Why IT Outsourcing Is Not A Good Long-Term Business Strategy

Cloud computing. SaaS. Mobile. Big Data. All of these technologies are becoming increasingly important to the enterprise. And all of them must be accommodated by enterprises today in order to increase operational efficiency, bring new products to market, and create great experiences for customers and other stakeholders. As businesses are pivoting to respond to more and more changes in strategy and interaction forced by these trends, IT has to shoulder the responsibility of implementing enterprise responses. And because there are so many forces, and IT only has a finite amount of resources, what will ultimately occur is a gap between what IT needs to do and what it can do.

It’s tempting to solve these issues with IT outsourcing, and increasing the number of bodies that you have available to complete the large projects in the backlog. But over time, this is the wrong strategy. Increasing the amount of outsourced resources in IT, in the long term, can lead to brittle infrastructure, technical debt, and actually reduce the ability to deliver projects on time.

IT Budgets are Staying Flat or Increasing Incrementally, Reducing the Impact of IT Outsourcing 

IT decision makers told us in this year’s Connectivity Benchmark Report that their budgets were either staying flat or only increasing very slightly. This means that most IT departments, if they are able to add additional outsourced IT resources, would only be able to add one or two new members to their teams. 

This means that in terms of delivery capacity, IT teams will be able to scale arithmetically — one more person will be able to deliver the same amount of one more project. The trouble is, unfortunately, that due to the increasing number of technology trends that businesses must respond to, the demands on IT are increasing exponentially. And that is only what’s happening today — new technologies are emerging constantly that businesses must respond to. What will happen next year, five years from now, or 10 years from now?

The IT delivery gap

Figure 1. The IT delivery gap

No one has enough IT outsourcing budget to be able to address everything that a business must respond to on an ongoing basis. IT outsourcing is not enough. There needs to be a new IT operating model in order to scale capacity to the desired level.

IT outsourcing creates brittle infrastructure and more downstream work

Additional resources that come from IT outsourcing want to get their projects done and delivered as quickly as possible as well, so they often will take shortcuts to get deliverables done on time and within budget. This is often done through custom code and point-to-point connections. 
The problem with these kind of short cuts is that while they do get the work done, there’s little opportunity for long-term manageability or reuse. Each point-to-point connection creates tight dependencies between applications, so making any changes to applications requires extensive and costly downstream work, which compounds delivery problems. In addition, the work that these outsourced IT professionals are performing ofter cannot be reused, which means that projects that might have commonalities — developing an app for both mobile and web, for example — must be rebuilt from scratch, creating additional backlogs and time to market.

IT outsourcing can lead to security risks

When companies turn to outsourcing to add additional IT resources, often new team members are added who are less aware of your systems and infrastructure.  They often build proprietary code, which actually creates lower agility and a dependency on more outsourced resources to fix or change what has happened. When the contractors leave, and a problem occurs, more outsourced resources must be hired to correct the problem, often through point-to-point connections and custom code.
This forest of point-to-point connections is not only difficult to change, but it also can create security vulnerabilities as IT security teams have no visibility or governance into these projects. When everything is hard-wired to everything else, nothing can move without everything breaking down. This is why businesses often end up with risk aversion, lack of productivity, and a lack of innovation. 

The solution to the problems created by IT outsourcing: a new IT operating model

A new approach to IT project delivery and technology strategy is required, one that can scale IT’s capacity. It is clear that it would be impossible to keep adding resources to close the gap — what’s needed is a way to exponentially increase the delivery capacity of existing resources. It seems like an impossible task, but it can be done through a rethink of IT’s role in the business. In short, IT needs a new operating model. 

This new operating model employs an approach by which Central IT drives both the production of reusable assets and, importantly, enables the consumption of those assets by teams within the lines of business, to deliver digital initiatives. 

Central IT should federate innovation across the organization by building reusable assets and enabling self-service rather than working on and delivering entire projects themselves. By leveraging the resources and capabilities outside of central IT, organizations can make a step change in delivery speed and capacity.
 

How IT scales with a new operating model

Figure 2. How IT scales with a new operating model

But what this actually means is that a change in the way that IT operates is necessary; rather than just delivering on projects, Central IT will spend its time creating reusable assets and enabling the rest of the organization to use them. 

For more on how your organization can get away from the short-term solutions that IT outsourcing can provide, and set up your business to close the IT delivery gap for good, take a look at the whitepaper Closing the IT Delivery Gap

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