Why Outsource?

Why would an organization want to get another company to run their IT? Here are some obvious as well as less obvious considerations:

  1. Reduce costs. In theory, an IT services company with low-cost factory models in the standard IT disciplines – server and storage hosting, data centre management, network management, end user computing, service desk, apps maintenance and development – can use leverage, shared service centres in lower-cost countries, automation and standard processes to deliver IT services that are more consistent and less expensive than most companies can provide themselves.
  2. Strategic vs. Tactical. By outsourcing the provision of tactical, increasingly commoditised services, the IT department will have more time to focus on helping the business achieve it’s strategic objectives. This requires a sometimes painful change in focus in the retained IT group – letting go of hands-on technology management and focusing more on relationship management, benefits realization, value-based governance and supplier management.
  3. Re-balance the run / change ratio. While not necessarily spending less on IT, an organization can spend less on running the business and more on changing the business.
  4. Consistency and coverage. Many inhouse IT groups do a good job in head office and large locations, but less well in smaller, remote or regional locations.
  5. Risk management. Outsourcing contracts have well defined services with service levels, service penalties, indemnities and liabilities. IT service providers also usually have breadth and depth to cover serious incidents that might otherwise not be covered by the inhouse IT group.

Less obvious reasons:

  1. Stir things up. Create the impetus for change. Historical, legacy relationships between IT and business are stuck in old patterns. An outsourcing breaks up the scar tissue, brings in new thinking and ways of working, and provides opportunities (creates excuses) to change relationships and ways of working to get big politically difficult things done.
  2. Re-shape internal IT.  Rather than being the go-between, internal IT can become a professional services provider themselves. Outsourcing brings more visibility, transparency and control over services and assets, allowing IT departments to provide services, service levels, a services catalogue, reporting and monthly billing to their business customers. It can help remove grey areas where work seems to get done but not accounted for, or where business units feel they are paying for services that they aren’t getting, or aren’t receiving to a high enough standard.

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