Insource/Outsource, Onshore/Offshore, let’s call the whole thing off!

In rough economic times such as these many public and private sector industries look to cut spending in pretty much any place that they can. One of the hottest topics that comes up around this time is the one of outsourcing certain business needs (usually corporate services such as human resources and IT) to other companies who can do the same service for less than it would cost internally. Traditionally this is met with strong resistance as it typically means either a loss of job for the people who are being outsourced or a relocation to the new company headquarters. I often see people confusing the term outsourcing with offshoring which are really completely different ways of achieving a similar goal.

Outsourcing in Australia has a tainted reputation mostly due to the catastrophe caused by the whole of government outsourcing solution. This is due in part to the lack of capability of the outsourcers to deliver on their promises but some of the blame lies on the government of the time. Up until this initiative none of the big government departments (apart from the Department of Veteran’s Affairs, who pioneered the initiative) had any experience dealing with a large outsourcing arrangement for their in house services. Whilst they did the right thing and sought expert advice this ultimately lead to the government deciding on the service providers based on the wrong, mostly cost based metrics. A subsequent review of the arrangements found the government wanting and the push to stop the outsourcing arrangements became even stronger.

Many departments haven’t recovered from this outsourcing arrangement and continue to use service providers for many of their IT services. In another life I was part of one such contract, working for Unisys as part of the IT services for the Department of Immigration and Citizenship. Whilst I was a minor player in the scope of things (I had nothing to do with the contract itself, but I was part of the new business team for about 6 months and a systems administrator for 6 months prior to that) it became quite clear during my time there why many of the outsourcing arrangements had failed.

The foundation of any big outsourcing arrangement is a large contract; and of course with any large contract there are going to be loopholes, missing requirements and misinterpretations. Once a contract like this has been signed corrections and augmentations to it are slow and cumbersome. When you’re working in mission critical areas, like DIAC’s visa processing area, finding out that a requirement isn’t met by the contract but can only be filled by the outsourcer means one thing: out of scope work. Anyone who has dealt with contract or project management will tell you that out of scope work either doesn’t get done, or you pay on a “time and materials” basis for the additional resources required. New business such as this is where outsourcers will make their money as most of these projects will be resourced by repurposing staff who are already fully paid for under the original contract. The bigger the deal the more room there is for this out of scope work to appear.

Offshoring is an augmentation to the outsourcing idea. In essence this means moving a labour force to another country or location where the services can be provided with a better rate or some other value add. The best examples of these are the call centers in places like Bangalore where the labour is cheap and plentiful. Government agencies in Australia typically shy away from offshoring arrangements due to the data sensitivity problem (government data going overseas? Hello wiretap). I’m more opposed to offshoring arrangements then outsourcing as for most of the outsourcing arrangements I’ve seen they have kept jobs in Australia. Granted the profits then fuel someone else’s economy but given the choice between less jobs in Australia and sending some money overseas I still be behind keeping people working in Australia

No one’s innocent when it comes to failing outsourcing arrangements and the Australian government learned that the hard way. Whilst many departments continue to outsource some of their IT services they are continually improving their contracting process, enabling them to get the delivered services and savings they were looking for. Probably one of the biggest steps forward is the demonstration that if the outsourcer doesn’t deliver, they’ll get the boot for someone else. Sometimes you have to hit them where it hurts before they’ll straighten up.

Personally I’d only consider outsourcing if I was building a company from the ground up. I’ve seen what happens when an established IT department gets outsourced and it isn’t pretty. A company built around these principals however tend to thrive on them, and that’s something that established companies lack. Most savings that are achieved with outsourcing arrangements can be achieved internally as well, it just requires that the current IT department be as motivated to keep their business as the outsourcers are to get it (something which I’ve found sorely lacking).

Now to outsource my job so I can relax at home…… :)

Leave a Reply