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Internal Outsourcing

We'll all heard about or lived with outsourcing, and hopefully we know it's good and bad. Outsourcing the janitorial services is a good idea, outsourcing the help desk...maybe not such a good idea. We outsource for a variety of reasons, but usually it's to save money or to leverage skill sets we don't have or want to maintain. Sometimes it works, sometimes it doesn't, and that all depends on everything - so many things go into making it work out on both sides.

I was chatting with a friend over lunch lately and outsourcing came up in the context of having a parent company provide certain functions instead of having them handled by each subsidiary. The cost savings is not hard to see. Imagine you have six companies all under one umbrella company, and each one has an HR team, a payroll solution, etc, etc. Not all of that is duplication of effort, but there is some. So, the parent company takes over function X and saves some amount of dollars each year. It this outsourcing? And if so, what are the dangers?

I think it's absolutely outsourcing, and it can be better or worse than normal outsourcing. It can be better because you are saving money, and you get more control and smarter investments than you might with someone who is trying to make a profit - my presumption being that when doing this internally you're trying to cover costs only. It could be worse because you don't get much of a vote, it's usually a decree, and worse than that, you may not like the service level agreement that goes with it.

I only have limited experience with this, but it never seems to work out. First, it's human nature that those in immediate contact with those providing the service hear only one side - their side - of the story, and that's powerful, especially when you're trying to convince the main office that they are causing you pain. Next, unless you have the outsourcing run by an extraordinary leader, they will tend to grow and extend their kingdom without regard to what is good for you or your business. Finally, they aren't part of the team - their measure of success isn't the same as yours. Imagine that you have a problem with the building and you need to quickly relocate a few hundred workstations. Your team jumps in to get it done because it needs to be done. Will the outsourcers?

Every business should control it's own destiny with full profit and loss accountability. Hire a leader, monitor them lightly but carefully, and let them do the job. If they aren't doing the job then it's a tough decision to figure out is it external factors or is it bad decisions? If outsourcing - internal or external - looks like a good idea, they should be free to do that too, as long as they can implement it under a service level agreement that provides the means to end the relationship if it's not working OR they just want to go in a different direction.


I'm Andy Warren, currently a SQL Server trainer with End to End Training. Over the past few years I've been a developer, DBA, and IT Director. I was one of the original founders of SQLServerCentral.com and helped grow that community from zero to about 300k members before deciding to move on to other ventures.


Posted by David Benoit on 27 April 2009

Andy, Great post and all your questions are valid. I have been through something similar and the greatest downside to that configuration is that the individual sub-business technical needs are not always met. Ultimately, they can't be for the greater goal of system commonality and standards. All those things sound great but when you look at technology it has to be flexible enough for the business in order for it to effectively meet the business needs. When you have a small subsidiary having the IT infrastructure managed / controlled by something larger it takes that flexibility away and ultimately it will hurt profit and eventually customer satisfaction.

It is a service and it must meet the needs of both the internal and external customers. If that is overlooked for some greater good of "corporate" commonality then it loses the ability to do that.

Thanks again for an interesting post.


Posted by Andy Warren on 27 April 2009

David, that last bit is the rub isn't it, the commonality requirement/argument often makes a lot of short term buiness/fiscal sense but trades off flexibility.

Posted by David Benoit on 28 April 2009

Yeah, at the company that I experienced this with, it was the killer. The flexibility is what made them competitive in a fairly unique and tight market. Taking that away made them no different than the next "guy".

I believe it takes a very strong, and savvy, CIO in order to know how IT impacts the profitability of a company and then drive IT in the direction that will provide the most benefit. It may not always be with the stream or current technology craze either and their ability to "sell" that to the other senior staff will be critical. Equally important is the other senior staff taking that counsel.

The internal outsourcing may indeed be valuable for some BUT it had better be considered well prior to making that jump.

Thanks again!

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