A featured contribution from Leadership Perspectives, a curated forum for enterprise technology leaders, nominated by our subscribers and vetted by the CIOApplications Editorial Board.

Blue Cross NC

Strategic Outsourcing: A Balanced Approach

For the past two decades, the word “outsourcing” was synonymous with many IT organizations. However, the need for cost efficiency, agile delivery, rock-solid reliability, and security requirements has not changed, in fact, these requirements have gone up exponentially in complexity and demand. Today, the healthcare industry is experiencing technological transformations in the way it offers services, and IT organizations must decide how to transform to stay relevant to the business. So, what is the right answer to outsourcing or insourcing? Recently, we embarked on a journey to restructure our outsourcing model. As part of this tremendous effort, we moved once fully outsourced IT services back in-house where it made sense, and strategically outsourced areas that could provide us with higher degree of service capabilities and flexibility.

Deciding to bring functionality in-house versus outsourcing is not a one-dimensional decision. Teams need to analyze how such an arrangement would impact services and delivery capabilities down the road. Outsourcing should not be used purely as a cost-savings play. In the long run, ineffective outsourcing arrangements can cost the company tens, if not hundreds of millions of dollars in revenue, lost productivity, missed opportunities in ability to innovate and deliver, and unnecessary risks to the organization, even to the extent of impacting the P/E ratio.

In general, ask, is outsourcing this service going to assist our ability to respond to the business quicker and deliver at a more competitive cost on a consistent basis? Will it offer our team more time to conduct operationally critical tasks that improve our level of quality, stability, and security? Will it improve throughput and overall delivery? If you answer yes to these questions, “selective” outsourcing might be a beneficial option to consider.

Once you make a move toward a balanced in-house and outsourcing model, best practices need to be established to keep the organization model from stagnating

I say, “selective outsourcing” because in many circumstances it can be a big mistake to outsource all IT infrastructure services to a third-party vendor. For one, the vendors must be profitable, and it does not take a lot for the relationship to start heading south when the customer starts to request things outside of the contract due to new off-cycle requests from the business, and change orders start to bring costs outside of the boundaries. Also, SLA’s start to get in the way of project timelines and now there are significant delays in project delivery for the business.

When we looked at the business case to bring some of the key IT services back in, it became very clear that there would be significant cost savings in operating and improvements in service delivery, risk/compliance, and ability to properly manage with best in-class technologies and architecture. We embarked on a journey to bring core functions such as engineering, architecture, and application knowledge back in-house, and partnered with companies for our data centers. We now manage the technologies, procurement, and activities associated with them and we negotiate the best deal for us versus relying on a 3rd party vendor to provide us with their version of cost. At the same time, we embarked on outsourcing commoditized services such as help desk, end-user computing, and some legacy system support. In doing all of this, it is very important to be aware of organizational impacts with employees and to work very closely with human resources to ensure recruitment can be properly ramped up to meet the demand of recruitment needs, as well as frequent communications to both IT counterparts and to the business end users. Successful insourcing can be a tricky slope, especially when you are dealing with thousands of end users being touched and needing service continuity during the transition.

Once you make a move toward a balanced in-house and outsourcing model, best practices need to be established to keep the organization model from stagnating. Establish and keep a highly structured approach in managing the outsourced vendor’s SLA, and communicate clearly on any service expectations that are required. For example, when our end users call the service desk, they don’t know if they are speaking to a vendor or an employee for a seamless experience. Empower your employees to communicate and reinforce service expectations, and to quickly correct issues.

It is critical to review the results of outsourcing arrangements regularly to see if the benefits you forecasted are occurring. This may mean you need to have flexibility built into your contract to “add or subtract” services to the outsourced model, and pivot when necessary. You’ll know you’ve struck a successful balance when metrics indicate cost savings, a rise in innovation, and a faster turnaround time to support the needs of your business, along with an incredible culture where your employees have established your work place as one of “the best IT places to work.”

The articles from these contributors are based on their personal expertise and viewpoints, and do not necessarily reflect the opinions of their employers or affiliated organizations.