Making the decision to outsource some or all of your IT functions can involve
a tricky balancing act when it comes to managing talent. Company bosses need
to decide whether it is best to build up expertise in-house — with all of
the training and investment that entails — or to go down the outsourcing
route, which may provide access to a larger talent pool but risks losing
skills from inside the organisation that may be hard to replace in the
future.
The IT sector is currently experiencing a severe talent shortage. “There are
not enough graduates coming through the systems,” explains Paul Smith,
managing director at global IT outsourcing provider Harvey Nash. He
estimates that 160,000 positions — mainly for developers — are currently
unfilled. “Only 11.4% of students are studying science. And the problem is
worsened by migration.”
Gina Citroni, commercial director of Amplicon, a Brighton-based firm that
designs and constructs industrial PCs, finds the lack of available talent
frustrating. “You have to use specialist recruitment firms, but they’re
about as much use as a chocolate teapot,” she says. “I’ve had three
vacancies for sales engineers for months now.
“Though I can’t lay it completely at the door of agencies — the lack of IT and
electronics graduates means the pool of quality people is getting smaller.”
You have to be proactive to get the talent you want, she says. Amplicon has
strong relationships with the local universities, which helps to recruit
in-house talent to train up.
Outsourcing can provide a solution. “The outsourcing process avoids transitory
investment in skills by the client companies themselves,” says Phil Morris,
managing director for Europe and Asia at the IT and business consultancy
EquaTerra.
“Outsourcing does allow you to tap into a quantity of new skills, developing
up skills you already have or accessing skills that exist in the
marketplace,” says Ollie Ross, head of research at the Corporate IT Forum, a
web-based knowledge centre. “If it is something everyone else is doing,
what’s the point of keeping it in-house, especially if you can have access
to new technology? But if it is business-critical you may want to keep it
in-house and give yourself the option of steering the project to how you
want it to go.”
The key is to be careful about what it is you are outsourcing. Smith warns
that organisations that outsource their prime business activities are in for
a rude awakening. “The UK is the second largest outsourcer in the world
after the US,” he says. “We account for half of all European outsourcing. If
we are not careful, we will find we’ve outsourced many of our business
skills.
“If you outsource the highly educated people, the business technologists,
business analysts, the intellectual property rights, then these skills will
belong to the outsourcers and you will have lost the very thing that
differentiated your company from your competitors.”
With many outsourcers using contract staff, companies could also end up losing
control of their intellectual property. To guard against this, says Smith,
it is important to have your own people embedded in the contract,
strategically placed. “Knowledge about how the company works, its own core
structure and processes, should be something that is kept in-house. It also
makes it a lot easier when you are switching suppliers.”
When companies outsource their business activities, Tupe — Transfer of
Undertakings (Protection of Employment) — regulations are there to give
staff the protection of an automatic transfer of employment to the external
service provider, with preservation of their existing employment benefits.
However, even with Tupe in place, “key skills and people are invariably lost
on the way”, says Smith.
In situations where a contract is switched from one supplier to another,
employees are often switched, too. For example, when Transport for London
decided to replace the IT and professional service provider Capita with IBM
as the company running the congestion charge, the contract included the
transfer of 400 staff to IBM.
Claudio Da Rold, vice-president at IT analyst Gartner, says that deciding to
outsource is no longer just about cost. “More and more we’re seeing
different reasons,” he says. “At the end of the day, outsourcing is a
management tool, and organisations that use this tend to do better and be
faster and cheaper.”
Outsourcing changes the mix of the workforce, he says. “Moving out less
creative skills, things that can be carried out elsewhere in the world,
enables companies to concentrate on the skills they actually need.”
Says Ross: “Outsourcing can certainly have an impact on what happens in-house.
If you’ve outsourced technology skills, then you’re left with a greater
requirement for business competency and management skills. The team that is
left develops differently, particularly in how they work with the
outsourcer. There could be large distances and maybe language barriers
between departments.”
