Before spending the time and money to write and release an RFP, a company considering outsourcing should ask two important questions:
- Will outsourcing give us a potential advantage?
- Why would an external service provider be able to do it better than we can?
Critics of outsourcing often rest their opinions on assumptions that internal functions should be able to do what outsourcing vendors do if the internal organization applied good management practices and worked smarter and harder. Sometimes this may be true, but in other instances it is not. Consider the ways in which vendors hold an edge:
1. Experience
Because of the variety of clients and circumstances, vendors have a depth and range of experience that individual clients usually cannot match. Vendors go through multiple restructurings that might happen only once or twice for the typical internal staff. The best surgeons tend to be those who do the same operations day in and day out. Similarly, vendors who do the same difficult tasks repeatedly gain an advantage over those who do them infrequently or only once.
Large scale vendor management can specialize, focus, and gain repeated experience with management of tasks that would only come around once in the careers of many IT managers. Vendor management becomes more skilled and experienced as a result.
2. Scale
Multiple clients allow a vendor to operate at a scale unattainable by any single organization. A large vendor can buy and fully utilize large, powerful and more efficient equipment than clients who operate at smaller scale. Outsourcing vendors also have considerable advantage in negotiating price and services with providers of equipment and software.
These vendors can maintain a bench of technical experts with greater range and depth than any of their clients. Vendors can afford these high priced experts because they can utilize their expertise efficiently and effectively by spreading their assignments over multiple clients on a flexible, as-needed basis.
3. Specialization
The ability to specialize in skills also extends to experience with new technologies. Internal IT staff may only encounter conversion to a new operating system or a client server architecture once. Vendor personnel, on the other hand, can have this experience numerous times with multiple clients and gain a real advantage in knowledge, speed and efficiency.
Being on the cutting edge in technology and processes is a big attraction to hiring and retaining the most talented people. Vendors can often offer these experiences on a more consistent basis to their personnel than can the typical IT department. For this reason, vendors often have very good people with the latest experience, something difficult to reproduce in other organizations.
Vendors may also squeeze fringe benefits to employees, rely on temporary labor when advantageous, locate major facilities in lower wage areas of the country or the world, implement tough standards on employees to keep and employees to let go, exercise tight control over inventories, use leaner management, and hustle more. These tactics are available to internal IT organizations, but some vendors may be better positioned to carry them out.
Outsourcing becomes an advantage on many fronts. The corporate imperative to run “lean and mean” and cut costs favors outsourcing in the current economic climate.
Lessons from the Outsourcing Journal:
- Before spending time and money on an RFP, companies considering outsourcing must determine if an outsourcing provider can really do the job better.
- Outsourcing providers do have advantages over individual forms. They have greater experience than departments because they have the opportunity to do challenging assignments over and over again.
- Outsourcing providers can attract top talent because they can utilize their talents over a number of clients.
- Outsourcing providers have scale; cost savings usually can’t be reproduced at an individual firm.