Business Capability: creating a modular information supply chain through selctive outsourcing 2

The chart below only serves to prove Paul Strassman’s mantra that outsourcing is more an emetic than a cure.  By and large the following is true:

  1. Outsourcing is a financial decision and not a business one.
  2. Companies engaging in heavy outsourcing activity are overall commercial losers.
  3. Financial gains from outsourcing are usually mythical as per user costs usually increase from declines in overall employment.
  4. The only financial gains from outsourcing are usually short term wins on the stock markets. 

Large scale outsourcing of the IT function weakens corporate productivity by lessening flexibility at a time where the company must create additional agility in order to survive.  The heavier the outsourcing activity the more likely the business is to lose its information management function, i.e. the  ability access information (which now largely resides under vendor SLAs), package and use it quickly and effectively is now gone.

The secret to IT outsourcing is to (a) commoditised and (b) focus on capability.  Firstly, businesses should not even have to think about infrastructure.  There are very few arguments to retaining one’s own data centre.  IT infrastructure and even network monitoring and optimisation are highly commoditised product offerings with very low risk.   Just do it.

Secondly, focus on capability.   Understand where technology creates value in your business.  Focus on increasing the productivity (and reducing costs) of those areas of opportunity by packaging modular information offerings from high-end suppliers.  For instance, some outsourcing companies specialise in data analytics and BI.  Some specialise in risk analysis and some specialise in service-based client messaging.  Start to build these services – all of which can be done better and cheaper by outsourcing firms  – and begin to build them into a client narrative which allows your business to penetrate deeper into the middle and front offices.  This is just an example but it highlights the fact that if your company has a modular information supply chain you have the agility to create great, differentiated service offering based on real customer value. 

Be careful what you outsource.  Get to grips with business complexity (it’s here to stay) and don’t derogate from your business responsibility to information management.

2 comments

    • Thank you. I’ve been somewhat remiss of late because I’m writing a book on Enterprise Risk Management. Book 2, however, which is in the planning stage will be about business capability or more specifically – Contracting for Capability.

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