Centralization and Outsourcing

Before we can offer alternatives to service oriented process management solutions we need to clarify what the expected benefits for a large organizations are. Process management theory follows the same lines of thought as centralization. Because current taxation concepts favor capital gains over dispersing profits to owners, a common corporate strategy is to grow by acquisition to raise share prices, dominate the market and benefit from economies of scale. To gain those benefits companies needed to centralize and standardize certain operations. Centralized organizations were however found to be too bureaucratic and distant from the customer to optimize processes for the hoped-for benefits.

A few aspects make up the rationale behind these organization choices:
• Control – Ensuring corporate compliance
• Reuse – Learning from previous experience
• Flexibility – Enabling local customer focus
• Direct cost – Using economies of scale
• Process – Enabling unit cooperation
• Transparency – Consolidated financials
• Personnel – Qualification requirements

The arguments for a centralized IT include the cost of operation, the need for consolidated records and the reuse of processes. When centralized IT failed to optimize processes because of bureaucracy it was outsourced. It is fairly easy to understand the business case for centralization and outsourcing, but not that it broadly ignores the human aspects. Outsourcing admittedly makes sense in either highly specialized areas with varying throughput that require substantial idle standby resources or in areas of lesser strategic importance without customer contact. The main question is how high the flexibility to service customers with unique processes should be valued. The next question is whether IT is even able to support those unique processes. Outsourcing IT does not help the organization to improve its processes but it clearly turns IT into a commodity. When application software becomes a commodity, the people using it turn into a commodity as well as their creativity and skill is automated away.

outsourcing-table.jpg

Centralized IT by outsourcing perfectly combines all disadvantages of all options in exchange for a few quarters of virtual cost savings.

ISIS Papyrus Website

I am the founder and Chief Technology Officer of ISIS Papyrus Software, a medium size software company specializing in communications and process management. I wrote several books and hold a number of patents. My quest is to bring common sense to IT, mostly by focusing in human quality issues rather than cost saving, outsourcing and automation. I am also Chief Architect at VIPorbit software which provides mobile relationship management.

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Posted in IT Concepts
One comment on “Centralization and Outsourcing
  1. […] I just held a presentation at our ISIS Papyrus OpenHouse in Vienna and I presented the comparison table of central, decentral and outsourcing parameters. Obviously that caused objections from the visitors that are in the outsourcing business. […]

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Max J. Pucher
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by Max J. Pucher. All rights reserved.
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