Outsourcing Part 2: Taking a leap of faith

11 Mar 2004

The anecdotal acceptance of Irish businesses being slow at adopting outsourcing is something of an urban myth. It’s widely accepted as fact that Irish businesses do not outsource their IT infrastructure. You’ll hear cultural, economic and business reasons for this depending on who you talk to.

Sure, mega outsourcing deals where a third party takes over a company’s complete IT infrastructure, including hiring the current IT staff, and provides it back to the company as a managed service are indeed relatively rare in Ireland. But there is a massive amount of hidden outsourcing happening locally that those involved may not even view it as managed services.

The majority of technology outsourcing taking place today is related to the internet. Back in the boom days companies needed to get a web presence quickly. Leased lines were expensive, a decent transactional web server would set you back a few thousand pounds and you’d probably have to buy in the skills to manage the box for you. The 24/7 nature of the internet meant you’d also have to figure out how to provide cover if your website went down at 3am on a Saturday. Smart businesses neatly sidestepped these headaches by handing over the management of their website to an internet service provider (ISP) or a dedicated hosting facility.

This model has been so successful that there is now a vibrant sector of independent companies competing to host email and web applications. Louise McKeown, marketing manager with ISP Netsource, says there has been a phenomenal uptake of its Virtual Mail Server service with more than 340 customers signing up since it was launched in January. Rather than needing to buy and administer a mail server plus licensing mail server software companies can simply install email clients on users’ machines and point them to a virtual server in Netsource. It also provides content and anti-virus filtering and the whole package can be administered through a web front end, with prices starting at just €269 per year.

InterFusion Networks is an example of a new breed of company that has built a business primarily on managed services. It uses broadband technologies such as DSL to build wide area networks for companies that need to link branch offices, remote workers, suppliers or customers and then manages these links from its network operations centre. Managing director Derek Daly says that while a telco may provide the links for such a service “door to door” his company will provide it “PC to server” by integrating it with a company’s local area network. “For most IT managers the network is mentally and physically on the periphery,” says Daly. “It’s one of those areas that people are happy to say it’s not core.”

Even firms that have not moved website management out of house may already have an outsourcing experience that they can build on. “Most organisations are already doing outsourcing without realising,” says Pat Moran, director of technology risk services with Ernst & Young. “You wouldn’t have your own cleaning services team — you use a third party for that. Similarly security on buildings is usually outsourced to a third party. That’s because they are not core activities of the organisation.”

From this basis companies need to identify what is core and not core to their business. Look at the services that the IT department provides to the rest of the business and identify which services are costly in the profit and loss account. Could they be more efficient and economically handled by an outsourcing company that specialises in that area and benefits from economies of scale?

John Scully, global services director with IBM Ireland, gives the example of a customer relationship management (CRM) application that traditionally was considered something that needed to be managed in-house. “Now people want applications that are more integrated with their suppliers, partners and customers. For example, you may want to expose your CRM application,” says Scully. “In the old days you would have bought Siebel and installed it but a viable alternative is to buy CRM as a service from a vendor such as Salesforce.com.” IBM is currently pushing this model of only buying services as they are required as part of its on-demand strategy. “You can afford a first-class seat on a 747 to the US, but you can’t afford to build it yourself,” says Scully, explaining the economics behind the strategy.

Moran suggests that companies already outsourcing their web activities can use what they have learned to move outsourcing up the value chain. “If you have outsourced your website you need to ask what are the success factors of that relationship so you can see how you can build on that model,” explains Moran.

Next week: Managing an outsourcing relationship and how to avoid problems

By John Collins