsource the work.  He asks five questions that I think are very important to consider:

1. Does it give me a competitive advantage?
2. Are there companies out there who have already created what I need?
3. Are there vendors who have more expertise in this area and stronger alliances with retail partners than me?
4. Does it take up much of my internal resources?
5. Could I benefit from the economies of scale of a Software-as-a-Service (SaaS) model?

The questions are key to consider.  Unless businesses have a huge IT shop with a bunch of resources who are just waiting for the next initiative it will be extremely hard to justify in house development of many of the systems.

One of the main reasons is question #3.  In most cases, there are businesses out there who have more expertise in creating solutions than most business’s IT shops will have.  When that is all that development shops do they have a significant skillset in that realm.  In addition, many times they will have utilized that skillset to create a team that can handle most requests that they receive with ease.  This is very difficult for other businesses to acheive.

Another huge point that the article discusses is question #5.  It is pretty hard to answer no to that question unless you are the only customer in the world who uses your specific software.  Because the vendor can share the cost of the system over many clients the cost will be lower than if you build it yourself or even have it developed specifically for you.  This also means that you benefit from the ideas that other customers come up with.  As features are requested and added by all businesses you benefit.

As Mr. Frome points out in his article it is technically feasible for each of us to generate our own power but we don’t because of the expense and hassle.  Many companies do the same thing with legal, marketing, accounting, printing, and many other resources.  IT is something that needs to be considered in a similar fashion to those specialties because in many cases IT outsourcing makes a lot of sense.

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Comments»

1. Mike Kunkle - January 8, 2009

I’ve been reading your blog today, since you commented on a guest Spotlight on the Axsys Tech Group blog today. This is impressive stuff. I love the systems thinking and the logical, intelligent thought. Rare and enjoyable. I frankly had a hard time choosing where to put a comment, so chose this one almost randomly.

My original take on outsourcing is that you should not outsource an area which does or can provide a strategic advantage. However, over time, I have found contradictions to even that. Frankly, I have come to believe that *if it is managed well* anything can be outsourced. That’s quite a caveat, however – as I have seen quite a lack of skilled management in various companies over the years (in fairness, I have seen some good management and leadership as well… but honestly, not as much ;-).

What I tend to outsource today is for reasons of resources (demand exceed supply) or expertise (short-term or non-sustainable expertise is required, so I go grab the talent where it is).

Anyway, great blog. Kudos.


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