2) Business, technical analysis required before leaping into the outsourcing world

Up till now you have probably come across a dozen or so articles complimenting the benefits of outsourcing to an application service provider (ASP). Maybe you have been contacted by an ASP, or you are busy surveying the marketplace, deciding if an ASP agreement is suitable to you.

You will surely find yourself confronted with plenty of advertisements as long as outsourcing is concerned. Market-research data showing firm increase in the coming years for the use of outsourcers is apt to be found. For instance, ”global spending for outsourcing arrangements will outweigh $151 billion by 2003 -- of which more than $81 billion is expected to come from outsourcing within the United States,” ,estimated by a recent International Data Corp report.

The outsourcing of information-systems tasks, such as network operations, desktop applications, and help desk support are included in these estimates. External processing services that might manage electronic billing or payroll processing for your company are also included in the growth figures.

Known as business-process outsourcing, a third type of arrangement is also taking hold. A company partners with an external provider make that partner manage one or more functional areas of company operations, like human resources, customer service, or marketing.

Being ignorant of the type of arrangement you might be thinking about-- information systems, processing services, or business process outsourcing -- I'd recommend scrupulous and accurate business and technical analysis before making an outsourcing decision.

Outsourcing shows its advantages in many ways. For the most part, the cost of outsourcing is much lower than the expense required to maintain the same function or process in-house. An outsourcer usually provides highly efficient service in one or more detailed areas. This also helps liberate your internal IT staff to concentrate more closely on mission-critical functions.

Some other virtues of outsourcing include prompt access to technical resources you might not have access to, the ability to respond quickly to changeable business situations, and the power to leverage the outsourcing arrangement to enhance your competitive advantage. Additionally, it is usually likely to diminish or eliminate capital expenditures drastically.

Outsourcing, of course, has its own disadvantages. Many lessons we got from outsourcing arrangements during the 1980s are still adaptive to today's trend toward external-service providers. Additionally, the interconnectedness of current architectures adds a new dynamic to the situation.

There are some issues I think it necessary for business and technical managers to mention before they sign any outsourcing deal. For instance, you are apt to lose mastery over he business process or function being outsourced. Does it indicate any problems?

Furthermore, when outsourcing something more than the most peripheral processes, you need to notify the external providers of sensitive company information. You may well have agreements in place that protect your interests and place the responsibility of secrecy with the provider. But you are opening your company to the point of potential loss of important or competitive data.

Outsourcing today will most certainly call for a close relationship between you and the provider. You have to assign sufficient internal resources for the successful management of the situation. What is more, you need an explicit service-level agreement that specify the details of the situation. For instance, your agreement should prescribe how both parties will deal with any personnel turnover at the provider's site, what your uptime requirements are, and how knowledge transfer will take place.

Of course, there are other personnel issues. You have to explain internal employee transfers and layoffs that is caused by the outsourcing decision. For instance, as a part of the agreement, you might transfer some key employees to the outsourcer. Later, you may determine that particular outsourcer fail to meet your requirement and wish to go elsewhere. Unless you have provisions in the contract for that, you may or may not be able to transfer those same employees back in-house.

Then there are those outsourcing contracts that need precise detail and a certain level of skills. Internal talent or third-party help to create a contract will be required that successfully meets your needs and protects your interests.

Some other predominant elements to consider include whether you can handle an external provider who may not be located in your geographical area. And, to what extent does the provider understand your business? If they do not know your vertical market or your applications, you could be in for a rude awakening, although they may be technically savvy

What I do agree is that outsourcing and external service providers is important for many business processes and functions. They are able to save money and enhance competitive advantage when handled properly. But, I believe we definitely need to warrant a cautionary approach to an outsourcing decision.