Why ‘Make or Buy’ has a Major Impact on the Implementation of Corporate Strategy
by Christoph Steinhauer

Whereas in the past IT managers and CIOs were mainly concerned with ensuring the smooth running of day-to-day operations, today their range of responsibilities has expanded to include ensuring the technical implementation and the sustained introduction of strategic corporate initiatives.

Associated with this are certain tasks, such as the never-ending search for new technologies, methods (innovation management), and services, as well as the ongoing adaptation to changing framework conditions. The latter must always accommodate existing organizational structures and the technologies already in place. Costs are another fundamental aspect since any investments made must be sustainable. Costs have to be reduced; yet new requirements still have to be met. And the overall increased level of expectations with respect to IT security doesn’t make the situation any easier. This range of complex problems which must be addressed to ensure the core corporate processes, but which is not part of the actual core business, is making it increasingly necessary and popular to consider the idea of IT outsourcing.

IT Outsourcing – The Way Forward!
Basically, any process that is not identified as a core process of the company’s actual business can be outsourced to external providers. In any outsourcing situation, we have to ask why it makes sense from a business point of view and where is the quantified added value for our own company. Outsourcing can really only work in the long run if added value can be generated for both sides.

From a strategic point of view, the advantages of outsourcing are the concentration on the core business and the outsourcing of risks arising from changing requirements of the service provider. The possible cost savings through bundling know-how and competence should not be underestimated either, nor should the change from fixed to variable cost pools and the associated impact on cost awareness in the IT environment. Another factor to be borne in mind is the added value generated by external resources in the form of knowledge or their access to knowledge pools. Critical problems can be resolved extremely quickly and larger problems can be resolved within an appropriate time frame. If, however, stock phrases, such as “daily business”, “peanuts” or “is globally regulated”, are trotted out when it comes to evaluating seemingly standard requirements, this can often point to a provider’s sloppy handling of real emergencies. It is worthwhile checking whether a provider being considered as an outsourcer can also stay the course in a worst-case scenario and meet the required expectations.

When it comes to selecting a partner, in addition to the question of reliability, the issue of how up-to-date the partner’s knowledge is must also be taken into consideration. Since we can assume that IT environments of the future will become even more complex with new technologies, services and functions, the documentation of the ongoing creation and increase of knowledge is extremely important. The selected IT provider must be able to prove that today as well as tomorrow they can handle the assigned tasks and their associated problems with the deployed technology. Our company meets this requirement with its own Technology Center, where we are already examining tomorrow's technologies, testing them in various scenarios and evaluating them for 'everyday suitability’. This knowledge that we create at such an early stage is available to our customers right away.

According to Giga Group, only 40% of outsourcing projects undertaken are successful. Most failed outsourcing projects can be attributed to an overhasty integration of the partner in the existing environment that was not in harmony with the IT strategy. Selecting the right partner is therefore very important strategically and is not something that should be rushed. All too often, partnerships have been entered into as a knee-jerk reaction (for example, panic after a total crash) and these have not been able to provide the required services in the operative environment beyond their emergency deployment. Consequently, often more harm than good comes of such partnerships and this is neither in the interests of the customer nor the contractor.

The integration of an external provider in a company's proprietary business processes is an important success factor. Only a partner that can adjust itself quickly to the processes and specific needs of the customer can provide the support services required by the customer to compete successfully.

Selective Outsourcing – Managed Services

A highly proven approach that is increasingly defining the “everyday outsourcing” is Managed Services. From the point of view of process evaluation, it does not always make sense to outsource large sections of the IT. If the core process includes the system architecture for example, it is worth outsourcing the relevant sub-processes or follow-up processes such as the pure operation of a designed system. These sub-processes can be refined to the extent that an external provider with the corresponding specialist know-how is employed only for migrations or backup and recovery.

Especially in this situation, an extremely flexible adaptation of the partner to the company’s specific needs is just as important as the purchased know-how. The advantage of these managed services is undoubtedly the very quick Return on Investment which can be achieved in two different ways: Firstly, because a better price can be achieved for a completely comparable service by omitting “overcapacities” (holidays, training, illness, etc.). Or, because for the same price as for an internal resource, increased performance in the form of extended or new functions can be acquired.

On the other hand, managed services present a very good option for commencing new tasks with a reduced budget. If we look at the area of security for example, we see a host of requirements, such as the configuration and operation of a honeynet, which can be operated both by people and by the software and hardware infrastructures as an outsourced service. Numerous examples from “standard areas” of IT can be found here. Holding workshops with the provider in question is recommended therefore, not just for trust-building purposes, but also as a basis from which definitions for possible sub-services can be derived.

Standardization Reduces Costs
This is practically a truism now – but how does it happen in practical terms? Standardization projects within an organization often fail at the first attempt for two reasons: conflicts of time and interest. Although it was deemed sensible when IT structures developed rapidly, there was none or too little time to standardize existing and new acquisitions without paralyzing them with standards while leaving them manageable with respect to operating costs.

When IT budgets were on the increase, operating costs did not really come into play. Conflicts of interests between operative units, for example with regard to procurement or the protection of vested rights during mergers, often led to a situation where necessary consolidations and thus also possible standardizations could not really be implemented. Given this history, the word “proliferate” is sometimes used today to describe the growth of IT systems.

The order for full or selective outsourcing is always accompanied by standardizations. Without these, the interfaces become too unwieldy and the cost benefits to the customer decrease. On the other side, providers can only achieve a high degree of continuity and quality if they make the supported environments independent of individuals - in other words, if they standardize them.

From a cost optimization viewpoint one could say that the selective deployment of providers in the context of defined managed services can lead to an overall profit and/or performance increase, as the evolved structures are being ‘trimmed’.