Outsourcing – strategic thinking or cost reduction?

How many years have we been talking about partnership in outsourcing? Who can remember when it was common to bring in the suppliers, harass them over the price of a contract and then to give the deal to the lowest bidder?

Of course that still happens. Sometimes we dress it up in the guise of third-party advisors, so it’s not the client who is harassing the supplier directly, it’s the advisory firm, but things have matured. It’s clear that in most IT deals today there is more of a focus on best practice and a better appreciation of accountability.

The disaster that is still playing out in the Gulf of Mexico is a recent example of that. BP can easily claim that it was not their employees who caused the rig explosion that is now causing an ecological nightmare for the southern US. They can do that, but why bother? They can’t shift the blame to their contractors because the public doesn’t want to know who contracted whom to do what. They just blame BP. After all BP contracted those people to do a job, so if mistakes were made then that’s also the fault of the contract owner.

But times are hard. We are living through an age of austerity that means all the years of effort in shifting IT outsourcing from being about cost reduction to part of an entire corporate strategy are being forgotten. In fact, as the recession took hold, most outsourcing programmes were put on ice because of the upfront costs involved in change management.

So although a business school will teach you that outsourcing your IT is all about thinking strategically and getting a technology partner onboard for the long term, it seems that most decision-makers are still emphasising the cost reduction that can be achieved.

The British government is a very good case study. For the past couple of years, the government has been exploring ways to make technology work more effectively. The government designed a G-Cloud and an App store system so it would be easy to develop tools in one part of the government that could then be shared to another. It wouldn’t matter which IT supplier is working for which government department as they would all need to conform to a set of rules about how the applications should work, in much the same way as Apple vets applications before they can feature for sale in the Apple app store.

Yet this week, the leaders of the British government have called in the chief executives of the top twenty service suppliers – including many IT firms. Their aim was stated publicly before the executives were even ominously lined up against a government wall. The government is asking them to immediately reduce their rates, and then to review the existing contract.

Lawyers involved in outsourcing deals might ask how a customer – even one as large as a national government – can just call in their suppliers and attempt to tear up multi-year contracts negotiated over many months. And the rest of us who advise on best practice in industry can only tear out our hair as one of the biggest IT customers in Europe behaves in a way that does nobody any favours for the long term.

If the British (or any) government needs to make savings fast then why not call these twenty executives into a room and ask what else they can do that would help? I’m sure that increased partnership and commissioning more work with these companies would save more taxpayer funds than this hardball approach. But blood on the tracks plays out well with the media so we can expect more trouble ahead.