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Reader ROI

• Why you need a sourcing strategy
• When it pays to keep an IT function in-house
• How to communicate your message to the executive suite

It's a scenario scary enough to induce night sweats in even the steeliest CIO. Your CEO, just back from a conference in Port Douglas, strides into your office. Yesterday, he played golf with the vice president of sales for one of the big IT services companies and now he's telling you that this company could take over most of your IT functions and cut your company's IT budget in half. Not only that, they can deliver better services levels. After all, it's what they do!

Our business isn't IT anyway, the CEO continues, waxing enthusiastic. And our biggest competitor just signed an outsourcing mega deal, too. Best of all, there's no need for a long, drawn-out RFP process. "Just call this guy up tomorrow," the boss says with a big smile, sliding a blue-and-white business card across your desk. He's doing you a favour. "It's practically a done deal," he concludes happily.

For many CIOs, this nightmare is neither a dream nor all that uncommon. But unlike most dreams, the morning after brings consequences that are all too real. Outsourcing a particular function within IT - or all of them - without considerable study can have disastrous consequences that you, not your CEO, will have to solve.

In the past year alone, 47 percent of companies have prematurely ended an outsourcing arrangement, according to research by Diamond Management and Technology Consultants. Forty-three percent of them brought the work back in-house, indicating it may not have been a good decision to farm out the function in the first place.

"Outsourcing, onshore or offshore, if not done right or done for the right reasons, can tip things the wrong way," says Chris Jones, principal of consultancy Source:Renaissance. "It can have negative effects on IT, on the business and, ultimately, your customers."

How to Get Ready for the CEO

Short of locking the executive team in a tower, there's no way to prevent them from falling under the influence of high-pressure, enthusiastic vendors. Selling is what vendors do. But you can ensure you're not backed into a corner on a decision as important as outsourcing a portion of IT's portfolio. How? By having a well-thought-out and clearly articulated IT sourcing strategy already in place when your CEO comes knocking.

"The most mature IT organizations understand the whole of their operations. They have good metrics to track costs and service levels. They know the different points in the enterprise that could affect the IT operation as a whole," says Dane Anderson, research director of IT services and sourcing for Gartner. "They have a sourcing strategy already pulled together to defend against misleading or poorly thought-through outsourcing decisions long before the big 'O' word even comes down from on high."

The point of such a plan is not to build an a priori case against outsourcing. The goal is to gather all the facts - such as how IT fits into the overall business strategy, what the real costs and service levels are internally, how they compare with the outsourcing market, as well as input from relevant business constituents - to create a fair-minded framework for making the best sourcing decision in any situation. "It's much better to proactively investigate the sourcing alternatives," says Jeffrey Kaplan, managing director of consultancy ThinkStrategies, "than to find yourself reacting to proposals from your superiors."

Doing all this takes time and effort. But with such a politically charged decision as outsourcing, such a plan goes a long way toward keeping emotion out of the debate. "I recommend that every CIO build an internal core competency in sourcing decision making. This way, when the CEO or CFO says: 'I just spoke to EDS or BearingPoint and they can do all this for me - why shouldn't we let them do it?' you can say: 'Great question! Here's why'," says Thomas Koulopoulos, executive director of Perot Systems Innovation Labs and author of Smartsourcing: Driving Innovation Through Outsourcing.

"And if the question hasn't been asked yet," Koulopoulos says, "be assured it will be."