Chinks In Outsourcing's Armor - InformationWeek

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IT Leadership // IT Strategy
Commentary
5/17/2006
04:03 PM
Tom Smith
Tom Smith
Commentary
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Chinks In Outsourcing's Armor

When Diebold Inc. announced Wednesday that it will take over--or more precisely, take back--an Oracle ERP implementation and some additional IT-related functions, resulting in a financial charge and an end to its contract with Deloitte Consulting, it didn't explicitly point fingers or assign blame.

When Diebold Inc. announced Wednesday that it will take over--or more precisely, take back--an Oracle ERP implementation and some additional IT-related functions, resulting in a financial charge and an end to its contract with Deloitte Consulting, it didn't explicitly point fingers or assign blame.It doesn't require reading too deeply between the lines, however, to conclude that outsourcing failed in this case. Or at least, outsourcing failed to meet the company's expectations. Diebold said in a statement: "This decision is designed to provide the company with more control and flexibility over its IT operations as well as the ability to accelerate its remaining ERP deployment."

Of course, outsourcing proponents often contend that hiring out IT gives companies the flexibility to focus on "core functions" (a position that presumes IT isn't a core function) and greater speed in deploying systems and achieving business goals. But Diebold is saying, in effect, outsourcing wasn't fast enough and didn't deliver the expected flexibility.

"Regaining direct control of our IT operations and ERP implementation will allow us to expedite the process of realizing the long-term benefits of an enterprise-wide information system," said Diebold CEO Thomas Swidarski in the company's statement. "This strategic decision is critical to achieving the operational improvement targets we have set as well as positioning us to be more flexible and responsive in meeting the needs of our customers."

So in addition to being rigid and slow, outsourcing also proved costly and an impediment to serving customers well. I've argued previously in this space that we'll see more companies express dissatisfaction with outsourcing as they turn over more functions to third parties.

What can we learn from Diebold? Efficient, effective IT is as much a part of a company's financial success as strong products, good customer service, and strong financial controls. That's not to say that outsourcing doesn't or can't work, or that there's no place for outsourcing. But the view that IT is a function that any third party can come in and take over on a plug-and-play basis is naive and dangerous. It can also be costly: Diebold will incur a 7-cent-per-share charge to terminate its contract with Deloitte.

What's your view? Is this one in what will be a long line of failed outsourcing efforts? Or is this an isolated case where reality couldn't meet expectations?

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