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Myron Hrycyk, IT director for Unipart Automotive Logistics, explains why the decision to outsource IT must be strategic and not tactical

Research shows that most firms approach the outsourcing of IT as an opportunity to reduce costs. However, the sourcing of a company’s IT capability is a strategic decision, with far-reaching consequences. It is therefore imperative that organisations outsource their IT for the right reasons, and don’t unwittingly hand over a core business competency to an external service provider.

Today’s technology systems are interwoven into the fabric of an organisation’s processes, products, business models and strategic capabilities. As a result, IT managers often experience difficulty in defining what is strategic and different about their deployment of IT and what is a commodity service.

For example, although an Internet sales channel might be critical to an organisation, the server infrastructure used to underpin the service is unlikely to be a differentiator and therefore could be easily outsourced.

In contrast, the dynamic pricing algorithms used as part of the online purchasing solution will be very much unique to the business and its strategic capabilities. For that reason, they should be controlled in-house.

Outsourcing a core competence can lead to ‘hollow’ organisations, with an over-reliance on third parties, loss of control, erosion and imitation.

With technology also increasingly being a source of competitive advantage, losing control of core IT systems and services could also strategically damage the business.

Taming the beast

Although more and more CEOs now recognise the importance of IT, it is still often considered a company’s bête noire. It requires high levels of investment. It ‘wastes’ valuable management time whether it be through poor quality of service, late projects or skills shortages. And internal IT resources are lambasted for not delivering strategic value.

Research has shown that organisations frequently turn to outsourcing when IT is perceived as a ‘problem’, business and IT are not strategically aligned and competitors are adopting a similar strategy.

Companies that outsource their IT capability based on one or a combination of such tactical reasons are storing up major problems for the future, which could eventually significantly impact the effectiveness of the business and its competitive advantage.

Organisations that adopt a strategic approach towards outsourcing, however, will achieve much greater success. To accomplish this, the IT sourcing debate has to be taken out of the boardroom, particularly as there is rarely a credible and powerful voice representing the organisation’s IT capability.

According to a study into the outsourcing motives of FTSE 100 companies, there are seven key strategic business drivers. Not surprisingly, cost saving is cited as a major factor, but this is also joined by the need to access skills, focus on core competence, improve quality and service, enable change, manage risk and develop the business.

Measuring value

Identifying business drivers and contract scope, however, are just the first steps on the outsourcing journey. An organisation must then begin to understand the impact of IT outsourcing on its people and processes, while also ensuring that is has defined the business benefits.

Thanks to the IT outsourcing boom, organisations must also negotiate a path through the multiple sourcing models now on offer — from full outsourcing and multi-sourcing to strategic partnerships and selective outsourcing.

At Unipart Logistics, we took the decision to outsource the majority of our IT in 2000 using a multi-sourcing approach. Computacenter is responsible for our 2,000 desktops/laptops and network, as well as the helpdesk service for our internal users and Unipart customers.

Managing such outsourcing relationships is another challenge facing organisations and their IT departments. Many IT outsourcing programmes lack the use of structured techniques that enable an organisation’s business strategy to be articulated and IT’s contribution to this strategy clearly evaluated.

To overcome this challenge, we use a range of processes to help ensure that the contribution of IT — and our IT partners — is aligned to Unipart’s business objectives. These tools enable us to align IT services and projects directly to our business goals — for example, we can show how Computacenter’s role in a new technology deployment will help us enhance the services we offer to our customer Jaguar.

The ability to make and demonstrate these links is very powerful, and can also help identify those areas of IT that are a strategic capability, which is so important to the outsourcing decision-making process.

Making the right outsourcing decision can have a massive impact on your business. Thanks to our relationship with Computacenter, we’ve not only been able to free up internal IT resources for strategic projects but also keep our desktop support costs below average.

Choosing to outsource IT must not be viewed as a tactical activity. Instead it should be seen as a strategic opportunity to deliver long-term business benefits and increase competitive advantage. To read more about Computacenter’s outsourcing partnership with Unipart, go to: WWW.COMPUTACENTER.COM/CASE-STUDY