Outsourcing: a short-term option and way to buy expertise

Outsourcing should not be seen as a short-term tactical measure to reduce costs, but as a way to improve an organization's market position, according to Wipro Infotech A/NZ managing principal Vincent Nair.

He said organizations have five options, they can - insource, cosource, outsource, nearshore/offshore or offshore. But Nair believes when it comes to outsourcing, most Australian organizations are still going for the "low hanging fruit".

In the Asia-Pacific region in 2004, Nair said $84.6 billion was spent on IT services, but only 0.3 percent of that amount was offshored.

"But its offshoring and moving up the outsourcing scale where companies can generate significant returns," he said.

Nair said by 2009 IT services spending will rise to $121 billion with 1 percent of that total offshored.

Jim Longwood, Gartner research vice president, said there has been a strong shift to best of breed outsourcing.

"But so many deals have been driven by short-term gain," he said.

So how committed are Australian IT leaders to outsourcing? One CIO who is a huge fan is Ken Matthews of Newcrest Mining.

He says it reduces risk and allows for greater flexibility whether there is an upturn or a downturn in the business.

"Our job is to create value and lead the company, not just focus on the CEO's desktop and network outages," Matthews said.

Michael Enriques, Travel.com.au IT manager, believes anything non-strategic can be outsourced, including the helpdesk.

"But infrastructure is not so easily outsourced and is essential to our business strategy; but wherever someone else can do better, let them," he said. Outsourcing is definitely on the agenda for Box Hill Institute of TAFE IT manager Chris Tayler.

He is currently undertaking a review and cost analysis to identify areas ripe for outsourcing in the next six months.

"We don't have the resources to do every project, so we will probably outsource mostly in the area of software development, due to a lack of internal resourcing," Tayler said adding that security is another area suited to outsourcing.

New Zealand Natural has just completed a migration from Lotus Notes to Microsoft Exchange, which was outsourced. The company will also outsource its planned upgrade to Window's Vista. Michael Carter, NZ Natural's IT administrator, said he relies on outsourcers for their expertise.

Geoff Lynch, the IT manager at Countrywide Food Service said, "We outsource so we don't have to hire experts.

"We outsource our Web sites, IT infrastructure support, security, and specific applications; we find it very cost effective instead of hiring people as permanent employees."

Lynch said the IT strategic plan is reviewed every six months and outsourcing is reviewed as new projects arise, which can be as often as every month.

Peter Nikoletatos, University of Newcastle CIO, describes outsourcing as a dirty word.

He prefers to use the term "co-partner", which is what the university does when it's short on internal expertise.

Nikoletatos began outsourcing last November and is looking at forming more strategic partnerships in the longer term. But some areas need to remain in-house with the university recently appointing a security specialist following an extensive audit.

NSW Department of Corrective Services IM&T division executive director, Wayne Ruckley is currently engaged in a far-reaching ICT renewal program. Ruckley said central to this is a closer working relationship with business.

"We need to transition our plans to business outcomes; we have a strong conviction that we want to become business experts, not just IT experts," he said.

"To do this we have to look beyond our organizational boundaries and that includes outsourcing, but as part of this process we are being very open and transparent with the unions. We see an ongoing role for our own staff, for contractors, for consultants as well as outsourcing providers."

In recent years, Ruckley said the department has outsourced data centre management as well as application support and maintenance.

"But there are still risks, you cannot outsource ultimate responsibility," he said adding that there are specific areas more suited to specialist outsourced providers.

He favours the selective sourcing model, because no single organization can cover the entire IT landscape; he wouldn't outsource security. "Correctives is security-based and is not something we would be comfortable placing out of house," he said.

Len Gemelli, information services manager at Peter MacCallum Cancer Institute, supports outsourcing, but only if it works for the business.

"There is an ROI in a corporate environment but I'm not sure how responsive it would be in health care," he said.

Not everyone sold on the pros or cons

Matt Cammell, the Asia Pacific network operations manager at recruitment firm Spencer Stuart, sees no need to outsource.

He said security concerns have prevented the company from outsourcing and Cammell thinks it's important to have a solid rapport between the helpdesk and end users.

"In-house support is more personalized and you can't guarantee service with an outsourced product; however, we do outsource project management to get access to skill sets we don't have internally," he said.

In the six years Cammell has been in his current role, outsourcing has been debated, he said.

RSPCA Victoria IT manager Peter Blanker warns that outsourcing won't cure the ills of a badly run IT department and can be costly.

In fact, WFM Motors IT and telecommunications manager Philip Smith said the arguments for and against outsourcing have gone on for many years.

"It works for non-core and non-customer focused areas of IT; for example, I wouldn't outsource the helpdesk," Smith said.

"If something is a key differentiator you want to keep it yourself to maintain a leading edge; I wouldn't want anything that is customer sensitive to be in the hands of someone else."

Stanley Chapman, the MIS manager of agricultural distribution company AGCO Australia, doesn't outsource at all.

"We have a very specialized type of business and a small team of five people dedicated to Windows, systems security and our dealer system. I think we are a low-cost group and it would be an enormous task having to teach an outsourcer how the business operates," he said.

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