Dan McLean: Outsourcers must write new chapters for success

Outsourcing is bigger and better than ever.

More businesses are doing it and even more are considering the value that may be brought to bear by handing to third-party service providers the management of a wide range of IS operations, applications and business activities. During the past few years as a constrained economy wrought havoc upon most sectors of the computing industry, IT services have endured and their adoption continues to increase.

The upside of outsourcing is a story that been repeatedly told by vendors and industry analysts such as myself. IDC Canada has over the years frequently validated the worth of outsourcing through many interviews with end users and a continual stream of demand-side surveys. Unquestionably, a great many Canadian organizations say they have benefited from outsourcing and also say they are extremely satisfied with the results achieved. It works for a whole lot of organizations.

The question continually asked, particularly by those who haven’t yet taken the leap is: What’s the downside? Well, there are the usual advertised risks – the issues of losing control over certain core activities that might be deliberately or inadvertently handed to an outsourcer, the difficulty of bring back in-house an activity that’s been outsourced if things don’t work out, and the fear that you might not get that for which you bargained.

The general recommendations offered to those who might consider taking the outsourcing plunge has been, among other things, to go in with your eyes open. That is to say, do your homework by, among other things, understanding the current state of operation of those things that you’re looking to hand over to an outsourcer. Assess what it’s currently costing you to do those things for which you’re considering to the possibility of outsourcing, so that you’ll readily recognize whether you’ll actually save money. Also, negotiate a contract that addresses your foreseeable needs and has enough flexibility to accommodate future changes.

There are the questions of whether outsourcing can achieve the objectives of your business – whether by outsourcing, your company IT can still reactively change and evolve in response to the unforeseen conditions and situations that may affect your company or organization. Can the culture of the service provider with whom you’ve decided to outsource align with your own business culture so that you share a common view and understanding of things? Can outsourcer and customer be similarly motivated to achieve a common vision of success in outsourcing?

It is these latter considerations that may be the most difficult to achieve. A recent interview with a highly experienced senior executive with a Canadian financial organization says he believes outsourcing that is done to achieve these latter considerations simply can’t happen.

Let’s qualify his position. What this source suggests is that outsourcing works well for what might be considered “vanilla” processes, such as in the case of facilities management, where a company is simply handing off a generic operational activity like payroll processing, seeking to find a cheaper way to do a facilities-based process that a company might otherwise do itself and achieve the exact same result.

He contends that outsourcing does not work nearly as well in a situation where a high degree of business-specific customization is required or where you’re asking the outsourcer to be responsible for managing the business result of that endeavour.

The fact is, says this source, that an outsourcer’s business is focused on achieving operational efficiency and driving out cost, which may not align with a customer’s need to rapidly enable new IT processes and innovations to gain competitive advantage or increase the corporate bottom line. Additionally, outsourcers focus on their customers and not the customers of their customers, which is a fundamental disconnect to even hoping to assume responsibility for business results, says the source.

It’s also a question of perspective. In outsourcing, the source says, there’s your perspective and the outsourcer’s perspective and you’re not always on the same level, since each party’s core business is fundamentally different, which means both parties will typically have different ideas about whether a job achieves satisfactory completion.

“It’s like hiring a maid instead of cleaning your own house,” this outsourcing veteran says. “What I might consider cleaning of my home may radically differ from what a maid might believe is cleaning the house. Clean to them may not be clean to me.”

It’s a strict process. As long as what you are prepared to accept is what the outsourcer defines, then you’ll be happy, says the source. If you’re happy with the way the outsourcer does it, then everything will work out.

“At the end of the day, business as usual is what the outsourcer is familiar doing,” he says. “If you ask them to do something unusual, then there are problems. The expectation that the outsourcer has the best interests of your business at heart is unrealistic. You’ll never get a custom solution, but rather their solution. Where your business intersects with [the outsourcer’s] business is where the best interests of both parities is served.”

Well, OK. These points are well taken. It’s one person’s point of view that may be shared by some and certainly is not a point of view that outsourcers will be happy to hear. The counter-balance, however, is the success achieved by many large businesses as well as the continued utilization and growth of outsourcing service. It works and many businesses continue to use it? Even our source, a self-described pessimist, admits outsourcing provides value.

Outsourcing works in business-enabling situations, he says, where you’re looking to access skills and process, which are completely new or are not otherwise available within a company. “It gives them expertise they don’t have,” he says.

Outsourcing also achieves that economy of scale for certain processes and is therefore compelling, particularly for smaller businesses that cannot perform the same processes as cheaply.

The issue here is one of what many outsourcers are seeking to promote these days. A value proposition is being defined, which purports that outsourcing can align IT processes to business imperatives. Our pessimistic source is among those who suggest this cannot be achieved. It is an area where outsourcing service providers will need to create a more convincing chapter in an otherwise highly successful story.