Wednesday, July 05, 2006

The reality of Outsourcing

Since originally posting this blog I have since come across the following piece by James McGovern on his excellent EA blog - Link Here and very much recommend it - the posting has certainly given me food for thought :-)

Outsourcing is at best a controversial subject, and working for one of the Worlds largest outsourcing firms, you might imagine that I am 100% in favour of it. In fact I, and many who work in the sector fully recognize its limitations, and try hard to separate out the rhetoric and emotional editorials one reads from reality.

There is an excellent video available now on Google, of Paul Strassman one of my analyst industry heroes, who methodically and dispationately goes through some of the economic considerations for outsourcing. It takes forever to download but I think its worth the effort.

The video is called "Is Outsourcing Profitable?" - Paul Strassman

Key points that will resonate with anyone close to the reality of outsourcing (particularly offshore outsourcing) are:

  • By undertaking major outsourcing activities of your business, you can reach further heights, or simply jettison cash at an alarming rate
  • When you outsource you will be definition add complexity to your organization and likely add overhead costs
  • It's not outsourcing that the issue its the management or otherwise of the processes
  • IT costs are falling dramatically anyway (Moore's Law simply adds to this) so if your costs are rising - you are doing something wrong that Outsourcing won't fix
  • When you start to outsource in a major way, you should start to forget about Enterprise Integration as such - as your Enterprise is now an extended chain of partners around the globe
  • Outsourcing, is nothing new - but the naievity of some firms in pushing work overseas gives it a bad name. As does the greed of some outsourcing vendors who will take on any work at cut rates, whether they are able to meet requirements or not.

Ultimately its all about managing the process, and sadly some companies are contemplating outsourcing to reduce costs in badly managed scenarios. If management processes are weak when activities are internal, they will be stretched further when outsourced, and benefits are unlikely to be realized.

There are clearly much wider and more emotional arguements over whether one should be outsourcing overseas at all - there are wonderful and well argued cases from both sides of the divide on how this can work to the benefit of the local economy and against. What's for sure is that outsourcing done badly is potentially destructive all round. Done well it can free a firm up to concentrate on its core business in a way that was not previously possible, outsourcing simply to reduce costs is seldom a postive end in itself.......

1 comment:

Wesley Howard said...

Thanks for sharing this informative article. It is indeed very helpful. Cheers!