IT outsourcing: When it makes sense … and when it doesn’t

Experts urge more caution for colleges seeking outsourced IT solutions.

Cloud computing, Software as a Service (SaaS), and “managed” or “hosted” services: These are terms that today’s campus IT chiefs surely are familiar with. But do these ed-tech models make sense for higher-education institutions?

That was the question that Geoff Tritsch, vice president of Vantage Technology Consulting Group, sought to help campus IT leaders answer last month during a breakout session at the 40th annual conference of the Association for Information Communications Technology Professionals in Higher Education (ACUTA).

All of these IT delivery models are forms of outsourcing, Tritsch told a packed conference room at the Hilton Bonnet Creek in Orlando. That is, all involve the contracting out of a business function—typically one performed in-house before, such as hosting software on your own internal servers—to an outside provider.

They’re also very trendy right now.

Companies have been making ambitious claims about how much money colleges and universities can save by offloading the work of hosting and managing software on their own computers—claims that Tritsch warned campus IT leaders to be wary of.

“The hype machine on IT outsourcing has been running full blast,” he said, adding that such hype tends to run about 10 to 15 years ahead of reality.

For example, voice over IP service has been touted as a game changer since about 1998, Tritsch said—but only now is this prediction finally being realized.

“Bill Gates said people tend to overestimate the change that will happen in two years and underestimate the change that will happen in 10 years,” he said. “That applies to outsourcing, too.”

That’s not to say schools can’t reap significant benefits from outsourcing some or all of their IT services to an external provider, Tritsch said. But campus technology chiefs must do their homework and must carefully weigh several questions when determining whether outsourcing makes good business sense for their department.

“The biggest problem with outsourcing now is an inexplicable faith in service providers,” Tritsch said. “Too many [schools] give critical functions over to outsourcers without doing their due process.”

He noted that outsourcing your IT functions doesn’t “absolve you from managing.”

Outsourcing facts vs. myths

Before looking at what questions to consider when evaluating IT outsourcing, Tritsch outlined what he called several outsourcing “facts” and “myths.”

• “Everybody’s doing it”: Myth. While most institutions are outsourcing at least some of their IT functions, few are outsourcing all of them, he said.

• Outsourcing saves money: Myth. While outsourcing has the potential to save money in some cases, Tritsch said, in others it just moves the same pool of money around—from a school’s capital budget to its operating budget.

• Outsourcing is “greener”: That depends. Somebody’s still paying the electric bill, Tritsch said; that organization might be more energy efficient, or it might not.

• Outsourcing has its place: Fact. In the right situations, it can be an effective ed-tech strategy.

• An organization must decide not only whether to outsource but what specific tasks and services to outsource: Fact. IT outsourcing doesn’t have to be an all-or-nothing proposition, Tritsch emphasized.

Benefits vs. risks

The key driver of the IT outsourcing trend is the emergence of the internet, which has “changed how we think of computing,” Tritsch said—including how software is delivered to users and how quickly organizations can implement technology.

The claims from ed-tech companies in support of IT outsourcing can be compelling, he noted. These include:

• Technology is complex, changing, and converging. The lengthy school budgeting and procuring cycle leaves campus IT departments “behind the curve,” the argument goes, because technology changes faster than campus leaders can react. Ed-tech providers don’t have to jump through the same hoops, however, and they can upgrade systems faster than campus tech chiefs can.

• Outsourcing is flexible and scalable. Schools tend to overbuy and underuse software and equipment in order to deal with the “unknown,” Tritsch said. By outsourcing the provision of these services, school leaders purportedly can avoid this problem.

• People are expensive and can be hard to find—and keep.

• Outsourcing offers improved business continuity and disaster preparedness.

• Web-accessed, location-agnostic services appeal to an increasingly mobile population.

• Technology transitions are easier, and technology is kept up to date.

• Outsourcing is perceived as “greener.”

• Space, power, and capacity planning for university data centers are all reduced.

But outsourcing your IT functions also carries with it several risks, Tritsch said—including the long-term viability of the service provider; the privacy and security of information; the performance of mission-critical applications; and the potential loss of flexibility that comes with vendor lock-in.