While being moved from one outsourcing company to another may be disruptive
for employees, there could be benefits for them, according to Morris of
EquaTerra. “The career possibilities at an IT provider may be better — they
are going to develop you in a different way.”
In a corporate environment, Morris adds, there will be varying levels of
skills and various jobs to be done, and people can often be overqualified
for their work. “However, IT providers are more able to schedule people to
different jobs best suited to their skills and to push them faster and
further to get the most out of them.”
Da Rold agrees. “If you are a very technical person who likes getting things
done directly, such as writing code and so forth, then the best place to be
is in an outsourcing provider where your role is core,” he says.
“But if you have a technical background but want to get out of the front line
and manage other people and providers, then you are best placed at the
client company.”
Getting the staffing right at the beginning is crucial, as this aspect can be
difficult to reverse, says Morris. “It is not overly difficult to switch to
another supplier, but it’s bringing back people in-house that can cause
problems. That is almost totally unknown without the impetus of a merger or
takeover. It means that you would have to build a whole IT department from
scratch — the assets, the licences, the contracts, the people — and give
them a future and career possibilities. Also, lots of people you’ve Tuped
out will have gone on to different careers and be moving in different
directions.”
It is a delicate balance, according to Da Rold. “Companies should outsource
activities that they cannot easily provide, so they can be more dynamic and
successful and concentrate on value. It is best to outsource and keep the
good people.”
KPMG
BUSINESS consultancy KPMG is rarely out of the news when it comes to
outsourcing. “We have developed a good understanding of what works for us,”
says Bryan Clark, the group’s UK head of information, communication and
technology. “And we’ve had great success. Outsourcing our infrastructure
support and maintenance to India, for example, has been highly successful at
reducing the cost base and giving us superior skills. It’s enabled us to do
things that we couldn’t do before.”
But, he says, it is important to make sure that cost savings are not the only
goal. “There have to be added benefits. We like to do more for less.”
Clark has been careful to maintain the flexibility to move services around.
KPMG’s helpdesk, for example, was outsourced first within the UK, then to
Ireland, and lately to India.
There are some business functions he feels should be kept in-house entirely.
“Things that involve face-to-face contact with other parties, such as
serving desk- side support, interacting with other business functions,
security, project management, service management — all those things in the
IT space are best done by ourselves.”
JP Morgan
THE TURN of the millennium, with the perils of the “Y2K bug”, saw a skills
shortage looming over the IT industry. That’s when the investment bank JP
Morgan decided to take a radical approach: instead of outsourcing the bulk
of its IT operations, as many other firms were doing, it built a centre of
excellence away from its London base, to provide a sustainable source of
fresh talent for its banking and asset management divisions.
Glasgow was chosen for the project, and in 1999, JP Morgan’s European
Technology Centre opened. “It was seen as quite revolutionary,” says Paul
Murphy, chief executive of JP Morgan Scotland. “We looked at offshoring
instead, but wanted to maintain the skills in-house. We’ve been able to tap
into a high-quality supply of graduate talent. It’s a highly charged,
dynamic place to work, and that’s reflected in great levels of employee
retention.”
The centre employs about 900 technologists and is one of the largest IT
employers in Scotland.
JP Morgan also has a service provider in India, which handles about 20% of its
IT activities and supports the work done in Glasgow.
Just reading this should give students enough reason to avoid computer science and I.T. altogether. You get outsourced. If you're lucky, you move to the IT provider. The contract changes, you get moved again. Why would anyone opt for a career in this field? You face a lifetime of uncertainty.
Sam, Dallas, USA
outsource if you want to, but expect service levels to drop, sometimes dramatically. In-house staff are always a better choice, both in terms of what they will do for you and when things go wrong. You won't get an outsourced worker to do what's needed over the weekend when disaster strikes.
Andy, Swindon, United Kingdom