Why Only Outsource Things That Are Working Well?
December 02, 2011

Matthew Burrows

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Traditional wisdom seems to be that we should only outsource things that are stable and working well, but what about the stuff that we are doing badly? Speakers on a recent ITSM podcast supported the view that we shouldn't outsource something that is broken because we don't understand it well enough, and therefore can't adequately specify our requirements to the service provider.

With a background on both sides of the managed services and outsourcing relationship, and with some of our current customers being managed service providers and others their customers, I think it is worth challenging this conventional wisdom.

In our daily lives, we are constantly buying services because we can't do them well ourselves. When I was a teenager I serviced my own car a few times, but I'm not very good at it, so I made a conscious decision to get someone else to do it for me. I understand enough about the end objective (a fully functional vehicle), and can express any symptoms of potential issues, to be able to express my requirements and engage a service provider.

Generally speaking, we sometimes engage others to do the things we are good at, when we don't have the bandwidth or desire to do it ourselves, but we also seek the help of a service provider when we need something we can't do.

Why should it be different in the IT world? If we have something that we are currently doing badly and may have no hope of being able to fix, maybe the service we're looking for from a service provider is to take it on, help fix it and provide it as on-going service.

If we don't have the skills or bandwidth to fix it internally, it's probably not a core competency, and therefore is something we might legitimately want to buy from a supplier instead of delivering it internally. We have a choice, just the same as with my car maintenance.

If we agree with the conventional wisdom, one option is to bring in outside support, maybe from consultants or contractors, they fix it and get it stable so that we can then outsource it. This does work well in many cases, but it also runs the risk of being inefficient.

What happens if the service provider's preferred way of delivering this service is different from our internal approach? Either the service provider has to deliver something slightly unique, potentially missing economies of scale, which in turn might mean we don't get the best price. It is also likely to increase the risk, as the service provider is doing something new, non-standard and therefore represents a greater risk to the service quality and continuity.

Once we agree on an outsourcing deal, the service provider may want to transform it in order to fit their standard service - which means we are probably paying for it to be transformed twice, once by our consultants and then by the service provider. We may also compromise the scope for innovation from the service provider - which in my mind is one of the characteristics that we should be encouraging when we look for potential suppliers.

So, I would suggest that we should consider any activities that we have decided are not going to be core competencies of our organisations - regardless of whether we currently do them well or not. One of the common mistakes in outsourcing is that customers try to specify exactly how to provide the service (often to make the procurement process easier), destroying some of the potential economies of scale available from the supplier being able to deliver it in a standardised way (which is key to them being able to deliver it cheaper) and leaving virtually no room for any innovation. If we've forced them down to a very low margin, they are likely to be under internal pressure to realise that profit in other ways.

Supplier relationships always work best if they are equitable - we have to recognise that the service provider needs to make money, and we also want them to be incentivised to continue increasing the value, introducing new innovation and improvement ideas. If the starting point is something that already fits their existing processes and service characteristics, they can start concentrating on the innovations much earlier.

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