As technology advances, the benefits of insourcing far outweighs outsourcing, says Craig Arenhold, CEO of Fundamental Software.
While outsourcing has been a major trend in the IT industry for some years now, that tide is starting to turn. Many companies are realising that the pitfalls of outsourcing are not worth the benefits—and even those are not looking as rosy as they were in the past.
The two major benefits touted by outsource specialists have been cost effectiveness and the ability for companies to focus on core competencies. Because of the need to employ software developers and other technical specialists, the argument was that IT management should be left to the IT professionals, while the business got on with business.
These days, however, advances in technology have made IT merely an enabler, giving companies the tools to operate more efficiently and effectively. Integrated solutions with intuitive interfaces are more available on the market, so a high degree of technical skill in-house is not as essential as it was previously.
Companies who decided to outsource some years ago are starting to realise that relinquishing the control of their data and systems to an external operator has its drawbacks. For one, a lot of flexibility is lost as it is difficult to tailor for individual customer requirements. Also, when a system sits outside a business it is more difficult to control quality and service delivery even with stringent SLAs in place.
By keeping IT in-house, it is easier to manage output by holding employees directly accountable, as well as provide customised solutions for clients. In addition, your data is available on-site making access easier and enabling you to manage privacy aspects more effectively.
One of the primary arguments for outsourcing has always been cost efficiencies. The models used by outsourcers have assumed the need for a high degree of technical expertise in-house, which today is not relevant.
While outsourcing may still make financial sense for some industries, others such as asset management actually tend to pay more for outsourced solutions. This is because the outsourcer fees are linked to the amount of assets under management, so if the value of transactions increase, the fees escalate even though the volume – and therefore admin requirement – remains the same.
In addition, like with every outsourced relationship, there is a financial threshold where it makes sense for the outsourcer to focus skill and resources into the account. If a company sits below that threshold, it is unlikely to get the same level of attention as an account with a higher fee structure. While this is a basic principle of business, it is a bitter pill to swallow considering that it is your mission-critical data and systems that are being impacted.
When it comes to IT, companies should take a long hard look at their requirements and the real savings related to outsourcing, ensuring that they are not just following a trend that has been established over the past two decades.
With some hardcore analysis of the pros and cons, you may just find that the benefits of keeping your systems in-house are far more compelling.