4. The transaction costs outweigh the benefits It may sound like an obvious red flag, but the costs of managing an ever-growing portfolio of IT suppliers can sneak up on an outsourcing customer, says Stan LePeak, director of research for advisory services at KPMG. "This often happens because the customer has more suppliers than it needs to obtain the right skills and maintain competition," adds Mayer Brown's Peterson.
5. Key members of the IT leadership team have morphed into contract jockeys Has the CIO begun to lament the fact that he never went to law school like his mother wanted? Not good. Other signs you need to pull back on the outsourcing, says Fersht: "You feel you have lost control over your operations and have merely become an administrative overseer. The people you want to hire to support you are not technologists, they are contract administrators. You need management accounting skills to improve your job, not more technology knowledge." And if your enterprise procurement group has had to staff up to handle the constant flow of RFPs and statements of work from IT, says Strichman, you've really gone overboard.
6. You can no longer answer fundamental technology questions It's business continuity planning time. Your chief risk officer asks you where the company's data is actually stored, and you realize you have no idea. It sounds comically extreme, but Strichman of Sanda Partners says he's seen it happen in heavily outsourced IT organizations. And it's not funny.
7. No one's paying attention anymoreto the outsourced work or you When "there is no more room for taking out more costs through pushing more work offshore, and your vendor keeps going over your head to convince your bosses there are 'more FTEs' they can take out," says Fersht of HfS Research, the next one out the door might be you. When "your management sponsors are less interested in your outsourcing initiative -- they've met their cost savings goal are have moved onto other initiatives," says Fersht, it's a sign that it's time to rein in the outsourcing strategy.
Stephanie Overby is regular contributor to CIO.com's IT Outsourcing section.
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