BCG's Outsourcing Recipe

Last time I blogged about a McKinsey article focusing on the need to properly identify and allocate IT costs if IT managers want to recover those costs and also gain support for IT services from other groups in the organization.

Another slant on hidden IT costs is provided by a February 2005 article, written by Boston Consuting Group's Tatjana Colsman, Ralf Dreischmeier, Dr. Rainer Minz, and Harold L. Sirkin. It's title: "Achieving Success in Business Process Outsourcing and Offshoring."

When evaluating an outsourcing deal, companies must factor in costs for transition, management and termination.

The authors advise not to take cost savings of any outsourcing deal at face value. Companies often make the mistake of not benchmarking value against industry best practices. To truly gauge what that value is, companies must also factor in costs for transition, management and termination. Compared to real asset costs (the focus of the McKinsey report we referenced last time), these costs are a lot more squishy. And I am wondering how you go about really measuring them like you would, say, the rental on a VPN circuit.

Nevertheless, reading both articles together provided an interesting perspective on how much value IT organizations stand to gain -- on both the buy and sell side -- if they really do their cost homework.