UK: Computer services - Why outsourcing is the "in" word. (2 of 2)

UK: Computer services - Why outsourcing is the "in" word. (2 of 2) - It is well known that many UK companies are dissatisfied with the return on their information technology investments, even though computers are cheaper, more reliable and easier to run

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Last Updated: 31 Aug 2010

It is well known that many UK companies are dissatisfied with the return on their information technology investments, even though computers are cheaper, more reliable and easier to run than they were in the past. One of the problems is that they want to do more with them. They want to lash the machines together into networks that not only span head office but, possibly, their worldwide operations too. Customers, according to Andersen, are now looking for more than a one-off systems integration project. They also want someone to run their computer systems and networks and be totally responsible for them.

There are three main reasons for this: money, people and organisational change. Using outsourcing, organisations know what their information technology costs will be for the next three or more years. Customers' existing hardware assets, the central mainframes or minicomputers, can be liquidated. Every major outsourcing company has worldwide computer centres and networks that its customers can use. It simply switches a customer's application programs to an appropriate machine in its computer centre, installs a fast telecommunications link from the centre to the customer and, in theory, users sitting at their computer terminals should not be able to tell the difference.

Customers' data processing staff can be transferred to the outsourcing company's payroll (and invariably they are). This is often a touchy matter. Clearly reducing the company's headcount is an attractive prospect for the financial controller but may have less appeal for the people concerned.

The danger, having got rid of hardware, software and people, comes at the end of the contract period. Then the choice is between renewing the contract or taking information technology responsibility back in house. EDS says that 80% of its customers renew their contracts.

Organisational changes, currently focused on decentralisation, are also prompting companies to reconsider their technology needs, according to Peter Falconer, director of facilities management at Hoskyns. Rarely, he says, are companies convinced to move to today's smaller, smarter and cheaper computers simply for the technology. The costs, not so much of buying the new machines but of training everyone how to use them, are vast. The incentive comes from the business change. The transition is lengthy and, says Falconer, many companies are now using outsourcing as a means of changing from one type of organisational structure to another and, at the same time, from one information technology strategy to another.

One of the strongest arguments for outsourcing is that it removes the sometimes weighty information technology burden from the board, allowing it to get on with, in today's parlance, its core business. Against it is the cost. Even in its old mould as facilities management, the service was perceived as a costly one. That has not changed.

(Di Palframan is a freelance journalist.)

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