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Issue Date: November 2003 (es)

The use and abuse of outsourcing

1 November 2003

Every year New York hosts a 'Technology Week' called TECHXNY, which includes several parallel exhibitions and multiple conferences. Many organisations also use this opportunity to announce/launch new products/initiatives, and I have had the privilege of visiting and participating in it for the past few years.
One of the hottest topics currently extant among senior executives and discussed at great length at TECHXNY, was that of outsourcing and despite the perceptions that have been created around this topic over the past few years, it is still a very much thorny issue.
According to research that has been undertaken, 30% of projects essentially fail, whilst another 23% only achieve limited objectives. These results differ significantly than the perceptions that are extant in the marketplace, often aided and abetted by the major vendors themselves and have caused executives to re-examine their original objectives in undertaking such an exercise.
The reasons behind this poor set of findings are numerous. However, there are some common threads, the main ones being the mis-match between the customer and the vendor in the area of expectations, maybe caused by an inappropriate Service Level Agreement; a lack of clearly defined roles between the various parties; and often, the customer not ensuring that he has a senior executive still heavily involved and monitoring and communicating both internally and externally as appropriate.
Historically, many companies turned to outsourcing mainly as a cost-reduction alternative, but today this is changing to one where more strategic reasons have become the subject of focus of such an activity. According to Tatum Partners, a major consultancy in the area of outsourcing, many companies view this as a real alternative since they wish to focus their internal resources on core competencies; they want to maximise the flexibility and/or scalability of their infrastructure in order to reduce investments in capital assets; they need to improve infrastructure performance and reliability; they would like to share risks; they see an opportunity to boost margins and build new partnerships; and, it enables them to stay abreast of new and emerging technologies and methodologies.
Additionally, a good partnership should include a three-dimensional fit between the company and the vendor. There needs to be a strategic fit where future vision and value propositions need to be complementary and some form of competitive advantage realised; a cultural fit that examines the 'chemistry' between the various parties; and, an operational fit, which will examine such things as systems integration and performance processes.
Despite much of the above, outsourcing is still an appropriate option for most customers to either a lesser or greater extent. The use of external staff to quantify and document the requirements should be considered and external experts may be appropriate to help execute the integration activities, thus ensuring that the real benefits accrue to the organisation without being prejudiced by individuals with their own private agendas.
For more information contact Paul Booth, Global Research Partners, 082 568 1179,

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