Outsourcing vs. shared services

There are two current trends in IT with diametrically opposed points of view that are worth looking at. The first is shared services, wherein the IT organization becomes the internal service provider to the rest of the company. The second is combined business process and IT outsourcing all done under one roof -- although, of course, that roof is somewhere other than at the company.

In a shared-services environment, common IT functions are consolidated, rather than spread across an enterprise in siloed systems. It was first used by HR departments. For example, new employees can be automatically added to all databases for all suborganizations, with no special effort from HR.

Implementing shared services is not an easy task. It requires changes in business processes, infrastructure, and even the corporate culture of how departments relate to one another and to IT. But it benefits organizations by giving them better understanding of how IT supports the business through billing.

In addition, it allows companies to analyze the value of service that are provided to internal customers, in order to change or optimize them, says Joachim Frank, vice president of the enterprise infrastructure practice at HP Services. The end result should be increased flexibility in instituting business changes, more manageable costs, and greater control. Frank says a shared service is easier to manage and it allows IT to offer an SLA to help keep it on track.

However, the mere mention of an internal SLA appears to set Chris Carrington’s teeth on edge. “What will they do [to IT] if they don’t hit the mark? Call another meeting?” he asks.

Carrington, who leads Capgemini Outsourcing North America, believes only outsourcing can make a company truly accountable for performance. As he sees it, IT departments and the various organizations that create business processes within a company are all separate silos, each with their own management teams and budgets. There is no incentive to reduce someone else’s budget. But when they bridge all of the silos under common ownership, Carrington says, companies see tremendous savings.

Carrington points to TXU , a Capgemini customer and the fifth largest utility in the country, which saved $150 million in the first year by outsourcing. Capgemini took over what Carrington calls the “meter to cash” business processes, including everything from collecting the data from the meter in the field to creating the bills, sending out the bills, the financial processes, and even debt collection.

“By aligning both the IT and the business process outsourcing it allowed us, an outsourcer, to redesign the flow of how IT supports the business process,” Carrington says. The savings, according to Carrington, were easy to determine because Capgemini quoted a price $150 million less than what it cost TXU to do the same work.

HP’s Frank and Capgemini’s Carrington believe that choosing between a shared-services model and an outsourcing model is a philosophical decision, but both staunchly defend their models.

Frank says the shared-services model gives a company the ability to run IT like an internal service provider, allowing it flexibility to compare its business approach to offerings from outsourcers in order to determine what should be outsourced and what should be kept in house. Carrington says you can never get the kind of savings outsourcing yields if you’re fighting an internal bureaucracy.

Which way is your company leaning and why?