By Sara Cullen, Leslie Willcocks
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Extra info for Intelligent IT Outsourcing: Eight Building Blocks to Success (Computer Weekly Professional)
If the competence is a key contributor to competitive advantage we recommend that the market be used on a ‘buy-in’ or ‘insource’ basis – that is placing those external resources under active inhouse management control. Does the organization have at least a tenable position in competitive advantage activities where the market is not mature? The organization will want to retain these services inhouse and not let its competitors have access via suppliers. It may also choose to buy in external competencies to work under in-house management control, and facilitate transfer of learning in order to build the competence further.
The supplier’s representative claimed that his firm could maintain service levels and achieve 20% savings on a five-year contract, while a ten-year contract could achieve 30% cost savings. The claim was based on production and labour economies of scale, together with superior management practices inherent in a world class IT supplier. The latter arose, it was claimed, from being higher up the IT learning and experience curve than the client, superior IT management expertise not affordable by the client, and the application of best practice accumulated over many contracts.
And this is before getting to profit margin. Finally, also remember that if the supplier is struggling to make its profit margin, it may well decide to cut its own costs, which may well result in deteriorating service to the client (see below). ’ In fact, the record on these sorts of deals has been very mixed. Lacity and Willcocks (2001) looked at 29 such deals and found 38% meeting expectations, 35% unsuccessful and 27% getting mixed results. Risky business indeed. The early 1990s’ deals like this tended to be struck to reduce costs, often for financial reasons including restructuring the balance sheet of organizations in financial trouble.
Intelligent IT Outsourcing: Eight Building Blocks to Success (Computer Weekly Professional) by Sara Cullen, Leslie Willcocks