Manufacturing companies are evaluating outsourcing of everything from individual departments to entire production facilities. One function that has gone through the outsourcing cycle is information technology (IT). A look at this example may be instructive for all manufacturing executives.
Lily Mok, senior consultant at people3, a Bridgewater, N.J., Gartner IT human resources consulting company, reports on a survey of companies that have outsourced IT functions. Only 21.1 percent of the companies surveyed reported a cost savings greater than 20 percent as a result of their IT outsourcing efforts. Conversely, 18.4 percent of companies did not achieve any cost reductions, while 9.2 percent experienced an increase in costs from their IT outsourcing contracts.
“There’s an assumption by many companies that they can save a large percentage of their budgets by outsourcing some or all of their IT capabilities. However, the true savings are not always as promising as one would expect,” says Mok. “Many companies often neglect to factor in all costs associated with managing the outsourcing engagements, which average 4.5 percent of the total contract value, and can be as high as 15 percent. It is important to set reasonable goals and expectations regarding the benefits that could be achieved through IT outsourcing.”
Examples of factors relating to additional costs include time and effort spent during the transition period (on knowledge transfer, addressing cultural differences, putting infrastructure in place), disruption in current work processes, increased turnover of IT employees who possess critical IT knowledge and skills, lost productivity and lowered employee morale. All of those factors can erode and even exceed the potential cost savings from the outsourcing efforts.
Mok offers these suggestions for successful operations:
• Develop an IT human capital strategy that is integrated and aligned with the IT sourcing strategy. Look at how you are going to fulfill requirements, then staff the type of people you need. If you are outsourcing, then you need people with strategic thinking skills, whereas if you keep things internal, then staff with operational people.
• Establish and implement a robust communications plan.
• Pursue an optimal design for the retained organization that includes streamlined work processes and jobs and roles necessary for the success of outsourcing.
• Take steps to identify, develop and retain critical skills and competencies for the retained organization.
See the story that goes with this sidebar: Staffing for Automation
