Beyond Cost-Savings: How to Make the Most Out of IT Outsourcing

http://www.executivebrief.com |  Business, cost reduction, cost-savings

If technology is so critical to the success of the company, then why is it being outsourced to different parts of the planet? These suggested strategies can prove that there is more to outsourcing beyond cutting costs.

The most oft-cited reason for outsourcing parts of business operations are cost reduction and, to some extent, improvement of product or service. However, to extract the best value from outsourcing, companies should look beyond savings. Instead, business value creation and further market acquisition should be included in the list of objectives for adopting outsourcing as part of sustainable business strategy.

As business operations modernize and globalize, there is no way to separate IT and its most basic roles in keeping companies operational. Communication channels, knowledge transfer, data integration, and business intelligence are some of the outcomes of well-integrated technology operations to businesses large and small. Technology, in itself, in terms of software and hardware development, is also being outsourced in different parts of the globe. If technology is so critical to the success of the company, then why is it being handled by third parties, most of whom are spread on different corners of the planet?

Anthony DiRomualdo and Vijay Gurbaxani offered an answer in their 1998 paper, “Strategic Intent for Outsourcing.” The authors wrote that among early adopters of outsourcing, critical business and management skills were developed among employees who worked with consultants or outsourcing providers. Employees who worked with consultants eventually developed, among others, entrepreneurial skills that were critical to managing project teams and attaching financial and market value to their outputs. The most mature relationships spun off to new businesses that provided the combined expertise of clients and vendors.

So what exactly does strategic outsourcing refer to? Simply put, it is when a company cuts cost, improves its service (or product), and optimizes business performance by developing business skills and acquiring more market share. Note that while these strategies are not mutually exclusive, each of these strategies can be entered into separately. Just as well, a strategy that a company adopts can also result in another.

Strategy 1: Improved Information Systems. This is the strategy to take if the objective is to maximize the performance of its overall IS resources, including hardware, software, networks, processes and staff while driving down cost. Outsourced specialists who can up with emerging technologies or implementing methodologies in product development should manage part of, if not all, IT services.

Strategy 2: Business Impact. Taking the client-vendor relationship at a different level, this strategy closes the gap between the IT know-how and existing business management skills of employees.

Strategy 3: Commercial Exploitation. This strategic intent’s goal is to improve the return on investment by generating new revenue and profit from offset costs. For example, innovations that were developed during the course of the outsourcing relationship can be sold or licensed to businesses; technologies that were initially planned for internal use can be marketed as new products or services.

Whatever strategy is adopted, the most important lesson comes from the nature of the relationship that a business has with the vendor and how it aligns the aspects of that relationship with its business goals.

By ExecutiveBrief

ExecutiveBrief, the technology management resource for business leaders, offers articles loaded with proven tips, techniques, and action plans that companies can use to better manage people, processes and tools – the keys to improving their business performance.
www.executivebrief.com

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