Deciding between outsourcing your IT organization vs. keeping it in house is not as straightforward as deciding which method will save a company the most money.  It is a very unique decision to each organization that revolves around the the culture of the organization itself.   I recently performed a technology audit for a firm to help them determine whether they should outsource their IT organization (infrastructure and support personnel), or continue supporting it “in house”.     Here are some things to consider when deciding whether to outsource or insource:

• Size of Firm – We always believe with starting with a hypothesis and then gathering data to either support or refute our hypothesis.  In this case, we looked at what our client’s peer firms of similar size were doing.  Some questions we asked to help us form our hypothesis:
• Were this company’s peers outsourcing?
• If so, were they successful? 
• Did these companies outsource their entire technology organization or just a portion of it?

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Based on this data, we formed a hypothesis that our client should outsource their entire technology organization.

Next we moved to the data gathering stage of our engagement.  Our goal here was speak to various stakeholders of the organization to get their views on the business and the role IT plays within the enterprise.  We also reviewed the current state of the technology infrastructure to determine how proprietary the data and applications were, and how current the state of the technology infrastructure was:

• Feedback from key stakeholders in the business  – We conducted interviews with both business executives, IT executives and end users.  These interviews focused on the following areas:
• Business executives – our interviews focused on the current strategy of the business.  Some questions that were asked:
• Is the firm planning to expand?    Is the expansion going to be national or international?  
• Are there any major initiatives the firm is undertaking that will require heavy involved from the technology organization?
• Is the firm trying to cut costs?  
• IT executives  – The interview with the IT executives focused on how the business used technology.   Some questions that were asked:
•   Is IT in the organization highly specialized? 
• Are there many home grown apps that are critical to the organization that cannot be supported outside of the organization?  
• How complex is the IT environment?  
• How large is the IT budget and how efficiently is the budget used?  
• End Users  – The interviews with the end users focused on how they leverage IT.  Some questions that were asked:
• Are users very demanding and require personal attention?  
• Are their IT systems stable?  
• What are their opinions of the current state of IT and the support they receive?

We then performed the technical audit of their current technology infrastructure.  Some key areas we focused on were:

• IT infrastructure 
• Is the technology infrastructure up to date?   
• How well documented are the processes surrounding  mission critical applications?  How often are they updated and by whom?
• When are hardware warranties expiring?  
• How often are software upgrades performed?

 

Summary of Results – Here is a summary of our findings from this audit:

• Our client was not planning on expanding – in fact they had a strong directive to cut costs as much as possible.
• Although there were some applications that were home grown, the vast majority of their infrastructure was running on well known systems (i.e. Microsoft, Oracle, etc.)
• The end user was pretty self sufficient when it came to their IT needs and most were able to work without the assistance from the technology organization.
• The technology infrastructure was a bit outdated.  The firm typically does not upgrade their infrastructure unless the hardware is out of warranty or of software has reached end of support and/or end of life.

Based on those findings, we recommended that the firm outsource their entire technology organization (infrastructure and personnel).

The information that I’ve listed here is just a small subset of the data gathering and analysis we performed.   My point for providing this information is to discourage companies from making this type of decision based solely on financials.  In fact, a common  misconception of outsourcing is that it ultimately saves the firm money.   We have found this to not be completely accurate.   Instead, we have found that firms who only outsource to save money, ultimately bring their IT support back in house. This is because they did not consider other factors that we mentioned above, which led to the transition being quite disastrous.    So, while the firm may have saved money in the interim the cost of transitioning to an outsourced environment and transitioning back to in-house usually wipe out those cost savings.  In these scenarios, the saying “you get what you pay for” holds very true.

 

Key Takeaways:

• IT outsourcing is a decision that is unique to every firm.
• Areas besides cost should be considered when determining if a firm should outsource.
• Firms that outsource solely because of cost savings usually wind up bringing IT back in house.