IT Services Sourcing: Business vs. Technological Decision

by Rafael Sánchez Ferreiro

Performing some IT and communications tasks through internal or external means is not a technological decision; in fact, it is one that focuses on business, and it needs to be framed within the company's general organizational strategy. The reasons that a CIO confronts this dilemma can vary, but they usually involve company pressure to reduce costs, concern for fighting hardware obsolescence, and an intention to reduce the organizational structure. However, there is much more.

Let's start with the idea that the IT and communications departments have been established with the aim of enabling organizations to achieve their goals at the lowest possible cost, regardless of the CIO's involvement in the strategic planning process, where those goals were formulated. The analysis of sourcing for IT services can indeed arise from the question of what is the most suitable way to enable the organization to achieve its goals. The question considers quality, cost, service opportunity, and taking into account all elements of risks (e.g., business continuity, autonomy of the company, and security of the information).

In this context, and given the complexity characteristic of IT capabilities, it is practical to classify these factors under the following four categories, each with its respective component of logical security:

1. Infrastructure of communications (networks of voice and data)

2. Central infrastructure (servers and storage)

3. PC infrastructure and capacities of development

4. Maintenance of systems

Of course, when analyzing sourcing, it is possible to arrive at different combinations among these four areas. Nevertheless, in general, such combinations can increase the risk of dependency on a supplier that could gather a significant amount of know-how.

Once the goals of the organization are established, it is advisable to analyze whether or not the technological capacities suggested in these four areas can respond to the requirements of the organization. Thus, the organizational goals must be translated into requirements for technological services and added to the existing requirements. This allows you to calculate, for example, whether the processing capacity is enough, or whether it is even possible to develop the required systems with the necessary quality.

If the calculation shows that the installed capacity is less than the requirement, either in quality or in quantity, then immediately find out how to obtain the additional capacity. This effort requires participation, not just from IT, but also from the the company's business areas, since it involves the viability of the business plans.

DECISION-MAKING CONCERNS/TOPICS

Whatever the reason to analyze sourcing, this initiative must consider various interrelated issues, including service opportunity, organizational autonomy, and cultural aspects.

Service Opportunity

For IT administrators, the main concern must be the opportunity with which IT provides services to the rest of the organization. Even when purely technological issues fill the CIO's agenda, what really matters is the way in which the operations and administration areas receive support to perform their duties. This will define the extent of IT's value to the organization. The director of operations will likely not worry about the percentage of processor use in the computing center or about how the disk arrangements for the company's storage area network are administered, but surely the director will be concerned about whether the production control system is available to personnel in the production area, working correctly at the required moment, and with a functionality that provides increased productivity and cost reductions.

As for business plans that involve the growth or diversification of the company, the opportunity for service has even more relevance and presents further alternatives for the technology department to influence the organization. Before deciding whether to contract with an external supplier to extend the capacity of processing or storage, or to develop a new system on time, the CIO has the option to investigate the IT industry to identify trends, products, or services that define the way in which the company will conduct its daily operations.

Organizational Autonomy

It can sound strange, but it is necessary to evaluate organizational autonomy when analyzing whether a service will be sent to a contractor for outsourcing. It is also particularly relevant when the company has its own systems development department. In this circumstance, it is probable that the deep knowledge of the systems that support the company's daily operation is found in a small group of people who have been responding to the system's needs. When the development has not been made with the appropriate or standard methodologies, the risk that dependence on a small group of people to maintain systems or for supporting everyday users can be high.

This situation can be replicated by using external services, but the consequences can be more serious. An external company can increase the costs of its services, either for maintaining or upgrading software, when it realizes how much its customers depend on those services. When it is a question of an external provider, it is easier to foresee the loss of autonomy. This problem is easier to address from the moment the contract is designed. You may require standard marketplace methodologies, establish levels of service and operation, and avoid granting a whole package to a single supplier, if the size of the company allows it. You may also add conditions about what will occur at the end of the contract and the way in which the transition to a new supplier would be made, if necessary.

Cultural Aspects of the Organization

Generally, organizations have values, rules, and assumptions, explicit or not, about IT's role and about the way the organization uses IT services. Because the main assets of technological infrastructure are the company's knowledge and information, a natural aversion to place the services of technology with external suppliers sometimes can occur. In other cases, IT's function is considered more like the resources for everyday technical support and the fast development of small systems, rather than a company's strategic area -- reasons that paying for an external service can seem superfluous.

In addition, it is necessary to consider the reaction of IT personnel when contracting for external services, especially if staff members might assume that they will no longer be required.

IMPACT IN THE COMPETENCIES AND STRUCTURE OF IT

Even when the analysis about sourcing IT services results in the need to contract with one or more suppliers, it is necessary to remember that certain technological abilities must remain in the organizational structure of the company. Technical employees must have experience and knowledge in required areas in question, providing services internally and later developing the ability to manage service contracts, from setting levels of service to the oversight and followup of contracts. It is particularly important that they have the ability to work simultaneously with several suppliers. They should clearly establish protocols of interaction between those in charge to provide the services, regardless of whether they are internal or external.

The employees who establish the requirements, carry out the contracting process, and supervise contractors face an increasing risk of errors or leave aspects without coverage when they do not know the task in detail and by direct experience. One possibility is that they incur unneeded costs by requiring an excessive level of service or by accepting prices that are higher than the market rate.

In contracting for external services, the IT area must count on a staff experienced in administering external suppliers or train the personnel who will supervise contractors.

CONCLUSION

The decision to contract for IT services must be considered a business decision, not a technological one, because the key factor lies in the form in which the organization uses technology to achieve its action plans. In that view, while casting no aspersions on technology, the foregoing analysis about decision making must include an opportunity for IT departments to respond to the company's strategic plan. It also must guarantee that the organization will maintain its independence from its IT services supplier, internal or external, and must make sure the cultural conditions and the required proficiencies exist to undertake the path toward outsourcing. Finally, it is necessary to train IT employees so they can establish the conditions in which the service will be contracted and managed, since these skills are different from those required for managing internal suppliers.

ABOUT THE AUTHOR

Rafael Sánchez Ferreiro is former CIO of Mexico's Ministry of the Public Function, where he worked in the consolidation of different IT areas, searching for technological solutions that benefit citizenship. He is also former CIO of the Ministry of the Interior, where he managed to lay the foundation for sustained growth and development in matters of IT. For two consecutive periods, Mr. Sánchez Ferreiro was designated as Technical Secretary for the Executive Council of the Intersecretarial Commission for the Development of E-Government. During his career, he has successfully deployed programs at the regional and national levels related to QA, administrative control systems, process redesign, IT solutions development and deployment, among others. Mr. Sánchez Ferreiro's work experience includes the financial and IT areas as well as administrative and systems consultant, employed by organizations such as AXA Industries, Girard Boisseaneau and Associates, Mix Services and Consultants, and TELMEX. He holds a bachelor's degree in industrial and systems engineering as well as a master's degree in IT management from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM). He can be reached at rafael.sanchez.ferreiro@gmail.com.