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Managing IT:
When NOT to Outsource
Finding Useful Tools to Help With Outsourcing Decisions

I'm just getting started on this. There will eventually be an article here. This page is currently linked to give others opportunities to comment on, and contribute to, the work in progress. Thank you for your patience.

    John Repici

Overview (preliminary)
Much of the information that can be found on the web and in trade journals about outsourcing seems to have been written by organizations that are themselves providers of outsourced services. Some of these articles are well written and attempt to provide usable decision-making tools to potential outsourcers. Others are clearly just thinly veiled sales pitches. In one example seen recently a highly regarded service provider runs an ad that has been formatted to look like an article. The "article" purports to give us the truth about outsourcing but never discusses any situation where the decision to outsource should be avoided.

While outsourcing can be a useful tool to anybody who must juggle limited resources with infinite demand for services (such as IT managers), many have been left to learn the hard way that it is not a solution to every resource shortage that may arise. Ad-as-article treatments of the subject often lead potential clients to believe that outsourcing is always appropriate, leaving for the potential buyer only to learn how it's done.

In a very few cases, outsourcing services can be thought of as a commodity, but usually they are complex contractual relationships that can themselves be relatively expensive to execute. For this reason, outsourcing contracts should be entered into with caution and care.

A complete understanding of the cost of the outsourced service, a comparison of costs compared to cost of developing the service in-house, and --just as importantly-- the costs associated with the process of creating and maintaining the contract and relationship, must all be considered.

As of late, more erudite treatments of this subject have been emerging in both articles and books. In these studies the question of when and, just as importantly, when not to outsource company activities has been taken up by business leaders and academic people. While this more robust look at outsourcing is still in early stages, some considerations and rules for approaching the decision are starting to emerge.

This article will look for sources of serious approaches to the outsourcing decision and catalog them in an effort to relate this growing understanding among the brightest of those who study the problem.

Contributions will always be welcome and encouraged.

  • Books
  • Online Articles & Papers

Sporadic Notes
  • In the 1930s, economist Ronald Coase questioned why firms are the size they are. If the market can provision everything a firm needs, he wondered, why do businesses not simply outsource every function? The answer, Coase decided, was transaction costs.

    Theoretically, it's possible to create a virtual company by contractually handling every function, from HR to printing to R&D, but the act of designing and executing contracts carries a cost in and of itself. Coase reasoned that the firm would grow to the size it needed to be to minimize contracting costs for essential services by bringing those functions into one organizational context. [Clay Shirky - in IEEE]

© Copyright 2002 - 2003 Creativyst, Inc.

Written by John Repici

With contributions by: