The Observer: Outsourcing Debate Must Move Beyond Cost

Who do we believe in the great outsourcing debate? Do we go with the dispassionate veteran who no longer has any skin in the game, but remains one of the spectacularly wise minds in the business? Do we follow the bet of one of the folks who has had a wealth of experience on both sides of the outsourcing fence, first as a strategic consumer of outsourced services and now with a leading services provider. Or do we heed the advice of an experienced, trusted counselor who helped redefine the scale, scope, and strategic deployment of outsourcing in one of the most high-visibility and high-risk deployments ever.

The players and their respective positions are: Denis O'Leary, private investor and former J.P. Morgan Chase & Co. CIO who is forthright in his belief that if enterprises pursue outsourcing based solely on price (and concomitant cost savings for the enterprise), the strategy is doomed for the long term; Ajit Kapoor, VP and chief technology architect at Lockheed-Martin Computer Corp. (and erstwhile General Motors IT director) who avers that there's nothing wrong with pursuing deals based solely on cost savings; and Wendell O. Jones, now principal at his eponymous firm, who while CIO at the National Association of Securities Dealers negotiated one of the landmark deals in the history of outsourcing and who advocates the widespread deployment of outsourcing within enterprises.

Each makes a compelling case for his position. O'Leary, speaking during "The Great Debate" at InformationWeek's Fall Conference, was blunt, saying outsourcing based solely on cost savings is "doomed." He bases his contention on his conviction that if IT is looked upon just as a cost center, it's strategic value to the organization will never be fully acknowledged, appreciated, or capitalized upon.

He is, of course, correct and it would be a fool's errand to counter his argument.

Kapoor, too, is correct in his contention that price can be, and typically is, a point of particular strength for outsourcing services providers and a point of appeal for consumers of same. Speaking at a separate conference a few days after O'Leary, Kapoor took a typically philosophical stance, saying that "in human relations, there's always a particular something that attracts one individual to another. It might be beauty or personality or a particular air about someone. In the long term, there are many, many factors that influence the outcome of that relationship, but there's always that point of first appeal. In outsourcing, if that point of initial appeal is price, what's wrong with that?"

Nothing, it says here, especially in this economy and especially if, as Kapoor added, "customers come for the price and stay for the quality."

Correct, too, is Jones, whose long experience has certainly lent wisdom and gravitas to his contention that enterprises do well to deploy outsourced services whenever and wherever possible, albeit in noncore applications. Jones sums up his position thusly: "Companies should look hard at their core businesses, then ask themselves: 'Can we, for example, do human resources better than anybody else? If we can, would other organizations pay us to handle their human resources?' If the answer to those questions is no, then it's a candidate for outsourcing."

All make compelling arguments and all certainly have long since earned the right to have their contentions listened to and considered long and hard.

Kapoor's position that cost is a valid reason for considering outsourcing is particularly difficult to overlook. How in good conscience can enterprises confronting the need for layoffs not consider a stratagem that provides immediate cost savings that can be quickly dropped to the bottom line or redeployed more strategically?

The counter to Kapoor's position regarding cost rests in the underlying premises of both O'Leary's and Jones' arguments, namely that IT leaders have fought far too long and too hard and (in the best cases) too successfully to raise the visibility of their organizations' contributions to continuing corporate success within their management hierarchies and among their organizations' boards of directors to let archaic thinking creep back into common acceptance.

If there's one lesson that's been learned by successful organizations, it's that IT is a strategic component (Jones' and O'Leary's points) and not merely a necessary evil or a sinkhole for corporate overhead. There are thousands of examples afoot about how, rather than being a drain on companies, IT has been a dominant component contributing to stronger top lines as well as sounder bottom lines.

In its most extreme form, the cost-savings argument reduces IT to the status of a toner-and-copy-paper provider. Toner and copy paper are critical and this isn't a knock at purveyors of same. Not in the least. But toner and copy paper aren't strategic. IT is. To take the cost argument to it's (surely illogical) extremes is to ultimately and inadvertently devalue IT to surely illogical levels.

Does outsourcing make sense? Absolutely, and there are thousands of stories to prove it. But there's got to be more to it than the short-term balm of alleviating pocketbook pressures. Ignore that reality at your own peril.

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