February 21st, 2006

IT Commandment: Thou shalt not outsource mission-critical functions

Posted by Paul Murphy @ 3:27 am

Categories: Enterprise Policy, General

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My blog last Monday about moving messaging to the the Niagara based Sun pod resonated nicely with an expressed editorial interest in out-sourcing decisions with respect to messaging. Basically the issue came down to this: my blog suggested messaging consolidation on Sun using IBM’s Domino software, Organizations ultimately exist as information and control processing tools, and outsourcing IT therefore diminishes overall organizational value. but the contrary position is that messaging support is a commodity service that should be out-sourced.

Sun itself seems to think a lot of IT could be out-sourced -it’s part of their vision of utility computing; itself originally a throwaway comment on the need for reliability in systems services that took on a life of its own to became a marketing slogan and is now acquiring some reality through actual service delivery.

At the philosophical level the problem with out-sourcing any IT service is that organizations ultimately exist as information and control processing tools, and out-sourcing IT therefore diminishes overall organizational value.

At the practical level the argument against any form of out-sourcing is that passing information control to a third party is a lot like putting somebody else in charge of regulating your heart beat: useful in the short term if your heart is failing, but not a recipe for Olympic success.

Between those two extremes there are three sets of issues, each of which leads to individually compelling arguments against out-sourcing anything remotely as critical as messaging:

1. At the top of the list are the control and flexibility issues.

   Doing it yourself may seem to cost more, but when you want something done, you can usually get it done with a minimum of hassle and incremental cost.

    

2. Second on the list, particularly in the United States, are the responsibility, liability and trust issues.

   If your out-sourcer has ever had to admit a data loss (something that’s true of all the major players) you’ve had the warning needed to know that their procedures are inadequate - or, at least, so the plaintiff’s attorneys will be claiming when a few hundred (thousand) of your best former customers launch a class action against you.

    

3. And third on the list are the competitive advantage issues.

   There is no competitive advantage in using the same software, the same methods, and interchangeably the same people as your competitors.

Look at all three sets of issues and two commonalities should stand out:

1. Out-sourcing fundamentally depends on a failure to differentiate: if either your needs or your IT group’s ability to meet those needs, are indistinguishable from those of your competitors and there are advantages to scale, then outsourcing can provide overall financial benefits because the out-sourcer basically acts as a kind of industry co-op; and,

    

2. In-sourcing, or doing it yourself, is always a bet on your IT vision and delivery being better than the industry average. In other words, out-sourcing has a downwards averaging effect across the out-sourcer’s customer base.

Think about this a bit and it should be obvious that out-sourcing can never be a competitive strategy, only a cost-cutting one. Thus for IT out-sourcing to make sense, two things must be true: first your industry must be stagnant with your operation indistinguishable from everyone else’s and all the IT staff involved, your own and that of the out-sourcer, must be drawn from the same pool, use the same tools, and value their loyalty and commitment to whatever technical ideology dominates that labor pool significantly above their loyalty and commitment to you.

If you’re not in that situation but someone who doesn’t understand competitive advantage wants to out-source messaging, the killer argument is simply that things will go wrong, and that when stakeholders come after the organization, the out-sourcer will be comfortably outside their line of fire.

That, of course, is a very negative argument, but you can build positive elements on it by talking about remedial action - and the absence of contractual and liability based impediments to it if messaging is handled internally. Basically, there’s no question on who owns the data, who has the right to examine it, or who to hold accountable with internally managed messaging -and there always is when a contracted third party’s first responsibility is to assess compliance risks to that third party’s own business rather than yours.

On the other hand, if you’re dealing with people who do understand competitive advantage: who know that hiring the same interchangeable people with the same skills, the same tools, and the same attitudes as everybody else, eliminates the opportunity to use IT for strategic advantage, you can build a much positive argument directly on service differentiation.

And here, of course, is where ideas like moving from Exchange on Windows servers to Domino on the POD gives you a chance to offer a winning argument: present Domino on SPARC, not as merely a cheaper Exchange, but as a foundation for competitive advantage. Talk about getting the transition done, saving a few bucks, ensuring stability - and then using the tools in place to pursue things like team building, knowledge management, video switching, and expert systems support in areas like engineering, proposal management - whatever customer facing activities your company engages in. And then make the point that all of these opportunities to realize competitive advantage from IT have limited costs when you have the infrastructure in place, but are cost prohibited when that infrastructure is out-sourced.

1. Thou shalt not outsource mission critical functions
2. Thou shalt not pretend
3. Thou shalt honor and empower thy (Unix) sysadmins
4. Thou shalt leave the ideology to someone else
5. Thou shalt not condemn departments doing their own IT
6. Thou shalt put thy users first, above all else
7. Thou shalt give something back to the community
8. Thou shalt not use nonsecure protocols on thy network
9. Thou shalt free thy content
10. Thou shalt not ignore security risks when choosing platforms
11. Thou shalt not fear change
12. Thou shalt document all thy works
13. Thou shalt loosely couple