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Is decision support outsourcing a mistake?

by Daniel J. Power
Editor, DSSResources.COM

Outsourcing of any organization capability, function or task should be driven by strategy not simply cost savings. Decision support outsourcing refers to using an external organization to process, manage, collect or maintain internal data and provide analyses and information related services to support decision making. Outsourcing in general has been a controversial topic for many years especially for information technology. Decision support outsourcing creates a serious dependency and significant vulnerability and hence should be approached cautiously.

In 1995, Lacity, Willcocks and Feeny argued that it was simplistic to outsource IT operations that were a "commodity" that did not differentiate a firm from competitors. They noted "Many managers donít fully understand how IT serves individual businesses and operations, the true costs and benefits of IT, and the competitiveness of their own IT departments." Lacity et al's arguments and concerns are magnified for outsourcing analytics, business intelligence and decision support.

Making a Decision Support Sourcing Decision

How should a manager approach decision support sourcing decisions? A good way to assess outsourcing a decision support capability is to answer the following questions:

1. Is the specific decision support capability of strategic importance? If you answered YES, then stop considering outsourcing.

2. Are IT and decision support requirements stable? If you answered NO, then make sure any outsourcing contract is very flexible.

3. Can the decision support capability be separated from internal information systems? If you answered NO, then consider the impact of outsourcing the broader system.

4. Can the internal information technology department provide the decision support capability at least as effectively and efficiently as an outside provider? If you answered YES, then explore if lower cost really justifies a change.

5. Can we design a contract that minimizes our risks and maximizes our control and flexibility of the decision support capability? If you answer NO, the review Question 4.

6. What in-house staff do we need to manage the outsourced capability? Outsourcing has costs that must be estimated.

7. What in-house decision support staff do we need to enable us to use outsourced capabilities? Outsourcing does not mean you don't need inhouse expertise.

8. Will outsourcing the capability limit our ability to adapt and innovate in the area of analytics, business intelligence and decision support? If you have gotten this far in this checklist and you answer YES to this question, then you probably want to reject the proposal to outsource the decision support capability.

Lacity et al. (1995) concluded "The processes that a company uses to manage IT will determine how effectively it controls the IT services it consumes and how quickly it can pursue a different solution when an existing one proves wanting." Decision support must be managed in an organization and managers must assess outsourcing options.

Not all IT Outsourcing is successful. A number of years ago, Best Buy outsourced its IT function, cf. Power (2004). According to Thibodeau (2011), "E-commerce, mobile computing, tablets and other emerging channels have become so important to Best Buy that the company is rebuilding internal IT resources it outsourced seven years ago." In his article, Thibodeau quotes Scott Heise, vice president of application maintenance and development at Best Buy, explaining "IT is becoming a focal point for Best Buy to compete in the marketplace ... A key component of that is us retaking control of IT."

Best Buy has been rebuilding decision support capabilities. In 2008, Best Buy purchased DemandTec Markdown to manage price, profit, and inventory levels for items such as seasonal merchandise and discontinued product lines. In 2010, Best Buy expanded its data warehouse agreement with Teradata. At that time, more than 40,000 people at Best Buy were using the Teradata system, processing about two million queries every day using tools like Teradata Decision Experts (TDE), a pre-built, end-to-end financial analytic solution.

There has been insufficient discussion about outsourcing decision support. Advertising agencies want to provide analytics and decision support. Credit Card providers also want to provide services to support decision making. Information Technology vendors have an interest as well.

A Scenario: A medium sized company outsourced IT services in 2010, including decision support. The costs of the outsourced IT services has increased by about 20% each year. Questions for reflection: (1) Would you bring all or some of the IT capabilities back in-house? if so why? If not, why not? (2) What actions would need to be taken to re-establish an in-house IT department? Is this feasible?

Decision support outsourcing can potentially yield benefits like allowing the outsourcing firm to focus on what it does especially well, gaining new expertise from a trusted partner, improving or upgrading decision support, and increasing operations efficiency because of increased specialization. BUT before you outsource IT and/or decision support, think about how challenging it would be to bring some or all of the capability back in-house.

References

DemandTec, "Best Buy selects DemandTec Markdown(TM)," 2008 at URL http://dssresources.com/news/2403.php

Lacity, M. C., L. P. Willcocks, and D. F. Feeny, "IT Outsourcing: Maximize Flexibility and Control," Harvard Business Review, May 1995 at URL https://hbr.org/1995/05/it-outsourcing-maximize-flexibility-and-control.

Power, D., Is it advantageous to outsource development and operation of Decision Support Systems? DSS News, Vol. 5, No. 9, April 25, 2004.

Smith, M.A., Sabyasachi M., S. Sarasimhan (1998). Journal of Management Information Systems, Vol. 15, No. 2, pp. 61-93.

Teradata, "Best Buy signs data warehouse expansion agreement with Teradata," 2010 at http://dssresources.com/news/3149.php.

Thibodeau, P. "Best Buy rebuilding IT capability it outsourced, starts hiring," Computerworld, October 11, 2011 at URL http://www.computerworld.com/article/2498657/retail-it/best-buy-rebuilding-it-capability-it-outsourced--starts-hiring.html

Last update: 2015-04-26 06:23
Author: Daniel Power

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