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Business, technical analysis required before leaping into the outsourcing world BY NOW YOU'VE probably read a dozen or more articles extolling the virtues of outsourcing to an application service provider (ASP). Perhaps you've even been approached by an ASP, or you are actively checking out the marketplace and trying to determine whether an ASP arrangement is right for your company.
These estimates include the outsourcing of information-systems tasks, such as network operations, desktop applications, and help desk support. Also included in the growth figures are external processing services that might manage electronic billing or payroll processing for your company. A third type of arrangement -- known as business-process outsourcing -- is also taking hold. A company partners with an external provider and has that partner manage one or more functional areas of company operations, such as human resources, customer service, or marketing. Regardless of the type of arrangement you might be considering -- information systems, processing services, or business process outsourcing -- I'd advise careful and precise business and technical analysis prior to making an outsourcing decision. The advantages of outsourcing are many. Usually, the cost of outsourcing comes in well below the expense required to maintain the same function or process in-house. An outsourcer usually provides highly efficient service in one or more specific areas. This also helps free your internal IT staff to focus more closely on mission-critical functions. Other benefits of outsourcing include rapid access to technical resources you might not be able to hire, the ability to react quickly to changing business conditions, and the power to leverage the outsourcing arrangement to increase your competitive advantage. In addition, it is often possible to dramatically reduce or eliminate capital expenditures. There are certainly drawbacks to outsourcing. Many of the lessons we learned from outsourcing arrangements during the 1980s apply equally well to today's trend toward external-service providers. In addition, the interconnectedness of current architectures adds a new dynamic to the situation. There are certain issues I feel need to be addressed by business and technical managers before any outsourcing deal should be signed. For example, you will lose direct control over the business process or function being outsourced. Does that present any problems? In addition, outsourcing anything more than the most peripheral processes can often require you to disclose sensitive company information to the external provider. You may well have agreements in place that protect your interests and place the responsibility of secrecy with the provider. However, you are opening your company up to the potential loss of important or competitive data. Much the same as in past years, outsourcing today will most certainly require a close relationship between you and the provider. You'll need to allocate enough internal resources to successfully manage the situation. Moreover, you need a detailed service-level agreement that spells out the specifics of the situation. For example, your agreement should specify how both parties will handle any personnel turnover at the provider's site, what your uptime requirements are, and how knowledge transfer will take place. There are other personnel issues, too. You'll need to account for internal employee transfers and layoffs that result from the outsourcing decision. For example, you might transfer some key employees to the outsourcer as part of the arrangement. Later, you may decide you are not satisfied with that particular outsourcer and wish to go elsewhere. You may or may not be able to transfer those same employees back in-house, unless you have provisions in the contract for that. Then there are those outsourcing contracts which require precise detail and a certain level of expertise. You'll need to have internal talent or third-party help to create a contract that successfully meets your needs and protects your interests. Other important factors to consider include whether you can handle an external provider who may not be located in your geographical area. And, how well does the provider understand your business? They may be technically savvy, but if they do not know your vertical market or your applications, you could be in for a rude awakening. I do agree that outsourcing and external service providers make sense for many business processes and functions. They can save money and increase competitive advantage when handled properly. However, I believe a cautionary approach to an outsourcing decision is definitely warranted. What do you think? Write to me at maggie_biggs@infoworld.com. Maggie Biggs is technical director for the InfoWorld Test Center  RELATED SUBJECTS  DatabaseMORE > SPONSORED WHITE PAPERS 
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