If you haven’t faced IT outsourcing yet, you will. IT functions are becoming commoditized services, and profit margins within the traditional layers of IT (hardware, operating system, database and applications) have already matured to the point of being commodity sales. As each layer develops competitive alternatives, price evolves as the determining factor. Vendors are continually forced to look to newer high-profit areas to sustain growth, while users are challenged by their CEOs to cut IT costs.

If you’re running a highly efficient, low-cost IT service internally, you’ll want to be prepared to prove it to your Board of Directors or CEO when the outsourcers start circling. If your business could benefit from outsourcing you’ll want to be prepared to set the terms and control the deal. In either case outsourcing is coming!

Vendors may start by romancing everyone except the IT professional. CEOs are already seduced by the siren song of a better bottom line by outsourcing. Anticipate the moves and you can avoid being in reaction mode. You can also avoid the embarrassment of not having adequate internal resources prepared to assist in any evaluations. But you’ll either have to defend the status quo or know what an advantageous deal should look like.

Be a Smaller Target

Typically the vendor begins by claiming it can provide improved services with a 20 per cent cost saving. Most businesses don’t know how much they spend on IT and are shocked by what the vendor says after its “total cost – due diligence” tour. Of course, the vendor is practiced at assigning generous costs to the resources and assets being transitioned.

Tracking these costs yourself not only prepares you for the inevitable “Why aren’t we?” questions from your executive but also sheds light on the areas that you might want to tighten up. Don’t leave the opportunity for cost reduction with the outsourcer. Running “fat” makes you a target – and you don’t want to claim you can realize the 20 per cent savings in-house, only to be asked why you haven’t done it yet.

Set a Higher Bar

Suppose you do a good job in calculating the total costs including labour and benefits, hardware and software for help desk, desktop, server and network support to arrive at an internal cost of $100 million over the next seven years. You’re also able to identify the retained portion of the services to remain inhouse at 20 per cent of the $100 million, leaving $80 million to be outsourced. If the vendor claimed 20 per cent savings then the client should have set the expectation level at no more than $64 million for the transitioned portion of the services resulting in a saving of $16 million.