Spending Less, Delivering More

Hackett: World-class IT organizations are more effective at outsourcing than peers


Better Use of Outsourcing

According to Hackett, one key to the lower overall IT spending of world-class companies is more effective use of outsourcing. World-class companies commit 23 percent more annually per end-user to outsourcing than their median peers ($919/end-user for world-class versus $748 for median).

In addition to this large spending gap, there are significant differences in the way world-class and median companies spend their outsourcing dollars. World-class companies spend 60 percent more than their median peers outsourcing technology infrastructure activities, in an effort to improve efficiency and cut overall costs. World-class companies spend 34 percent less then median companies outsourcing application development and maintenance, areas that are more strategic and potentially much riskier to outsource, particularly in light of reduced standards compliance and increased environmental complexity generally seen at median companies.

"This is an excellent example of one of the most consistent trends that emerges from Hackett's research, in IT and virtually every other functional area. Simply put, outsourcing saves money if done right. But it can increase costs and business risk dramatically if it's done wrong," said Hackett Senior Fellow Allan Frank. "If companies begin by streamlining processes and implementing best practices, then outsourcing can be a strong follow-on strategy. But if outsourcing is driven by an attempt to fix problems that are not under control, it can be a big mistake."

Frank added that Hackett has seen median companies that have boxed themselves into a corner with their IT that forces them to make classic bad choices in outsourcing. "They don't focus on standardization internally, so it becomes very difficult to manage application development projects," he commented. "In a desperate attempt to keep their applications up and running, they outsource. Unfortunately, it's a strategy that's likely to fail."

World-class companies also source and manage their IT vendors more strategically in other areas, utilizing 5 percent fewer hardware vendors, 29 percent less contractor services and 65 percent fewer software suppliers than their average peers.

Standardization, Simplification and Process Discipline

World-class IT organizations focus on standardization and simplification across the board to achieve their superior results, according to Hackett's research. They rely on 50 percent fewer enterprise resource planning (ERP) systems than median companies (2 versus 1) and 29 percent fewer applications per 1,000 end-users.

They are also more likely to use data standards to a high degree across all systems and significantly more likely to have implemented a high level of standards enforcement across hardware, networking and software applications.

Hackett also found that world-class companies are more disciplined overall in their management of IT projects. The firm said half of all world-class companies manage IT projects through a formal, permanent Program Management Office, while only 25 percent of median companies make the same claim.

World-class companies also adhere to a common methodology 90 percent of the time, compared to only 56 percent for median companies.

"There's no question that in today's business world the combination of changing technologies, increasing corporate complexity and a constantly shifting business landscape have made even taking care of the IT basics a major challenge," said Hayes. "One key to achieving operational excellence is to take a much more rigorous approach in key foundation areas, like standards definition and enforcement and basic project and IT service delivery. This simplifies the world in which world-class companies operate and prevents many common IT problems from cropping up in the first place."

The Hackett Group conducts best practices research and process benchmarking. Hackett offers analysis backed by research at more than 2,400 client organizations, including 93 percent of the Dow Jones Industrials.

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