The key question to ask, he said, is whether these risks are greater, less, or the same with outsourcing?

One conundrum for campus IT leaders is that “people will accept [application failures] from an outsourcing provider that they won’t accept from you,” Tritsch said, pointing to recent Google Gmail outages as an example. “That’s just a reality, however unfair.”

Although companies often claim that outsourcing will save schools money, that isn’t necessarily true, he said. Outsourcing can lead to “predictable, flatter costs,” and the economies of scale that a service provider can offer might result in some savings—but outsourcers “need to make a profit,” he noted.

Changes to prepare for

When technology is outsourced, numerous changes will take place, Tritsch said. But one thing should remain constant: Outsourcing doesn’t eliminate your need to ensure the timely delivery of ed-tech services.

“You must do this with the same fervor you manage the solutions on site,” he said, explaining that it’s the service provider who now must be managed.

One change to prepare for is that some degree of control will be lost. “Will you get the same response—in terms of both speed and flexibility—from a service provider that you can provide yourself?” he asked. Another change is that institutional knowledge might be lost.

Outsourcers might offer broader expertise, but in-house personnel often have a better feel for the institution itself, Tritsch said—which can be invaluable.

Key questions to consider

Here’s a list of questions to ask as you consider whether to outsource your IT systems, Tritsch said:

• What problem are you trying to solve? Why?

• What does an outsourcer bring to the table that you don’t already have in-house?

• Does outsourcing make sense in terms of stability, size, and culture?

• Can the outsourcing company provide equal or better flexibility?

• Which services make the most sense to consider for outsourcing?

• What would be the impact on staffing levels?

• Is space an issue in your organization? Would it be a factor in this decision?

• If the service provider is off-site, how far away is it located? (Close means it’s more accessible, but far away could be better for disaster contingency.)

• How much control would you lose (or perhaps gain) by outsourcing?

• Is the outsourcer stable? Likely to merge?

• What has been the experience of other organizations that have chosen the same provider? (Be sure to check references.)

• How does the outsourcer address disaster prevention and recovery?

• How will customer service be handled? Will the change improve or degrade customer service on campus?

• What are the qualifications and experience of the employees that the outsourcer will provide? How is performance assessment and monitoring handled? Recourse?

• How difficult will layoffs and reorganization be at your school?

• Will quality suffer when you become a “little fish in a big pond”?

• How is security handled?

• What changes need to be done to the campus IT infrastructure and WAN links? What about present assets and investments?

• Does your technology infrastructure lend itself easily to outside services and management? What about integration with other technology functions?

• To what extent does your outsourcing decision limit choices in the future?

• What arrangements will allow you to sleep best at night?

SLAs are ‘critical’

Service level agreements (SLAs) are “critical” to the success of any IT outsourcing project, Tritsch said. A good SLA should define what the outsourcing company will do and how, as well as acceptable response times and your recourse if these aren’t met.

SLAs must be measurable and enforceable … but don’t go overboard with them, or you’ll risk ruining the relationship, Tritsch said. The purpose is to “get all the issues on the table,” so there are no surprises when problems arise.

When drafting an SLA, consider how performance will be measured—and by whom. “You need independent metrics,” Tritsch said. “Don’t just rely on the outsourcer’s.”

Also, consider your exit strategy: Do you have a plan for resuming the delivery of services yourself if things don’t work out? And finally, are there limits on price increases at the end of the contract term? If not, you might feel trapped if the service provider decides to double its costs when the contract expires.

Where to start

If you’re going to try outsourcing, start with the areas where you’re having trouble or are the weakest, Tritsch recommended. To do this, you must understand the services you already offer, their cost, their value, and the impact that farming them out might have.

Long-term financial modeling is a must, he said. Also, keep people on your staff who are knowledgeable and experienced, so you’re not stuck if you have to return to an in-house delivery model.

In short, the answer to whether IT outsourcing makes sense will vary from school to school (and even from project to project); there is no one right answer.

Outsourcing is merely “a tool,” Tritsch concluded. “Use it where it has the most value—and don’t forget your safety goggles.”

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