January 08, 2012, 7:44 AM — The lure of IT outsourcing is strong -- from the promise of better service levels and lower costs to the premise of freeing up internal resources to focus on strategic business issues. And if your IT service provider -- and, let's face it, a few of your CXO peers -- had their way, you'd send it all out the door to a third-party.
Smart IT leaders understand that successful outsourcing requires a balance of internal and external skills. At a minimum, CIOs "need a sufficiently robust internal IT organization to keep the supplier honest, assist in dispute resolution and get maximum value from the relationship," says Bob Kriss, a partner and litigator in the outsourcing practice of Mayer Brown.
But it's a slippery slope. Once an organization gets a taste of the benefits of outsourcing one tower of IT service, appetites for further third-party provisioning naturally increase. Before long, the portfolio of outsourced IT work balloons, but the benefits begin to wane as the internal IT service organization grows anemic.
How much IT outsourcing is too much? That depends on the customer. But here are seven surefire signs you need to bring some work back in-house.
1. You have to bring in the service provider for CXO sit-downs The CEO calls an all-hands-on-deck strategy meeting. The CMO wants to talk big data and analytics. CFO wants to re-examine IT's capital expenses. It's a bad sign if you have to drag your outsourcer with you to every important business meeting. "When they only way to supply strategic IT information to the C-Level suite is to invite the vendor staff to discuss it with them, you have given too much to the vendor," says Adam Strichman, founder of outsourcing consultancy Sanda Partners. "A good outsourcing contract preserves the right to control critical strategic issues and those affecting the core business," adds Brad Peterson, a partner in the business and technology sourcing practice of Mayer Brown
2. You're drowning in change orders When even the most minor change requires major paperwork, chances are you've sent too much out the door. "Your governance team is powerless to do anything without going through a vendor approval process, so you often end up not bothering to make improvements as they take too long to implement and often cost too much," says Phil Fersht, founder of outsourcing analyst firm HfS Research. In such situations, IT organizations put off the adoption of important new technologies until their contracts are up for renewal, says KPMG's Le peak, putting them at a strategic disadvantage.
3. You've run out of meeting space "When you need the company's largest conference room for the vendor management meeting & and suddenly, the largest conference room is not big enough,' says Strichman of Sanda Partners, you're outsourced to the hilt.