To outsource, or not to outsource

A successful outsourcing arrangement should be treated like a marriage, not a one-night stand. This is what Chris Ellsay routinely tells his clients, especially when they approach his company looking for a quick fix to a problem

According to Ellsay, president of Ottawa-based IT outsourcing firm, one common mistake companies make is to assume that an outsourcing agreement begins and ends with the purchase of a particular service, and is not actually a true partnership.

This line of thinking can set the projects up for failure at the outset, he says. You have to treat the outsourcing company as if it were an extension of your business if you want the project to succeed.

“The No. 1 issue that you need to address up front is that you have to understand why you are outsourcing. How can this add value to the business?” Ellsay says.

A good outsourcing plan is one that allows your company to focus more on its core business. You should clearly state what you want. “The more dialogue that goes on up front, about what each (party) is trying to achieve, the better.”

More focus on core business is exactly what Kathryn Lagden, general manager of the Association of Internet Marketing and Sales (AIMS Canada) in Toronto, was trying to achieve when she outsourced the building and management of the organization’s new Web site.

On their old Web site, members were having trouble logging on to register for events, and the whole organization was starting to suffer.

They considered fixing the Web site they currently had, but it was cost-prohibitive. Off-the-shelf products didn’t have exactly what they were looking for. AIMS decided to outsource the ongoing project to a company called Wild Apricot.

“The Web site is fundamental to our business because we are an Internet marketing association,” she says. Several months have passed, and Lagden feels the association made the right decision to outsource. “The tool was built with associations in mind. I have 99 per cent of what I need.”

Jeff Zado, senior product manager for Microsoft Canada, says that when outsourcing software, you have to make that company part of your development team.

This is easier than it was in the past, he says, thanks to new technology. The development tools of bygone years were designed with the assumption that the team was working close together.

But the newer source code management tools allow for automation in creating reports, which makes documentation clearer for checking the code once it is returned to the company who outsourced it. This helps to foster a more disciplined environment for code development, he says. “You need to agree on the framework before the coding starts.”

Keeping the lines of communications open was one key reason for the success AIMS had with its project. This is an important step in any outsourcing arrangement, but it’s one many people forget, Ellsay says.

He stressed the importance of scheduling recurring discussions such as quarterly business reviews, to find out what has changed with the business.

“The key purpose should be making your business run better, and not to save large amounts of money,” he says.

Paul Swengler, CEO of Lutz, Fla.-based Software Experts, agrees with Ellsay that price should never make your decision for you.

“Some people will go with the lowest quotes because they don’t have a budget, and some will go to the highest, with the assumption of quality. But in either case, you are making a decision based on a factor that may not be relevant,” Swengler says.

When to walk away
But there are some things that should always remain in-house.

“Never outsource your special sauce,” Ellsay says. In other words, always keep the core of your business in-house, and only outsource the things that someone else can do better than you can.

Swengler has a different perspective.

“Bad ideas should not ever be outsourced. The problem starts when people have a ‘great idea’ for a software application, and they find someone who will ‘build it cheap’ for them,” he says.

“Well, the problem is not only the idea or the software – the problem is the budget. If you don’t have the money to do it right, that means you also don’t have any money to market or promote it.”

Why projects fail
It’s a well-known fact that many outsourced projects are unsuccessful.

According to Ellsay, trouble can start when you are not realistic and don’t manage your expectations. “Sometimes that urge to please overrides reality. And then no one wins.”

According to Microsoft’s Zado, a lot of companies have had mixed experiences when it comes to outsourcing software development.

“Typically in most organizations, a lot of the communication and collaboration that goes on is by way of hallway conversations,” he says.

One of the biggest pitfalls with outsourcing this type of job is that this close collaboration disappears. The communication, the collaboration and even the requirements have to all be provided up front – which is contrary to how many developers like to work.

“Are the plans solid enough that you could package that up into a defined unit, and pass that on to another body to implement, with the trust and confidence that what comes back will be what you expected?”

According to Swengler, it’s unusual for a project to be 100 per cent successful the first time people try to outsource. It’s something that takes experience to do well. He also says people tend to choose a company that is the wrong fit for their needs. “It could be a great company, but that doesn’t mean it’s right for you.”

Putting the shoe on the other foot
People in Canada are obviously familiar with outsourcing their projects, but what about the other way around? The fact is, most people don’t think of Canada as a destination for outsourcing from other places, such as our closest trading partner, the U.S. That’s just the problem, says Wayne Gudbranson, president and CEO of Ottawa-based market research firm Branham Group Inc.

Branham recently surveyed Fortune 1000 companies and found that they spent about $694 billion on outsourcing (in all forms) in 2005.

“But Canada is only getting 2.2 per cent of this, which is roughly $15 billion. And the sad thing about that is that we are the closest neighbour to the States, and we do so much trade with those guys,” he says. (See sidebar)

Gudbranson calls it a “paltry amount for a country like Canada, with such a strong IT sector. We really should be at 10 per cent.”

India currently holds the bulk of offshore projects. The skilled workforce has the ability to scale dramatically, and even university courses are targeted toward this offshoring trend, he says.

“Having says that, in the grand scheme of things, we still should be getting our fair share. There is a bigger issue here: no one has really, in a proactive way, branded Canada as a nation that can become one of those (outsourcing) nodes,” Gudbranson says.

“The biggest issue is that no one really makes the association between outsourcing and Canada, which is very unfortunate. We don’t hear about it; we don’t talk about it.”

It’s the responsibility of the industries, the public sector and the universities to step forward and put us on the map if we want to benefit from the huge upswing in outsourcing that is anticipated for the next few years, he says.

“In Canada we tend to focus too much on the role of government. They do have an important role, but by the same token, I think it’s time the industries stepped up to the plate.”

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Jim Love, Chief Content Officer, IT World Canada

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