Money Well Spent

At Henry Schein, economics weighs heavily in outsourcing decisions. "We put a ton of time into benchmarking," says CTO and senior VP Jim Harding, who spends between $US50,000 and $100,000 annually on consulting services to compare internal costs and service levels to those of major competitors and third-party providers.

Harding has done limited outsourcing as IT's internal costs and quality have mostly held their own, even in areas that might not seem core to the $US4.6 billion distributor of dental supplies. In fact, Harding chose not to outsource the help desk (which consists of a staff of six, supplemented with interns) because no outsourcer could touch his actual costs, which were 20 percent to 30 percent lower than third-party providers charged for the same service.

He did look seriously at outsourcing his data centre and went through the bidding process just to find out what the actual offers were from vendors. Their proposals were too pricey. "We weren't going to save any money doing it," says Harding. "And in the worst case, you could end up in a situation where you want an extra extension cord, and according to the contract, it'll cost an extra $40,000."

That happened when he outsourced support of the Henry Schein business unit that sells computer and networking equipment to doctors and dentists. "They wanted to take over the facilities and the people but still keep it here at our site," says Harding. "And it ended up costing us more because they nickled and dimed us to death. We cut our costs significantly by bringing it back in-house."

Money's not the only factor driving Harding's decision not to outsource. Less tangible issues are factored in. "Just because [the vendors] do it for a living doesn't mean they do it any better. Nobody cares about our people like we do," says Harding. "To give that over to IBM, we'd have to pay their higher rates and risk losing those service levels."

It's a lesson he learned the hard way. At a previous company, Harding hired an outsourcer to provide data recovery services. One day, the power went out. "Their uninterruptible power supply didn't work and our machines went down," says Harding. "And they were the so-called experts."

Why Money Isn't Everything

Incorporating unpredictable or less quantifiable - but equally expensive - costs or benefits into a case against outsourcing is critical. "Once you have the numbers, you have to address a series of risks. The transition to the outsourcer could take longer, supplier productivity may not be as good as advertised and you may see less savings," says Jones of Source Renaissance. "There could be all kinds of changes or unknowns downstream."

Getting a handle on costs and quality is a good first step. But there are other less tangible risks that should be factored into any sourcing case. At Vanguard, data security has become a huge consideration in the decision not to outsource. Dowds is considering whether to proceed with a managed service deal for that very reason. At Henry Schein, there's not much outsourcing going on anywhere because the company has been able to leverage its centralized shared service model to great financial advantage, so a sudden move to outsource major portions of IT could have a negative effect on the corporate culture or employee morale.

"There are things like impact on employees, public opinion, intellectual property protection, compliance - [things] you may not be able to apply an accurate numeric value to - that should be factored into the business case," says Hatch of Ventoro.