The Cabinet Office recently announced that it had saved 40% on its IT budget by replacing its contract with services provider Fujitsu with an in-house service. The Fujitsu contract, which was signed in 2007 and expired in January 2015, covered a diverse range of services including data centre/hosting, fully managed infrastructure, desktop hardware and software, applications support service desk, telephony, and security.
As well as the headline cost saving, the Cabinet Office has also stated that its new approach is more flexible than the services provided by Fujitsu as it allows “users to pick their own devices and giving them maximum flexibility over software tools.” In addition the department’s infrastructure has been moved to the cloud with CTO Tom Read commenting “if we aren’t happy with it, we can just move it to another supplier.”
It is not the first time we have seen headlines about organisations deciding to insource services that had previously been outsourced to external providers and neither is it the first that time factors such as cost reduction and better services have been cited as the main benefits of such decisions.
The problem with headlines claiming significant savings from insourcing decisions is that they do not necessarily tell the full story. For example, there is the assumption that the original deal represented value for money at the time it was signed and hence a straight comparison between the new arrangement and the outsourcing contract can be made. It also assumes a like-for-like comparison can be made on the needs of the organisation, and the scope and hence cost of the services under each model.
The Cabinet Office deal with Fujitsu was eight years old. So much has changed in that time. New and transformational technologies have appeared and matured since 2007. Devices such as smartphones and tablets have changed the face of personal computing and, along with apps and cloud services, have transformed the way in which organisations can meet their technology needs, and how and where people can work. The IT services market has also changed a lot in that time and new sourcing models have been successfully implemented by client organisations as a result. And it is fairly certain that what the Cabinet Office wants from its IT services has changed significantly in that time as well.
Comparing an eight year-old contract for a diverse range of outsourced services against an in-house service based on new needs and technologies is inherently misleading. It is a false comparison that some CIOs use to support what is often a personal preference to have everything in-house or to support a kneejerk reaction to bring services back from a poorly performing outsourcing contract. We also regularly hear CIOs claim that the contract with their outsourced provider was not flexible enough to deal with its changing needs and the introduction of new technologies. But that does not automatically mean the solution is to insource. How about implementing more flexible contracts with a range of specialist partners that can cope with changes in the organisation’s needs, and which allow for new technologies and hence cost reductions to be realised during the contract?
Fortunately the Cabinet Office has not decided to bring all of the services in-house. Instead it has moved to a model where many of the services are still outsourced but to multiple suppliers. In this model the IT function provides the management and service integration layer (something that was also previously outsourced).
However, this is not always the case. Some CIOs decide to bring the management and delivery of all services back in-house and hence they find themselves providing and managing services such as desktop support, network management, data centre, telephony, etc. Such activities are not part of the organisation’s core business and the IT function is not adding any value to the organisation by self-delivering them.
The decision as to whether to outsource or to provide services in-house has to be based on criteria that reflects what is important to the organisation and not on the preferences of the CIO, false comparisons of cost and services, or a poor outsourcing experience due to using the wrong vendor(s), inflexible contracts or poor implementation and management on behalf of either the client and/or the service providers.
In Disrupt IT I recommend assessing each service provided by the IT department to determine whether it is key to the organisation’s ability to differentiate, innovate or respond quickly to changes in its markets. Where a service is not deemed to meet this criteria then it should be outsourced so that the CIO and the IT function can concentrate on applying technology in the areas where they can add real value to the organisation. This is a key step in the transition of the IT department from a Technology and Service Provider to a Technology and Service Broker.
There may of course be the need for additional criteria to reflect business- or industry-specific needs, or to satisfy relevant regulatory or legislative requirements. And there may be some areas, such as legacy or old systems, where outsourcing may not be economic or could expose the organisation to unacceptable levels of risk compared to the benefits that would be realised.
But the principle remains that the IT function does not need to be a service provider any more. Instead, it needs to be working alongside the rest of the organisation, helping to solve business problems and identifying opportunities to use technology to create value, grow revenue and create competitive advantage. Insourcing decisions should not be taken lightly and neither should they be driven by personal preference, false comparisons or bad experiences in the past. They have to be based on the principle that the IT function should be focused on the areas where it can add value to the business.