Thursday, September 30, 2010

Outsourcing and IT Spending

From time to time vendors come to me with ideas on how to outsource our operations using their products. Somehow it always seems to me like their solution to save money is to spend more money on their product. Needless to say I'm not a big fan.

Many years ago I was part of a decision to outsource some of our custodial work. At the time we were promised many things, among them significant savings over what we were spending on the employees to do the same work. After the switch I saw our savings all but evaporate as we "fine tuned" everything with the vendor. At the end of the day I felt like the savings were immaterial, and we had traded quality employees invested in the church for high turnover people who worked for another company and made less money. Lesson learned.

Today I read an article in Information Week entitled "Outsourcing Doesn't Cut Total Spending" about this very thing. The first line under the heading Practical Insight reads: "Companies that outsource tend to increase their total IT spending, not lower it." Another rather fascinating quote was this: "New outsourcers see immediate IT spending increases, while firms stopping [IT outsourcing] see immediate decreases."

The point being made here is that you do not outsource to save money, you outsource to increase capacity. Perhaps you can't find the in house programmers you need, ok, hire a firm to help you accomplish those projects. But don't do it expecting to save money. The article I read links to the original research available (for a fee) here.

Outsourcing has its place, but be very careful anytime you try to justify it by cost savings. In reality, you are bringing another organization that has to pay somewhere in the neighborhood of the same salaries you do, but you add to that their overhead and profit...

In the area of ChMS, moving to a modern platform will almost certainly increase your spending. This is true if you go with FellowshipOne, it's true if you go with Arena. That doesn't mean you shouldn't do it, but it's something to be aware of. Sales guys love to say with a SAAS product you won't need IT and you won't need a server room, but if you are a large church chances are you already have those things. Don't think that a move like this is going to save money. It's not, but it's going to dramatically increase your capability. The money we have spent on Arena has been worth every penny. We can do far more than we ever could before. That's why we chose a platform not based on cost, but on capability.



Rob Overton said...

My name is Rob Overton... and I'm a consultant. There I have said it! I agree with you that spending will rise with outsourcing. I think the key is using it strategically to accomplish what you can't do alone. Done correctly, as you mentioned in your Arena experience, there are exponential gains in productivity based on the cost. Done poorly, there is a rise in cost with no corresponding rise in productivity. Unfortunately it is often done poorly!

Ben Alexander said...

The same goes for infrastructure. In the mad rush to get "in the cloud" because it's a big great buzzword that makes you sound savvy, it's easy to gloss over the list of marketing adjectives, one such being cost-saving. It's not. The capabilities and easy scalability you get are amazing, but expect to spend more. Maybe a lot more.