IT OUTSOURCING - MAXIMIZE FLEXIBILITY AND CONTROL

Executives pondering which parts of their information technology funct ion should be outsourced and which should be kept in-house usually ask themselves, Does the particular IT operation provide a strategic adva ntage or is it a commodity that doesn't differentiate us from our comp etitors? If it is a strategic service, they keep it in-house. If it is a commodity - especially one that a supplier claims it can provide in expensively - they outsource it. If only the decision were that simple . Between 1991 and 1993, the authors studied 40 U.S. and European comp anies that had grappled with the issue of outsourcing IT. Their conclu sion: The strategic-versus-commodity approach usually led to disappoin tments. The underlying assumption of the approach is that managers can place big bets about their markets, future technologies, and supplier s' capabilities and motives with a great deal of certainty. They can't . Even so, many managers sign five- or ten-year contracts without cons idering that they often cannot predict how business conditions and tec hnologies will change in even two years. They turn to outside provider s to gain access to the best technology at a low price without taking into account a provider's need to maximize profits. Instead, the autho rs argue, a company's overarching objective should be to maximize flex ibility and control so that it can pursue different options as it lear ns more or as its circumstances change. The way to accomplish that goa l is to maximize competition. Managers should not make a onetime decis ion whether to outsource or not. They should create an environment in which potential suppliers - external as well as internal - are constan tly battling to provide IT services.