Co-sourcing rather than outsourcing will become the next big trend in IT business management, because the co-sourcing business model provides a better return on investment than outsourcing. This is the view of Richard Firth, chairman of software development house MIP Holdings.
"The IT arena is strewn with the wrecks of outsourced IT projects that didn`t make deadline or ended costing more than they were worth," says Firth. "One of the main problems with outsourcing is the fact that many service providers are overcharging for their services. This will result in a backlash in the long term, because prices cannot continue to rise indefinitely without any cost benefit for client companies." Firth says MIP prefers the co-sourcing model where client and service provider form a third company in which each holds equal shares. "This solves many of the problems associated with running an internal IT department when IT is not your core business, while guaranteeing you a return on your investment."
Co-sourcing is a particularly effective way of keeping good IT staff in the current climate of inflated remuneration packages. "It simply isn`t realistic to pay every experienced programmer in your employ between R20 000 and R40 000 a month, but at the same time, IT staff need to be looked after. The solution is to offer various incentives which are administered by a separate company, removing the risk of alienating staff involved in your core business activities," Firth suggests.
"The co-sourcing model we support works particularly well when the client already has an IT department, because it enables the client company to bring the technology partner`s specialised project management skills to bear on existing IT staff."
When the co-sourcing company is established, the client`s existing IT staff are moved into it, and the technology partner restructures the department, putting its own procedures and practices in place. These include technical, testing and change management procedures. "In other words the knowledge of the consulting technology partner is applied to the operations of the new co-sourcing company." This co-sourcing model requires senior management from both sides to be involved in the decision-making processes with shared responsibility, but clear ownership of projects so that projects don`t get bogged down by red tape.
"The best technology partner in a co-sourcing arrangement would be a company that already operates independently and that has been able to make it on its own for some time," says Firth. "The onus is on the client company to undertake due diligence and it may also be to the benefit of the technology partner to do the same, as the success of any partnership relies on both parties being ethically and financially sound."
Share
Editorial contacts