Innovation and Outsourcing

Every week I receive unsolicited emails from IT outsourcing companies, predominately from India, who all promote their software development and IT support services on the basis of cheaper labour, broader competencies, and extensive processes.  Yet at the same time, I continue to read about Satyam’s Meltdown.  Does this imply that the lower costs or extensive processes are merely a mirage?  Do we understand the true cost of IT outsourcing on our organisations over the longer term?

From my idealistic viewpoint, IT goals should be focused on innovation, quality, and agility foremost.  IT should be of strategic importance within an organisation, a joint partner in revenue generation that builds competitive advantage.  IT must understand the business environment and be an proactive contributor within the business – meaning it requires a culture of innovation and ownership.

Software development is fundamentally about innovation, creating value for the business and delighting end-users.  Innovation requires collaboration and exploration with an understanding of both users and technology.  Why would you outsource software development when the premise and driver of outsourcing is focused around cheaper cost rather than improved innovation?

I have previously outsourced IT support functions, and found that the outsourcer’s promises far exceeded their ability to deliver on them.  In effect, they hamstrung the business through conflicting cultures where they valued process over product, control over change, and contract over outcome.  In effect they missed the mark by a country mile.   Since back-sourcing the IT support function, we have achieved significantly better results (through improved quality and agility) without an associated increase in cost.

Where I have found outsourcing works best is when working with specialist companies, that have premium resources, niche competencies, and defined outcomes.  In the traditional sense this would be considered consulting services rather than outsourcing services.  Three specialist companies that I have used successfully and would recommend are Planit (test specialist), Readify (.NET specialist), and SDL (translation specialist).  In my experience, it is worth paying the premium for a specialist; rather than the discount for a jack of all trades.

It was interesting to read this month that the down economy fuels IT outsourcing with further drive to slash fixed costs and deliver services with smaller staff numbers.  According to Gartner’s annual survey of CIOs, their business priorities in 2009 are 1. Improving business processes; 2. Reducing enterprise costs; and 3. Improving enterprise workforce effectiveness.  This contrasts with their anticipated business priorities for 2012 of 1. Creating new products and services (innovation); 2. Improving business processes; and 3. Attracting and retaining new customers.  I wonder where this outsourcing trend will leave many companies when the economic outlook improves and the focus returns to innovation rather than cost.

To finish, I quote Peter Drucker (1909-2005), writer and management consultant

Innovation is the specific instrument of entrepreneurship.  The act that endows resources with a new capacity to create wealth.

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