Don't Outsource These!

When a company considers outsourcing, there are many discussions regarding the benefits of contracting out specific functions or processes, but it's equally important to discuss what your company should not outsource.

Not all functions are viable candidates for outsourcing. There's an important distinction between the operation of a function and its management controls. If you outsource a function's management controls, you essentially abdicate responsibility for its execution and day-to-day management. This is particularly true in offshore situations, where "out of sight, out of mind" is a common pitfall. Never outsource responsibility for the effectiveness and overall success of a function.

Many management controls come under the auspices of project, program and supplier management positions. As IT builds less and buys more, these specialized skills are critical to your organization's success. Deciding to keep these functions in-house doesn't preclude augmenting your staff with outside resources, however. Consultants provide valuable expertise, independent objectivity and staffing flexibility.

Here are some other functions you shouldn't outsource:

Strategic planning. You have to establish your own strategy, plan and architecture. Companies often hire outside specialists to assist with this process, but you and your staff must ensure that it accurately reflects the direction in which your organization wants to move. Having your staff participate also builds buy-in and gets commitment to the plan's implementation.

Activities subject to massive business change. Every contract needs to be developed with enough flexibility to protect your business interests when change occurs. In times of dramatic business change, it's nearly impossible to anticipate and provide contingencies for every possible outcome. Moreover, if you try to provide for too many contingencies in the contract, the outsourcer will have to charge you for its flexibility, and the costs may become prohibitive.

Poorly run systems or processes. In general, outsourcing a broken process or system means it will still be broken. Fix it before you outsource it. One exception is when you are able to adopt the outsourcer's process or system unchanged in order to solve a problem. For example, one company had multiple payroll systems in its business units. Adopting an outsourcer's payroll system allowed the company to get around the political infighting and standardize the payroll process across the enterprise. But be cautious about accepting someone else's solution to your problem.

Critical systems and processes. Business processes and systems that differentiate you from your competition should be kept confidential. You need the required technical skills and delivery capability in-house, with minimal assistance from outside resources.

IT customer relationship management. You need to own the relationship with in-house and external customers. Your outsourcer may help customers with requirements and implementation, but you're ultimately responsible for the customer's satisfaction and the project's success. If you neglect customer relationships, you may get blindsided. One CIO hired an outsourcer to upgrade Oracle Financials in a business unit. In the process, the outsourcer convinced the business unit to switch to PeopleSoft. The company's financial systems are no longer standardized and the CIO has support issues.

Compliance management. The recent increases in regulatory mandates make compliance management too critical to outsource (though you may need consultants to develop compliance programs or audit financial systems). For example, when your CEO and CFO sign their Sarbanes-Oxley statements, they need you to vouch for the integrity of the IT systems. No one else can provide this assurance without exposing your company to risk.

IT management support. The functions that help manage the IT organization need to stay in-house in order to be effective. Financial management, people management and security management shouldn't be outsourced.

Determining what to retain inside your organization is as important as determining what to outsource. In addition, the more critical a function is to your business, the more crucial it is to keep the associated management controls in-house. Leverage the success of your outsourcing efforts by selecting the right things to outsource and the right things to keep.

Bart Perkins is managing partner at Louisville, Ky.-based Leverage Partners Inc., which helps organizations invest well in IT. He was previously CIO at Tricon Global Restaurants Inc. and Dole Food Co. Contact him at BartPerkins@LeveragePartners.com.

Copyright © 2004 IDG Communications, Inc.

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