Magazine article CMA - the Management Accounting Magazine

Outsourcing IT

Magazine article CMA - the Management Accounting Magazine

Outsourcing IT

Article excerpt

Achieving maximum technology and business benefits

The alternative of outsourcing your information technology needs can lead to more efficient and competitive business operations. Here are some of the factors to consider and some advice on how to find the right service provider.

New technologies such as the Internet and e-commerce are considered powerful tools for business growth. And while they have become important elements of a business strategy, they are also placing increased demands on the information technology (IT) staff who must maintain a computing environment composed of a myriad of technologies.

Outsourcing can be a valuable means of leveraging IT to make business operations more efficient and competitive. Not simply a way to cut costs, outsourcing can also help you turn IT into a competitive advantage.

Outsourcing allows businesses to focus on their core functions, leaving IT operations to the service provider.

Toronto-based ICI Explosives Canada, the world's largest supplier of blasting products and services, recently chose to outsource when it discovered what was involved in moving from mainframe technology to running SAP R/3 on a Hewlett-Packard client-server system. It would have been an enormous undertaking for ICI to recruit and train the number of IT professionals required, who were experienced with SAP and Hewlett-Packard technology.

ICI selected IBM Global Services to outsource technical support of both its hardware and its software. The outsourcing solution brought with it the skills and resources ICI required. In a highly competitive job market, it is increasingly difficult to recruit and retain skilled IT professionals. By outsourcing, businesses gain access to a greater skill pool. Often, IT professionals are transferred from the customer to the service provider as part of the contract. This ensures customer knowledge is preserved and transferred to a larger pool of resources. Employees can benefit from being transferred to the service provider through access to greater career opportunities, exposure to experts in their field and access to ongoing skills training.

ICI also achieved cost savings. With the outsourcing arrangement, IBM Global Services agreed to provide around-the-clock support for ICI servers. This eliminated the requirement for ICI to hire employees to staff the data centre 24 hours a day. Eliminated also was the need to rent more physical space to house the new equipment.

Outsourcing also eliminates the need for businesses to invest in non-core business functions and frees up capital for investment in the other strategic areas of the business. In fact, in some cases the transfer of technology from the customer to the service provider can actually mean a major cash payment to the customer.

Outsourcing has other financial benefits. A 1997 research survey of 91 IT executives and 11 network outsourcers found that organizations save up to 20 per cent in network operation costs during a three-to-five year network-outsourcing contract. But businesses must have realistic expectations. Savings do not start the day the contract is signed. Often, it is a year into the contract before savings are seen.

Selecting and evaluating an IT partner

In choosing an IT partner to outsource to, it is critical to select one with related industry experience. One of the main reasons ICI selected IBM was because IBM was already engaged in a similar outsourcing arrangement with Bell Sygma.

Many companies choose to send out a request for proposal (RFP) to select a service provider. However, choosing a partner should not be based solely on price. Selecting a service provider who does not have the capabilities to meet your ongoing and changing technology requirements could lead to increased expenses within the system later.

Those businesses that do not feel they have the time or skills to monitor the outsourcing arrangement can hire a consultant who will help evaluate which service provider will best meet their business and technology requirements. …

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