Outsource to Free Up Staff, Not Cut ItBy John McCormick | Posted 2005-04-06 Email Print
Opinion: More than 75 percent of the average IT budget is devoted to just keeping the lights on. Think what you could accomplish by outsourcing maintenance and focusing on projects that really matter.
For at least a decade and a half, the top concern of chief information officers has been making sure that the information systems they put in place served and met their company's business objectives.
One would think that after wrestling with this issue for such a long period of time, CIOs would have figured this one out. Some have, of course. For the rest, the time might be right to explore a new option.
Research company Gartner is preparing to recommend that its clients think about outsourcing any computing or communications technology that's not critical to the company's success. Gartner isn't suggesting this as a cost-cutting move, but as a way, once and for all, to get the information-technology function to concentrate on nothing but business.
The logic is pretty simple. About 70% to 85% of technology budgets typically go toward keeping the lights on: maintaining the hardware and software already in place.
If your technology organization didn't have to worry about supporting basic activities, the thinking goes, its brainpower could be spent developing and delivering services that create a competitive advantage for your company.
"What are you going to do in a post-outsourced world?" asks Gartner fellow Ken McGee. "You are going to focus on delivering new services to the business."
Voices opposing outsourcing are growing louder; click here for insight on their effect on your plans and your business.
The bulk of corporate America doesn't look at outsourcing this way. CIO Insight, another Ziff Davis Media publication, last month released a survey of almost 400 information-technology executives on outsourcing. Seventy percent said they turn to outside service firms to save money. Another 20% said they outsource because they feel the outsider might be faster, more innovative and more flexible at delivering products and services than the in-house technology staff.
Ameritrade, however, is among the new breed of company that sees outsourcing as a way to free up existing staff to focus on the business. "We're a little further in front of some folks in our approach," says Jerry Bartlett, Ameritrade's vice president of application development.
The online broker has asked outsiders to do software maintenance and non-core development. "What we don't outsource," Bartlett says, "are the aspects we view as our core competencies in delivering the best possible experience to our clients."
That includes critical software development. As a Web-based company, creating unique online trading tools for investors is how Ameritrade gets a leg up on its competition. And, for that reason, it recruits top-notch developers and then tries not to waste their valuable time by asking them to perform routine tweaks and tests.
"[Because] we take some of the more mundane, routine, non-differentiating work off their plates," Bartlett says, "it allows them to be creative."
The strategy is producing results.
Bartlett says the technology team conceived and developed QuoteScope, a popular product that gives online traders a graphical look at market buy and sell orders, allowing them to gauge investor interest.
Outsourcing allowed the software development team to focus on one of Ameritrade's biggest product rollouts in the last year, Bartlett says. Amerivest, a feature-rich online advisory service that helps users put together long-term investment portfolios, was developed and tested in less than six months.
Granted, Ameritrade is just one company. But it's a company that's succeeding in the ruthless online broker market. For its fiscal quarter ended Dec. 31, the company reported record revenue of $262 million and record net income of $148 million—an amazing 56% of revenue.
So, is outsourcing the answer to the age-old problem of keeping technology strategy in sync with business goals?
At Ameritrade, it's the only reason to outsource. "When we look at outsourcing," Bartlett says, "it's in the context of moving our investments—in time and dollars—away from non-differentiating, commoditized services and products, and toward the things that differentiate us."
The time might be right for others to follow in Ameritrade's path.