When Leo Crawford joined the Orange County, Calif., IT department back in 1987, he noticed something unusual: dozens of non-county employees doing IT work for the county. For a red-blooded technical guy like Crawford, it didn't feel right. "I was somewhat dubious when I got there and saw the significant amount of outsourcing we were doing," recalls Crawford, now the assistant county executive officer for IT. "Why couldn't we do this in-house?" But it wasn't long before Crawford saw things differently. "It was apparent that users were getting better support through outsourcing than when we were doing it in-house," he says. Today, he's an enthusiastic supporter of IT outsourcing. And he's not alone.
"We've got a small, but good, in-house staff, but our philosophy is that if we can outsource it, and it makes sense, we'll go ahead and hire an outsourcing partner," says Mark Sklenar, vice president and CIO of Underwriters Laboratories in Northbrook, Ill. "It has just become too difficult to hire not only enough good talent, but to retain them over the long term even if you're fortunate enough to land them."
UL has outsourced applications support for a wide variety of desktop and network applications, as well as significant numbers of Web development projects. Now it has embraced outsourcing for a key strategic initiative: teaming with Arthur Andersen to design and build UL's global technology architecture, which will take four years.
The Need for Speed
"There's always been this argument against outsourcing core functions and applications, but that's changing," says Frank Casale, CEO of The Outsourcing Institute, a Jericho, N.Y.-based industry group that tracks developments in outsourcing. "A lot depends on how you define 'core.' You might consider 'core' to be 'what I do better than anyone else,' in which case you probably wouldn't want to outsource it. But more companies are starting to define 'core' as 'what the customer comes to me for,' in which case you definitely want best-of-breed talent and capability."
What Casale calls "the need for speed" is clearly a two-headed monster. On the one hand, speed means coming up with new products and services to gain and hold a competitive advantage. On the other, the IT industry is moving faster than any in-house department's ability to keep up and still meet the daily needs of its business units and end users.
"Outsourcers are now being brought in early on to plan, develop and implement e-business systemsreal revenue-generation projects," notes Bruce Caldwell, an outsourcing analyst with Gartner/Dataquest. "In the past, you would have done those types of projects internally, but time compression and skills shortages puts you under more pressure than ever to get it done. That inevitably means using outside partners, even for systems with a lot of risk."
Playing to Strengths
Orange County's Crawford sees outsourcing as the inevitable acknowledgment of what a company and its partners do best, and then playing to everyone's strengths, rather than plowing more energy and money into trying to overcome an internal weakness. "It's hard for government, or even for a lot of businesses, to keep up with the pace of change in our industry," says Crawford. "If I decide I need Web programmers instead of COBOL programmers, I go to Lockheed-Martin [Orange County's lead outsourcing partner] and have them redo the contract. Within 30 days, I have the right people for the job."
"We usually don't find we actually reduce our hard-dollar expenses by outsourcing," says UL's Sklenar. "The main benefit is to provide a much higher level of service to our business units, and we need specialized expertise to do that."
For other companies, outsourcing can be an effective "bridge" strategy for resource development, allowing the company to fill immediate needs through hired guns while buying time to develop its own internal resources if it's going to be a recurring need.
"If we're starting a Java development project, for instance, we'll want to see if it's going to be a long-term need," says Guy Abramo, senior vice president and CIO of computer products distributor Ingram Micro Inc. in Santa Ana, Calif. "If we'll need that skill right away but it will be part of our long-term needs, we might hire a specialist now, but eventually hire and train people in-house."
Mike Perkowski, who heads up Ziff Davis Market Experts, is responsible for tracking such market segments as distribution channels and outsourcing, storage and Linux.