Evaluating OutsourcingBy Cary Westmark | Posted 2008-03-31 Print
In the eyes of non-IT executives, information and business technology is little more than plumbing—a cost of doing business that often detracts from their primary goal of improving the bottom line. Cary Westmark lays out his personal strategies for evaluating IT priorities against the corporate bottom line.
Managing labor costs is one of the biggest challenges an IT manager will face over the course of his or her career. Enterprise management puts a lot of pressure on technology organizations to outsource to save money, but IT managers should make any outsourcing decision based on the unique operating environment and requirements of their organization.
When evaluating outsourcing options, there are two rules of thumb that have brought me success. First, if the job will require more than 700 hours of effort during a calendar year and will last at least 12 months, then hire a permanent staff member. The overall cost will be less, and you will get more productivity hours for less money. Second, if the role supports a strategic technology initiative, such as a custom-built application, it will be in your best interests to retain in-house expertise.
There are many situations in which outsourcing makes sense, but be sure to thoroughly assess all the needs and weigh the various options. A mix of in-house and outsourced employees may work best for your organization. At Troon, for example, we have a mix of 75 percent full-time employees and 25 percent contractors.
As an IT manager, it’s your responsibility to plan strategically, so prepare your staffing plans carefully before presenting them to executives—and always keep a focus on the bottom line.
Examining Application Development
Application development is another area that requires careful examination before deciding on a strategic direction. If your organization’s core competency is not application development, you should minimize the amount of customized programming you implement.
Applications such as company Web sites and small databases won’t cost too much to outsource. However, larger applications, such as customer relationship management (CRM) and enterprise resource planning (ERP) systems, are expensive to customize and support—even with in-house resources.
The strategy that works for me involves using off-the-shelf products whenever possible, even if it means shifting business processes to fit those applications. We use shrink-wrapped applications that require almost no customization for 90 percent of our business applications. The few exceptions are our company Web site, our affinity program (Troon Rewards) and our CRM system, which are all developed and maintained in-house, as they are specific to our company and operations.
Planning the data center
Of course, the topic on everyone’s mind these days is data center management. Should you collocate or run an internal data center? That question, as well as many others, requires a careful assessment of the business environment, long-term goals and the requirements of the data center. Collocating can generate a significant cost saving for organizations that require high-availability systems but don’t have a proper internal data center already built.
I have found that collocation often works the best for larger enterprises, e-commerce organizations and telecommunications companies. For smaller companies, the cost of collocation can be prohibitive, so less sophisticated internal data rooms will suffice.
As a smaller organization, Troon has found collocation cost-prohibitive, so we built an adequate computer room with appropriate environmental controls in our corporate offices. That facility costs us only about half of what a single year’s collocation fees would cost.
Admittedly, these are just a few of the issues IT professionals will have to discuss with their executive team, but addressing in a meaningful way all the technology items that affect the company’s bottom line is a practical impossibility.
In my experience, the best approach is to put the plans with the most significant financial impact in front of the executive team. Remember that most non-IT executives have one thing on their minds: improving the bottom line. So keep your presentations brief and focus on fiscal conservation.
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