Outsource Or Not?

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November 17, 1997

Outsource Or Not?

or some companies, the big promises of outsourcing have fallen flat. That's caused them to cancel major deals and begin the painful process of rebuilding their internal IT organizations. Outsourcing promised to cut costs, improve services, and help companies move to new technology more quickly.

But that hasn't been the experience for a lot of big users. New York insurer Mony, for example, terminated a $210 million contract with Computer Sciences Corp. less than halfway through the project. The company's CIO doubts Mony will ever enter another large-scale outsourcing deal.

For LSI Logic, it's a question of whether its business and IT units are as close as they should be. "The linkage between technology and business processes is so tight that when you outsource, somehow you get dysfunctional," says Lam Truong, CIO for the Milpitas, Calif., chipmaker. LSI cut short a five-year deal with IBM Global Services and is rehiring IS staff to implement core business processes.

But rebuilding an IS or ganization has its challenges-mainly finding people with the appropriate skills. In fact, a skills shortage is one of the main reasons some companies decided to outsource in the first place. Some analysts say the trend will simply shift from megadeals to smaller, project-based deals.

Of course, no one suggests that outsourcing problems are entirely the fault of the outsourcers. Consultant Allen Gonchar, president of Compass America Inc., says it's scary that companies outsource operations for which they haven't measured pre-outsourcing costs and service levels. That makes it nearly impossible to measure the performance of the outsourcer.

But regardless of who's to blame, for many companies, the ability to regain control and react more quickly to rapid business change is worth the pain of bringing operations back in-house.

Story's authors: Bruce Caldwell with Marianne Kolbasuk McGee

Read it on the Web at: techweb.cmp.com/iw/650/50iuout.htm

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