Tuesday, July 6, 2010

Outsourcing Key Business Support Systems

Should outsourcing be the preferred implementation strategy when it comes to key Business Support Systems (BSS) like CRM? To evaluate this, I will touch upon the key reasons why companies outsource and also look at issues that are being faced while outsourcing key BSS applications.
IT outsourcing started with cost advantage as the primary motivation, the drivers of outsourcing have since undergone changes and different models have emerged over time. The key reasons why organizations outsource are the following:
  • Core vs. Non Core – Focus on core business strategy and leave the rest to partners
  • Specialization – Skilled labor with specialized skill sets required for the job
  • Dynamic Capacity – Need based capacity changes in terms of resources/hardware etc
  • Innovation – Align with latest trends in IT and be on top of the innovation curve
Benefits accrue from outsourcing as long as organizations know what to outsource and what to maintain in-house. Processes and functions with low impact on core strategy are ideal candidates for outsourcing while those of strategic importance should be maintained in-house as transaction costs associated with outsourcing such processes outweigh benefits. Non-IT organizations frequently categorize IT as a non-core function and end up outsourcing IT as a whole, while actually there are areas within IT that may be core to business strategy and its enablement. There are instances where organizations have spent additional money to bring back outsourced processes and applications in-house. This points towards a more fundamental question as to whether top managements are able to grasp how critically IT impacts business today, but that is topic for a different discussion. At this point let’s say that it is important for organizations to distinguish and identify the core and non-core IT applications.
Even though outsourced vendors are governed by KPIs/SLAs, there may be a difference in motivation levels and complacency may creep in once contracts are signed off. Hence, BSS applications like CRM, Rating etc in a telecom scenario may need tighter controls where quick resolution and turnaround on issues is critical.
Outsourcing also adds bureaucracy and rigidity with vendors not willing to accommodate last minute changes. For core applications that support business strategy, it is critical that changes are incorporated immediately with changing business needs. Especially in volatile environments like new telecom launches where customer strategy is fluid and prone to changes, an unwilling vendor can cause severe damage to business prospects.
In core and customized applications like CRM where understanding business and its drivers is important, employee turnover at the vendor end is also a sore point. IT Vendors turn to their most efficient employees to win clients and projects, sometimes taking the most resourceful people out of an ongoing project. This leads to unending learning curves and causes dissatisfaction at client end.
I am not saying that BSS applications should not be outsourced because maintaining applications in-house has its challenges; and the degree of outsourcing depends on the maturity levels of both parties, it is, however, important that organizations understand the criticality of different IT applications in their portfolio based on their impact on business. The degree of control on different applications is something that organizations need to evaluate to form a long-term and constructive relationship with the outsourcing vendor.