Article

Gartner: Outsourcing is about more than cost savings

Ed Parry, SearchCIO.com News Editor

LOS ANGELES -- Outsourcing isn't like heartburn or the neighbor's yappy Yorkie -- it doesn't keep CEOs awake at night.

The big boss doesn't think about it much during the day either.

According to a 2002 Gartner Inc. survey (conducted in conjunction with Forbes Magazine), most high-level executives consider tracking and retaining customers, focusing on core competencies, and business strategy their top three priorities. Outsourcing vendors ranked near the bottom of the priority pile, right above the barrel-scraping mergers and acquisitions and right below cutting costs.

In a quick survey of some 300 attendees at Gartner's Outsourcing Summit 2003 last week, nearly 75% said that their CEOs or heads of strategy are either somewhat involved or totally uninvolved in their firms' sourcing strategies.

But you know outsourcing is a hot topic now, don't you? So hot that Gartner analysts predict that shipping work offshore will be discussed in more than 80% of U.S. executive boardrooms by 2004 and that more than 40% of U.S. firms will be sourcing IT services through a global delivery model by next year.

So how do you get outsourcing on the CEO's radar screen?

Money isn't everything

Show your chief executive that outsourcing is the "great enabler" -- a means to drive those top three priorities. Cutting costs alone, an oft-cited reason for outsourcing, won't sell the boss on a sourcing

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plan. "Cost is a driver for outsourcing, but it's not the sole reason businesses do it," said Pat Adamiak, director of strategy and business planning for Hewlett-Packard Co.'s HP Services unit, the third-largest services business on earth.

"We're hearing customers say they want IT innovation and people management, not just low cost," Adamiak said. Cost savings are nice, but they don't mean much if you've got an IT infrastructure that, by the end of the contract, might look better sitting atop the shag carpet in the Brady household.

To sell the importance of outsourcing, you must also show how it can drive business growth. Neil MacDonald, a Gartner vice president and research director, told attendees at the Stamford, Conn.-based analyst firm's summit that there is a desperate search for business growth in today's economy. A number of factors have made growth tough to come by.

For one, globalization has made it possible for a competitor to rise overnight from anywhere on the planet and challenge your business. Technology has killed distance, compressed time and driven down prices. The Web has given more firms access to a global audience of potential customers, and the Internet has shifted power to the customers by keeping them better informed (and making them harder to please). How many times have you "Googled" up some information on a particular product or service?

"Put all this together, and you have a tough business climate," said MacDonald.

Driving business growth without the fat

MacDonald said that outsourcing can help drive growth in a number of ways: by improving operating costs, turning fixed costs into variable costs, getting assets off the balance sheet, freeing up cash for investments, accelerating expansion through providers, and helping your business enter new markets.

Outsourcing can also mean improved service levels, access to best-in-class technologies and overcoming issues with outdated technology, and it can make employees feel like they're working for a specialist -- someone who knows their stuff.

It may also help blunt the inevitable question a CIO asks: "What does this person do all day?"

These pluses, according to MacDonald, make for an agile business that can adapt to change and stay targeted on its bread and butter, rather than gaining unnecessary weight through a merger or acquisition. "Bigger is not always better -- size doesn't drive more growth," he said. "You don't have to be big to deliver big."

That's why he declared that mergers and acquisitions are out. Larry Ellison might disagree.

Outsourcing is a means, not an end

But all these pluses won't add up to much unless you've mapped out a sourcing strategy. "You have to understand your core competencies first; otherwise outsourcing is a tool that can be misused," MacDonald said. In other words, pick the one thing you do well, keep it in house, and let specialists take care of the rest.

Wal-Mart, for example, doesn't outsource the management of its supply chain. Nike doesn't let other people tinker with the "swoosh" or decide which athlete should be its next pitch-person. Lands' End would not let anyone outside of Dodgeville, Wis., talk to you about replacing those pants that don't fit. Godiva doesn't let anyone else make its sinful confections. These firms know and hold on to what they do best -- they outsource the rest.

It's important to remember, MacDonald said, to see outsourcing as a tool to nurture and get the best out of your core competencies -- not as a substitute for change management. Without an integrated growth strategy on the table and an understanding of what your firm does best, outsourcing is just a seat on a bandwagon, not a ticket to success.

FOR MORE INFORMATION:

More coverage of Gartner's Outsourcing Summit 2003

When is it smart to sell the factory and outsource?


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