I have learnt the hard way that trying to outsource on the basis of “manage my mess for less” is a sure fire way of crashing and burning at worst and being more expensive at best. Anything that is crucial to your firm’s success, you do not outsource. In other words, only outsource which is a commodity and it is easy to switch suppliers such as perhaps storage management, electricity supplies, sewage, catering, cleaning, etc.
Lo and Behold, here’s a paper which provides some more data to back up the idea that outsourcing actually pushes up your costs. The data used is crucial and I quote
0% of the sample companies partake of outsourcing some or all of their IT activities. The authors find that while on a project level, they might see a reduction in the IT costs and spend, on an aggregate firm level, the IT spend actually goes up. Note that they do control for scope and volume changes by looking at the sales growth. Within two years of outsourcing, the IT cost level of firms who have outsourced is correspondingly higher than firms which have not outsourced. While the authors suggest that this is because of capabilities are enhanced, I have my doubts. One cannot improve IT capabilities in 2 years, it is simply not possible to evolve the business and IT side so quickly that a statistically significant improvement in productivity and quality can be observed. It is, in my opinion, clearly aimed at the fact that the business case is frankly wrongly specified and outsourcing doesnt really help as far as cost control is concerned.
Business cases are rarely expressed in terms of ratio’s, in other words, you will very rarely find that the managers concerned or the IT outsourcing firm are quoting you IT costs as a ratio to say the sales revenue or operating costs or profits of the firm. This is why I am very nervous whenever I hear that outsourcing is happening which is going to drive down costs.
There is a good argument to outsource to improve efficiencies, drive a centre of excellence, to improve productivity, but for cost purposes, the figures do not bear out the benefits.
Source:http://desicritics.org/2010/03/06/174055.php
