The Perils of Piecemeal Optimization

by Peter O'Farrell

Much discussion about IT outsourcing focuses on activity considered for external procurement as well as the benefits and challenges associated with moving an inhouse activity to a vendor. Typically, the framework for choice of projects involves a review of the corporation's important functions that, for various reasons, cannot conceivably be duplicated by a vendor. Whether the defining rationale addresses core competencies or resources or derives from a transaction cost framework, there is an implicit assumption that the remaining corpus of the business will continue to be healthy and even benefit from having fewer critical activities delegated to vendors. Once proponents choose the function to be shifted out of house, determine the nature of the requisite relationship, and select a vendor to provide the function, the decision itself rarely requires revisiting the original reasons for addressing it. Many developments in the outsourcing effort itself, of course, may require attention, but the analysis that prompted the procurement isn't likely to be revisited.