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Companies outsource IT functions to save money. The savings – whether they are a result of lower staff costs, lower application costs, or something else – always come at a price. In stable times the cost-benefit analysis that weighs benefits against drawbacks is difficult but relatively straightforward, and the business case can ultimately be made with confidence. But how reliable can the micro business case be in a world where practically every macro financial assumption a business makes is spinning wildly out of control?
For those actively considering IT outsourcing, the seismic shifts in the world financial markets must give pause. For those who have recently concluded an outsourcing agreement, this is a period for reassessment and revalidation. For anyone charged with overseeing any business process that contributes to the financial well-being of an organization, the feeling that the rug has just been pulled out, or may be pulled out at any time, can make it difficult to tread confidently into the future. Those of us who offer outsourcing advisory services during these turbulent times can feel like we’re selling hammocks in a hurricane. As they get buffeted in the storm, our customers can’t very well compare the feel of a rope hammock with that of a fabric model. Both are spinning between the trees like double-dutch jump ropes. The nice distinctions are lost. But one thing is certain – when this storm passes, organizations are going to redouble their efforts to cut costs and streamline operations. Whatever demurrals may have been made about offshoring operations may be less compelling in an environment in which cost-cutting is more clearly seen as the only path to viability. There will be a new urgency, and the customary organizational inertia that sees squeezing out costs as a desirable rainy-day activity will be no match for the sudden realization that the floodwaters are already ankle-deep. Whether this new urgency outweighs offshoring concerns about unstable currency exchange rates, tax issues, and a political climate likely to look askance at sending American jobs overseas remains to be seen. The new world order will be one of retrenchment, corporate realignments, and skittish management looking more to costs than top-line growth to improve performance. The stakes for all outsourcing initiatives will have been raised. False starts and problematic relationships that result only in repatriation of important IT functions and a doleful “lessons learned” PowerPoint deck will not be tolerated. So while the wind is still whipping those hammocks, now is the time for all good IT finance analysts to revalidate the outsourcing business case. The same questions and concerns that should have informed the development of the business case in the first place still apply, but they must be broadened to admit new possibilities born of new financial realities. For financial services companies, those new realities will be evident and pervasive. For others, the important questions may be hidden beneath the surface, but they must be addressed. How much will money cost during the term of an outsourcing agreement? What would I be paying for the application maintenance I’m outsourcing if I didn’t outsource and the trajectory of wage rates follows that typical of long-term recession? What unanticipated frictional costs will there be? Will my outsource provider be viable during the entire term of the agreement? As we ride out this storm, the prudent course is to spend the indoor time checking and rechecking the business case that makes outsourcing the right choice now – with frequent breaks to stare out the window and wonder how the landscape will look after the storm passes.
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