Posted by Yogesh Malhotra on June 10, 1998 at 10:10:59:

In Reply to: Outsourcing Desktop Management posted by Sebastian on June 08, 1998 at 11:23:53:

"It depends..." It depends upon some of the issues that Martyn has listed, however, more importantly it seems to depend upon some other key questions. For instance, Earl recommends in a Sloan Management Review article that the question should not be "Should we outsource X or not?", rather it should be rephrased: "Why should we not insource X?" Some other industry observers have argued that IS outsourcing can result in loss of control over IS/IT assets, threat of opportunism [from the supplier], the loss of IS expertise and corporate memory, and a decline in the morale and performance of the remaining employees. They also suggest that similar cost savings might be achieved internally. Companies that outsource IS also may be outsourcing their capacity to learn and to coordinate technologies within the business, giving up the opportunity to build core learning competencies, and losing a capability that could potentially be a key success factor. Moreover, empirical evidence has so far provided little support for the popularity of outsourcing in terms of improving overall organizational performance.

Many of the perceived advantages -- such as cost savings, improved service, etc.-- that are usually associated with outsourcing may be achievable without relinquishing control of the function to an external provider. Not surprisingly, a general 'backlash' against outsourcing has begun to be reflected in the popular IS press. For instance, an Information Week article with that title observed that, "Many companies aren't getting what they wanted from their outsourcing deals. Some companies are so disillusioned that they're bringing IS back in-house." Recently, a trend toward more selective IS outsourcing has been identified. Companies such as DirecTV, Elf Atochem, SmithKline Beecham, and others are handing over bits and pieces of few IS activities such as asset management, network management, desktop management and applications maintenance to vendors while maintaining other functions, such as applications development, in-house. While some of these selective outsourcing deals are large -- for instance Chevron's deal with Vanstar and Hewlett Packard to manage 30,000 desktop computers over three years for about $200 million -- they are not the billion dollar "mega deals" that gained attention for Kodak and Xerox.

The important question as posed by Earl is: "Why should we not insource IT services?" Our research over the last few years in this area suggests that this question is increasingly important. In fact, the advantages often attributed to IS outsourcing may be achieved internally within the organization by bringing the competition of the 'free market' to bear on the internal IS units and the user departments. Within this model, internal IS units are allowed the autonomy to operate as profit centers without being encumbered by the internal transfer pricing mechanisms that usually cannot simulate the forces of the 'free market.'

There are several examples of companies that are moving towards this 'model.' For one recent example of an organization moving along this path, you may like to browse the story of Hartford's internal IT division. This story was discussed in the CIO of May 1, 1998.

Breaking Away: The Thrills and Chills of Launching an [Internal] IS Business

Furthermore, the issue is not only should we outsource piece A of the IS portfolio or not, rather it needs to be: Why should we insource A? What will be the long-term effect of outsourcing A? Does outsourcing of A hamper any of our other activities in the value chain because of 'complementarity' issues? Does it hamper the learning or innovating capabilities of the company? Is there a threat of being locked into the specific supplier because of outsourcing A? and so forth...

For some of our earlier research available online, you may like to browse:

An Empirical Analysis of the Determinants of Information Systems Productivity and the Role of Outsourcing Policy

IS Productivity And Outsourcing Policy: A Conceptual Framework and Empirical Analysis

IS Productivity And Outsourcing Policy: A Conceptual Framework and Empirical Analysis (Powerpoint Presentation)

More on these issues is discussed in an article that may be forthcoming in an IS journal this year some time... hope to touch base on this issue later...

Yogesh Malhotra
Founder, @BRINT
www.brint.coma

• @BRINT

---

Follow Ups:

• Re: Information Technology Outsourcing: The Right Question J. A. Avendaņo Mustafich 19:03:35 10/09/98 (0)

---

Click Here to Post Follow Up in New Forums

    Knowledge Management Think Tank (New)

  

 Subject: 

Message: