by Stephanie Overby

DIY Outsourcing Saves Money, Adds Control

Dec 16, 2009

Pricey consultants can be time savers but there are benefits—beyond penny pinching—to crafting your own outsourcing deal.

Budgets are tight and as a result, IT leaders are increasingly eschewing the expense of external consultants and tackling everything from requirements gathering to bid analysis on their own.

“Most large organizations have built up outsourcing capabilities over time,” says Paul Pinto, managing partner with outsourcing consultancy Sylvan VI. “Now, the need for outsourcing has been pushed down to the mid-market, fostering do-it-yourself outsourcing at companies that don’t have the budget to pay for high-priced outsourcing services.”

And taking IT services procurement in-house has benefits beyond penny-pinching. “Often you get a simpler, more flexible deal,” says Adam Strichman, an independent outsourcing consultant based in Mechanicsville, Va. “More importantly, you take more ownership of what is going on.”

To read more on this topic, see: Outsourcing: How to Get In and Out of an Outsourcing Deal and Do-It-Yourself Knowledge Management.

Michel Hofman’s first foray into do-it-yourself outsourcing happened when building a new IT backbone for London-based Rabobank International’s direct banking product launch in 2004. He planned to outsource and could have hired advisors, but “they’re always very expensive,” Hofman says. “And they’re not always able to get you to the right decision.” Hofman handled most everything himself from requirements to negotiation and, admittedly, he lucked out a bit. “I had sophisticated and mature sourcing partners that didn’t abuse my lack of understanding,” he says.

The impetus for insourcing the outsourcing process wasn’t cost cutting—though Hofman did save money—but an interest in improving the resulting relationships. Getting intimate with an IT service provider from day one lays the groundwork for a much stronger relationship in a way that working via consultant-surrogates may not, Hofman says.

“Every step of the process—seeing vendors struggling with your requirements, coming back to you with questions—is all part of that relationship building that I found useful, not only during the selection process but also in ongoing management.” Having a greater hand in the procurement process can also build stakeholder consensus for the end result, says Sylvan VI’s Pinto.

Since taking over as CIO for Rabobank’s European operations, Hofman has insisted his staff—who had limited experience selecting or managing IT service providers other than software vendors—sharpen their skills. He hired some professionals from the vendor community, but mostly they’ve learned by doing.

“Every step in the sourcing process is a way of building that maturity,” Hofman says. His group has gone from no outsourcing to 40 percent of the IT portfolio being delivered from third parties with no help from external advisors.

Hofman isn’t anti-consulting. “A lot of organizations struggle with managing an outsourcing partner,” he says. “They can easily be outsmarted in the contract or beyond.” If his IT organization were larger (his is a 150-person staff with a €50 million budget) or his need for outsourcing greater (he describes outsourcing in his current role as a “tactic,” not a “strategy”), Hofman admits he might have to rely on external experts more. But even then, he’d want consultants to consult, not take over. “Bring them in as a coach rather than someone to drive the process,” says Hofman. “Good consultants have a lot to offer, and they’re worth every penny, but only if you really try to learn from them to better your own organization.”

Strichman agrees DIY outsourcing isn’t for everyone. “In the end you still need skilled people with both the experience and the time to do it. Those requirements are hard to find in the best of times.”

Stephanie Overby is a freelance writer based in Massachusetts.