The use of outside vendors and resources is another major IT spending lever available to organizations. When organizations use outside resources, technical capability, or capacity, they frequently realize savings in several areas. First, when using outside resources to supply certain skills, an organization may save by paying only for the level of effort of those resources required, instead of paying for one or more full-time employees. Second, an organization can take advantage of increased skill sets which can result in savings from reduced time required to complete tasks or higher quality outputs from the resources. Additionally, organizations can save by leveraging shared administrative and infrastructure resources when using services such as hosting where resources and capabilities are leveraged over multiple customer-bases.
Organizations that leverage external resources or hosting of various technical capabilities typically use one or more of the following approaches, representing increasing degrees of leverage:
- External resource expertise (contractors) to augment or replace in-house resource capability and capacity.
- External infrastructure (server and storage) including facility or infrastructure capacity for functions such as disaster recovery.
- External platform hosting whereby a vendor runs a customer-specific instance of a technology platform that an organization can rely upon to build its own system or application functionalities.
- External systems/application hosting whereby a vendor runs a customer-specific instance of an application for an organization’s use.
These vendor provided-services (with the exception of simple external talent) are frequently referred to today as ‘cloud-based’ services. Although the ‘cloud’ has been around for several decades, its acceptance and near ubiquitous nature for certain services is increasing its adoption in a variety of ways by organizations. Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Storage-as-a-Service (STaaS) capabilities, for example, enable an organization to outsource varying degrees of requirements to take advantage of the aforementioned savings benefits.
Other Considerations
The single biggest factor dictating the decision to use external resources or technical capability is one of delivery risk. Many organizations for example have over the years attempted to outsource their entire IT organization to external providers with varying degrees of success. In cases where the transition was unsuccessful, the organization often has to go through a long and painful transition to insource the capability once again.
In other cases, organizations may outsource management and administration of only larger-scale systems such as Enterprise Resource Planning (ERP) environments which often require specialized expertise running into the millions of dollars annually. However, in all cases an organization is essentially trusting a vendor to provide a service upon which some part of its business will rely. In doing so, the organization must carefully consider a number of risks including:
- Delivery risks - Will the organization provide the current (and promised future) capabilities, capacity, performance, and availability required?
- Requirements risks - Will the services meet the requirements and is there sufficient flexibility in the service to address different or changing needs?
- Vendor stability risks - Will this vendor and this service offering succeed and what will the organization do if it doesn’t?
- Security risks - Is the information secure now and in the future even if, for example, the vendor is purchased or goes under?
To mitigate these risks, organizations should proceed with caution when establishing and negotiating contracts with providers. Organizations should also heavily leverage an incremental approach before attempting to leverage cloud-based services on a wholesale basis.
Summary
For many organizations, especially those with mature, centralized internal IT functions and sound IT acquisition capabilities, outsourcing capabilities and moving services to cloud-based providers represents the next frontier of efficiency. However, organizations at any level of IT spending maturity can accelerate savings by selectively leveraging external providers where appropriate.