At the start of the outsourcing boom I remember having discussions with the board about outsourcing our IT and, basically, making myself redundant. All the senior managers saw is a reduced spend for IT on the books and in exactly the same way IT brought about cost savings in finance, warehousing, etc. they seen outsourcing doing the same to IT. All risks are ignored and seen as IT resisting change. In the company I worked for we had two highly bespoke systems which were linked to dozens of corporate systems around the world all supported by us. Development was the name of our game and our development team was four times the size of all the networking, PABX and operations staff put together. Well, the pound signs won out and we outsourced our IT and as managing a smaller department wasn’t for me I moved on to pastures new. I still kept in touch as one by one my predictions took place. One was that at the end of the year the costs would exceed the budget we had put in place, another was that within the next year the costs would exceed what we would have had if we had remained in house and another in my list of eight was that we would lose some of our customers. All came true. It was an easy prediction to make as we had a strange set up supporting, via development, a worldwide organisation that required rapid changes. In the new system every change was fully documented and we had to pay extra to get changes rushed through plus it was at our risk. Even then they were always late and after a while most of the remote units took over their own support and development and we lost that revenue stream. The costs at the end of year one was 120% of budget and 150% at the end of year two. Outsourcing was never a good idea for that company and we were sold a pup, and a runt at that.
Outsourcing, IMO, is only of use for core systems that do not change much, add no real value to the company and are complete entities in their own right. HR systems, Payroll, Pensions, etc. They are ideal candidates for outsourcing. Bespoke development teams for a product you sell is not. Outsourcing is great for the right systems.
Anyway, as cost cutting starts to hit globally several people are looking at revisiting their outsourcing agreements. Now for some reason they thing that bringing them back in house will actually save costs. It’s a good plan outsource to save money, in source to save money, outsource again to save money and then err…. hold on! At this rate it will be free. Wow! Let us do this with everything.
Only problem is that the main reason the outsourcers are able to save money is to use the same people on multiple contracts and not have the same requirements for holiday cover, illness cover and training costs. A company might need an Oracle DBA for two or three months a year. He spends the rest of the time idle so he gets cross trained in other things and spends time as an analyst, developer or whatever diluting his skills. Outsourcers use him on four or five contracts and thus cost savings as he becomes a DBA expert. Quicker, more knowledgeable and experienced. More experience means larger salary. Bringing that in-house does not make a saving but brings in a specialist which you don’t want.
In addition now you have transferred all your business skilled people under TUPE they no longer are under your control. Your outsourcer can pick and choose who is returned and you will find that the really good people are long gone. Promoted and transferred to positions that you could never provide because, no matter how big your IT is, there are still only so many opportunities. The knowledge that they have gained is gone with them and you are now looking at rebuilding that skill set in-house. Sure you saved money but now you are going to have to spend some, in the middle of the recession, to ensure that the knowledge is replaced and it will never be replaced as well as the people that built the systems from scratch. The good news is that your outsourcer has people with those skills. It’s your old staff. The bad news is they cost a lot more now as they are on a daily rate.
It gets a lot worse when you are trying to bring in-house one of the largest systems in the world. The Navy Marine Corps Intranet I’m sure it is all planned out to the Nth degree but it won’t work. HP has no real incentive to release its hold on a multi billion dollar system and the Navy won’t really be able to afford to what is necessary. It should simply, *cough*, carve up the systems into manageable components and take them over one at a time building their capability as they go. Trying to do all at once is a recipe for disaster. Of course this is big government we are talking about and so we can expect that result more often than not even on smaller more manageable projects. The bigger they are the harder the landing.
The best thing about it. By the time they are half way through it and have spent billions they will discover that the service they get from their own staff is even worse than HP’s is and, although they have something to put pressure on HP, who want paid, they will have no such pressure on jobsworth IT staff who are following the rules. HP’s staff will be hamstrung by the contract terms which, as usual, are defined by government people and usually target the wrong KPIs.
It is my understanding that, in the US, there is a lot of talk about removing civilians from the military structure. No more outsourcing. Keep everything in-house. It’s a big mistake and we can expect to see the military might of the US looking for much bigger budgets to handle the extra work and the personnel numbers to explode as they implement this policy.
Personally, I think every government department should be outsourced to clearly defined and targeted SLAs with penalties and managed by performing regular reviews and changes if necessary. Jobsworths can be easily replaced and value for money is much better than in sourcing at government level.
The bit that makes me laugh. The claim that HP is holding the Navy hostage. What a load of bunkum. The Navy could have built the system HP did, or bought it but it chose the route that it did. HP gave it cheaper than it would have because it was a longer term arrangement. That suited the government at the time and now it doesn’t and they claim they are being held hostage. Sad really. LOL.
Nothing is that bad that Government cannot make it worse.
clearly defined and targeted SLAs with penalties and managed by performing regular reviews and changes if necessary.
There is the rub. There must be penalties that are high enough to hurt and accountability that works no matter what, it also helps to define what is wanted once and not keep on changing it.
Ivan,
I was renegotiating SLAs for a major client when he suggested that a SLA was dropped because we kept on meeting the targets. Duh! In his mind the targets were too easy. I pointed out to him that if they were not in the SLA as targets he would find that it would no longer happen and his ass would be kicked big time as it was a critical SLA. I had to explain exactly how we allocated resource etc. and costs against SLAs before he understood how it worked. For a few minutes I was tempted but I could not bring myself to do it. If it had been approved we would have been in a very profitable contract but the customer would have been very unhappy. When one side wins big the other becomes very unhappy and I wanted more from them. Being fair is best all round in the long run and everyone wins.