To ITO, or Not to ITO?

Information technology outsourcing (ITO) is a powerful tool that enables organizations to cut labor and infrastructure costs, improve operating efficiencies and increase flexibility in the always expensive and complex IT department. However, ITO is not an appropriate strategy for every IT department or every IT-related situation. So how can a CIO/CTO determine when they should outsource and when they should keep things in-house?

Running IT as a Separate Entity
A panel of ITO experts discussed techniques senior IT executives can use to help make the call on potential outsourcing projects during a panel discussion at the recent MIT CIO Symposium in Cambridge, MA. Tom Sanzone, SVP of Booz Allen Hamilton, recommended that companies run their internal IT departments as if they were completely separate businesses competing with other third-party vendors.

“Ask yourself, am I delivering a product/service capably in a very competitive market, or is there someone who can do it better, especially with scale,” advised Sanzone.

Frank Modruson, CIO of Accenture, said his company actually provides an internal service catalog for departments to compare and select IT services.

Maintaining the Core
Fitness experts advise people who want to be in top physical shape to maintain their core above all else, and the same advice holds true for IT executives. “If technology becomes a commodity, outsource it or share it internally,” recommended Bill Krivoshik, SVP/CIO, Time Warner.

For example, Krivoshik said Time Warner outsources all infrastructure support services for its four operating companies. However, in the case of Time Warner’s non-linear on-demand programming offering TV Everywhere, Krivoshik said his company made “a huge technology investment and there’s not a whole lot of knowledge out there. Especially where it’s a differentiating technology, we’ll never give up our assets.”

Letting Go of the Past (When Appropriate)
Modruson said companies evaluating replacing legacy in-house systems with newer outsourced systems should look for ITO services that provide the same functionality “better, faster, cheaper.” However, he warned that saying goodbye to legacy systems isn’t always easy for employees. “Getting rid of the past is a big, big deal,” he said.  

Sanzone added that sometimes, the past works just fine. “If we had a legacy of success, would we be embarrassed by it?” he asked. “The definition of ‘legacy’ depends on the business model and maturity model. Yesterday can be legacy. You have to determine what the value is for the company.”

ITO – No ‘Right’ Answer
As with so many other aspects of the IT world, there is no single “right” answer to the question of when a company should outsource technology. The most important takeaway from the MIT panelists’ comments is that as with all IT investments, business need should drive technology, and not the other way around. Just because an outsourcer can quickly provide a newer or flashier system does not automatically mean a CIO should take them up on the offer. But if the need is there, outsourcing provides a better option, and no core function that provides a competitive advantage is being potentially compromised or disrupted, ITO is probably the way to go.