Outsourcing 2.0? Don't overlook the value of your people in rushing to the cloud


By: Raj Randhawa

If you’ve been around the computer industry as long as I have, you might remember the IT outsourcing craze that hit in the late 1980s and early 1990s. The value proposition for outsourcing looked pretty compelling at the time - at least for the short term. Organizations sold their IT assets to a service provider that then ran their IT operations on a long-term contract basis, often with significant up-front discounts. In many cases, the service provider also hired the organization’s IT staff, layering operational cost savings on top of the significant capital expense break the client realized from off-loading its equipment.

Although the deal looked pretty good at first glance, the impact over time was quite different. Many organizations found that their contracts became shackles on innovation, tying them up with surcharges and hidden fees when they strayed outside of the confines of their original terms. Once-valued employees were shifted to serve the outsourcing company’s other clients, taking with them valuable intelligence about the business. Users complained when their calls to the help desk were answered by someone in Manila or Bangalore, rather than a trusted colleague.

Some IT employees who had spent years learning the business of their employer felt betrayed when they were sent to work for other companies. Although some appreciated the variety, others felt abandoned. Beginning in the early 2000s, many organizations that had signed long-term IT outsourcing contracts quietly began pulling their resources back in-house.

Outsourcing 2.0?

I see a distant mirror to the IT outsourcing phenomenon in the way many companies talk about cloud computing today. The short-term benefits are tantalizing: Swap out large capital equipment costs for much smaller monthly operating expenses and shift administration from salaried in-house staff to contract experts at the cloud provider. I fear that some companies may be making the same mistakes with cloud as the early IT outsourcing adopters did a quarter century ago.

Don’t get me wrong; there are plenty of good reasons to adopt cloud computing. It’s just that cost savings isn’t one of them. While some expenses can be avoided in the short term, the long-term savings are minimal, or even higher than running your own infrastructure.

The reasons to go to the cloud have more to do with flexibility, business agility and access to world-class technology than they do with cost. That’s why it’s important to understand the value that your internal people bring so that you can make smarter decisions about where to outsource.

Digital transformation is on every CIO’s lips these days, and for good reason. A company’s IT resources are becoming its principal window to the customer. Delighting customers with a fast and responsive experience that adapts to individual needs is increasingly what separates the leaders from the laggards.

Which means that understanding the business, the customers and the competitive environment is essential for organizations to realize their potential. And you can’t outsource knowledge of your business. While it’s true that many traditional IT skills like systems administration and network management can be safely farmed out, it’s a mistake to assume IT people are simply cogs in a machine.

People Matter

The people who run your infrastructure also understand your company. They know internal constituents and the factors that make your business a success. They attend the same company events, read the same newsletters and listen to the same executive speeches as everyone else. They are part of your organization’s culture, and it’s difficult to put a price on that.

I see no indication that cloud computing is reducing the demand for IT skills. On the contrary, the shortage of trained security professionals is expected to exceed 1 million jobs in the U.S. alone by 2020. The cloud creates new demands for contract negotiators, resource managers and customer experience experts. And now there’s the “multi-cloud,” an infrastructure strategy combining multiple public, private and hybrid clouds that IDC estimates will be adopted by more than 85% of enterprise IT organizations by next year. There is nothing simple about the way cloud computing is evolving.

Retraining existing staff for new skills is almost always less expensive than hiring from outside. Outsource wisely, looking for skills that you don’t have in house or special domains of knowledge that are unique to a particular project. For skills that are truly such a commodity that anyone with any background can handle them, then go for the lowest cost. But alignment with the business is where IT adds the most value. Think carefully before you opt for the siren song of cloud economics.