The most frequently outsourced commodity in IT is infrastructure. While cost reduction is the primary objective, success drivers within outsourcing initiatives are complex.  Evaluate potential infrastructure outsourcing opportunities using clear cost saving criteria to achieve success.

Why Outsource Infrastructure?

Info-Tech finds that while cost reduction continues to be an important consideration for IT outsourcing in most companies, other factors are becoming increasingly important.  Reasons that trigger IT leaders to consider outsourcing include:

• To increase service availability without increasing IT headcount.
• To gain access to scarce skills/resources.
• To convert fixed IT costs into variable costs linked to actual usage.

Outsourcing Candidate Evaluation Criteria

Building a business case to outsource IT infrastructure based on lowered costs for technology assumes that economies of scale will provide benefits. But technology costs comprise only a small portion of the total value in an outsourcing engagement and will provide limited cost reductions at best, especially for outsourcing engagements valued under $5 million.

Before reaching a decision to pursue infrastructure outsourcing further, evaluate the business objectives and criteria for success against the current situation. 

Recommendations

1. Have clear cost reduction objectives. Avoid outsourcing initiatives that do not deliver expected savings of at least 10% in terms of headcount and technology costs. Target savings of 15-20%.
2. Compare all costs for the engagement. Detail all in-house and anticipated outsourced costs through five years. Seek out any details that will erode expected savings to reduce the error threshold within the outsourcing engagement. Continually track savings against expected in-house costs throughout the engagement.  
3. Focus on headcount. Savings in technology costs comprise only a small portion of the total value in any outsourcing engagement. The economies of scale are achieved when the outsourcers aggregate best practices and automate operating procedures. Aggressively seek savings from headcount reduction in all outsourcing opportunities.

Bottom Line

Cost reduction continues to be an important consideration for outsourcing infrastructure in most companies. Technology will provide limited savings, especially with small engagements valued under $5 million. Before reaching a decision to pursue infrastructure outsourcing further, evaluate the business objectives and criteria for success against the current situation.