Why Outsourcing Woes May be Good For Us

Spend Matters welcomes another guest post from Jeff Muscarella of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.

IT outsourcing isn’t what it used to be – at least that’s the message the industry is projecting as we enter the second half of 2013. Many industry experts have preached about “the death of IT outsourcing” as the cloud transformed the IT ecosystem and enterprise capabilities and CIOs became fed up with poor results and projects that run well over budget.

But while these issues have made many IT and sourcing executives think twice about outsourcing, the reality is that IT outsourcing (ITO) isn’t going away. The pressure to deliver complex projects in tight timeframes still lends itself to traditional ITO engagements. ITO spending continues to grow at a slow but steady pace as evidenced by Gartner’s recent estimations that the ITO market will reach $288 billion by end of year, a 2.8 percent increase over 2012.

The upside of the beleaguered (but still growing) ITO landscape is that CIOs and sourcing executives are responding. The conditions have bred a more cautious sourcing and vendor management environment, as many IT and sourcing executives try to avoid past mistakes. These tactics include:

Clearly defining project scope and metrics with all internal stakeholders. Many poor ITO project outcomes are the result of internal misalignment. It’s crucial for IT, sourcing, and any other department or business unit involved in the project to clearly define and agree upon the scope of work, project milestones, and the metrics that will be used to measure success.

Splitting ITO projects between multiple vendors. The saying “don’t put all your eggs in one basket” rings true with ITO, especially large-scale projects. By working with more than one vendor, companies can fuel healthy price competition and project performance.

Being vigilant for early signs of scope creep and high cost add-ons. Scope creep has always been a cost risk with ITO, but today’s CIOs and IT sourcing departments are taking extra measures to minimize its occurrence through more rigorous cost management oversight.

Pilot cloud-based solutions for application development and infrastructure. The decision to outsource IT infrastructure and complex projects like application development doesn’t have to be an all-or-nothing decision. Many companies opt to “get their feet wet” by piloting cloud-based solutions for smaller scale IT demands. Based on the success of these pilots, companies can determine if they want to expand these “insourcing” capabilities or continue to rely on ITO providers – or both!

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